How China Is Reshaping The Glob - Rhys Jenkins
How China Is Reshaping The Glob - Rhys Jenkins
How China Is Reshaping The Glob - Rhys Jenkins
Rhys Jenkins
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To my grandchildren,
Tom, Mat, Kit, and Leo
who will experience the consequences of China’s
re-emergence as a global economic power
Preface and Acknowledgements
1
ESRC grant numbers RES-165-25-005; RES-238-25-0006; and ES/1035125/1.
Preface and Acknowledgements
vii
Contents
List of Figures xi
List of Tables xii
List of Boxes xiii
List of Acronyms xiv
x
List of Figures
2.1 China’s share of world manufacturing value added (MVA) and world
manufactured exports, 1980–2019 (%) 35
2.2 Share of China’s manufactured exports by technology level,
1995–2019 46
3.1 Index of commodity prices in constant 2010 US$ (2010=100) 59
4.1 Chinese stock and annual flow of outward FDI and turnover of
contracted projects fulfilled, 1982–2019 (US$ billion) 76
4.2 Geographical distribution of value of completed projects, 1998–2000
and 2016–18 79
5.1 China’s foreign assets, 2004–20 (US$ billion) 98
6.1 China’s trade with SSA, 1995–2019 (US$ billion) 119
6.2 Shares of different products in imports from SSA, 2017–19 120
6.3 Chinese outward foreign direct investment (OFDI) stocks and flows in
SSA, 2003–19 (US$ million) 122
6.4 Chinese contracts in SSA, 2003–19 (US$ million) 125
6.5 Sectoral distribution of the value of Chinese project contracts in SSA,
2005–20 126
6.6 Chinese official financial flows to SSA, 2000–19 (US$ million) 128
7.1 Share of Chinese imports in apparent consumption of manufactured
goods in selected countries, 2000–17 168
9.1 China’s trade with Latin America, 1995–2019 (US$ billion) 237
9.2 Shares of different products in imports from Latin America, 2017–19 238
9.3 Chinese OFDI in Latin America, 2003–19 (US$ million) 241
9.4 Chinese Contracts in Latin America, 2005–19 (US$ million) 244
9.5 Sectoral distribution of the value of Chinese project contracts in LAC,
2005–20 245
9.6 Chinese loans and debt in Latin America, 2005–19 (US$ million) 247
10.1 China’s share in apparent consumption of manufactures in selected
Latin American countries, 2000–18 280
11.1 Coincidence of voting between Latin America, China, and the United
States, 2000–15 321
List of Tables
xv
List of Acronyms
xvi
Introduction
China’s Re-emergence as a Global Economic Power
The re-emergence of China as a major economic power has been a central fea-
ture of globalization over the past four decades. It constitutes a significant
shift in the world economy’s centre of gravity to East Asia. In terms of gross
domestic product, China is now the world’s second-largest economy after the
USA, which it is predicted to overtake by 2028 (Elliott, 2020). It is the world’s
leading exporter, and a significant destination for, and increasingly a source
of, foreign direct investment (FDI). It has become a major centre of global
industrial accumulation, accounting for almost a quarter of worldwide man-
ufacturing output. It is the most important consumer of many minerals and
industrial raw materials, and is an increasingly significant user of energy and
contributor to carbon emissions. It has the world’s largest foreign exchange
reserves and plays a growing role in international financial markets. All this
has profound effects on countries around the world.
The economic rise of China can be looked at through two lenses. The first,
looking from the outside in, emphasizes changes in the global capitalist econ-
omy that have led to the geographical reconfiguration of the world economy.
The second approach, looking from the inside out, emphasizes the internal
changes in China which have led to its economic transformation since the
introduction of economic reforms at the end of the 1970s (Hung, 2008).
The ‘outside-in’ approach sees China’s economic growth as primarily ex-
ternally driven, reflecting a new phase of globalization. In this view, capitalist
accumulation faced increasing barriers in the developed world in the 1970s
as a result of falling profitability, rising wages, and an increasingly mobi-
lized working class (Hart-Landsberg and Burkett, 2007; Harvey, 2005). This
led to the abandonment of the Keynesian policies of the post-war consensus
and the adoption of neo-liberalism, particularly under Reagan in the USA
and Thatcher in the UK. One of the strategies used by capital to restore prof-
itability was to move labour-intensive production offshore in order to reduce
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0001
How China is Reshaping the Global Economy
production costs. This had started to happen in the 1960s, but it accelerated
in the 1980s.
In East Asia the ‘flying geese’ pattern in which certain Japanese industries
relocated to the newly industrializing countries, South Korea, Taiwan, Hong
Kong, and Singapore, had, by the 1980s, developed to a point where those
industries were now looking to relocate once more in the face of rising wages.
China’s economic reforms came at an opportune moment, and companies
relocated initially to the special economic zones that were created after 1978,
and then to other parts of the country.
In contrast, the ‘inside-out’ approach takes as its starting point the
changes that occurred in China after the death of Mao Zedong in 1976.
The reforms to economic policy started by Deng Xiaoping in 1978/9 un-
leashed a dynamic process of growth and increased competitiveness in China
as it moved from a centrally planned to a market economy (see Chapter 1).
High levels of investment and a rapid increase in exports led to China’s
rising share of world output and trade. Rapid growth in China made it
an attractive destination for foreign investors. Its eventual accession to the
World Trade Organization in 2001 gave a further boost to export growth,
which contributed to the accumulation of foreign exchange reserves. As Chi-
nese firms accumulated technological capabilities, they began to invest and
carry out construction projects abroad. China also became a more impor-
tant player in global financial markets as a result of lending by Chinese
banks, particularly the policy banks, and investment by its sovereign wealth
funds.
Both of these lenses provide important insights into the growing global
significance of China. The post-1980 phase of globalization set the con-
text within which the Chinese economy was able to grow so rapidly. A
focus on shifts in global patterns of accumulation and the organization
of global production networks is a reminder that the Chinese economy
is part of a larger whole. This underlines the fact that China’s economic
growth involves a range of Chinese and international actors, and has de-
pended crucially on access to foreign markets and foreign inputs, capital, and
technology.
Without radical changes within China, however, it is unlikely that these
changes in the global economy would have been accompanied by such spec-
tacular economic growth. Internal changes also determine the characteristics
of China’s ‘socialist market economy’, which have implications both domes-
tically and internationally. Globalization set the context within which China
was able to grow, but the drivers of economic growth were internal to China.
It is, therefore, imperative to analyse at some length the key changes and
stages of economic reform and development (see Chapter 1).
2
Introduction
Both Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC)
have seen the influence of China increase significantly since the turn of the
century. China is now SSA’s most important trading partner, accounting for
almost a fifth of the region’s total trade. Chinese construction companies
are building roads, railways, dams, and stadiums, and other public buildings
across the region. China has also become an increasingly important source of
FDI, loans, and official development assistance (ODA) to SSA. The Forum on
China-Africa Cooperation, at which major announcements are made con-
cerning China’s plans for increased trade with and finance to Africa, meets
every three years.
China is LAC’s second-largest trading partner after the USA, and in several
countries, including Brazil, Chile, and Peru, it has overtaken the USA. China
has lent more than $140 billion to countries in the region since 2007 and
has made significant investments in oil and mining. It is also involved in
major infrastructure projects in the region, building roads, railways, dams
and power stations. In 2015 it formalized its relations with the region with
the establishment of the Forum of China and Community of Latin American
and Caribbean States.
China’s growing involvement in SSA has been a source of intense debate
(Mhandara et al., 2013; Alden, 2019). Critics of China’s relations with the re-
gion have portrayed it as a new colonial power extracting natural resources
with little regard for the local population or the environment while sup-
porting authoritarian regimes and intensifying corruption. As Lamido Sanusi
(2013), former governor of the Nigerian Central Bank, wrote in the Financial
Times:
China takes our primary goods and sells us manufactured ones. This was also
the essence of colonialism. The British went to Africa and India to secure raw
materials and markets. Africa is now willingly opening itself up to a new form of
imperialism.
3
How China is Reshaping the Global Economy
China’s rush for resources has spawned much-needed trade and investment and
created a large market for African exports—a huge benefit for a continent seeking
rapid economic growth.
4
Introduction
Although this debate is highly polarized, both sides are state centric in
their focus on the actions of the Chinese state.1 They see China as a mono-
lithic actor which pursues its interests globally. These interests are seen as
either benign, as portrayed in Chinese discourse on ‘peaceful development’
and the ‘harmonious world’, or as a challenge to the existing world order and
an effort to expand China’s global power, as seen by those who emphasize the
‘China Threat’. Both sides also focus on the direct bilateral relations between
China and SSA or LAC countries, neglecting the indirect impacts of China’s
increased significance in the global economy. There is also a tendency in
much of the debate on China’s impact to focus exclusively on Chinese in-
terests and actions, and to see SSA and LAC as simply the beneficiaries or
victims of China’s international expansion, ignoring the role of local actors
within the two regions.
Inevitably, given the politicized nature of the media coverage of China’s
impacts on SSA and LAC, there is a tendency to present things in polarized
terms, emphasizing either the negative side or win-win scenarios. There is
also often a tendency on both sides of the debate to exaggerate the extent
of China’s influence in the two regions. The challenge in analysing China’s
growing significance for SSA and LAC is to provide an accurate picture of the
extent of its influence and to develop a critical account of its impact while
avoiding the ‘China-bashing’ that often characterizes media reports.
This book tries to achieve this by avoiding a state-centric approach to
China’s relations with SSA and LAC. It rejects the monolithic view of China
as a unitary actor pursuing a clearly defined coherent strategy in its ap-
proach to the two regions. Although the Chinese government has issued two
policy papers on its relations with each region these are very broad state-
ments rather than coherent plans which the state implements (PRC, 2006,
2008, 2015, 2016). Chinese involvement is driven by the interests of a
number of actors including different ministries, provincial and municipal
governments, state-owned enterprises (SOEs), policy and commercial banks,
and private companies.
In analysing the significance of China for SSA and LAC, this study recog-
nizes that China’s growth has both direct impacts as a result of the countries’
bilateral relations, and indirect ones arising from China’s effects on global
markets and prices. This implies that even those countries whose bilateral re-
lations with China are limited can, nevertheless, be affected either positively
1
As Alison Ayers (2013) notes in her analysis of the ‘new scramble for Africa’, ‘[t]he privileging
of nation-states as the fundamental units of analysis is characteristic not only of realist and liberal
perspectives in IR/IPE [international relations/international political economy] but also various
critical perspectives that have sought to understand the rise of the BRICs [Brazil, Russia, India,
China and South Africa], especially China’ (p. 236).
5
How China is Reshaping the Global Economy
This book sets out to answer a number of questions regarding the growing
involvement of China in SSA and LAC. First, is the hype regarding China’s
2
A similar point could be made in relation to China’s environmental impact on other coun-
tries, which can arise both directly from, for example, the polluting activities of Chinese firms
in a host country, but also indirectly as a result of the contribution of Chinese greenhouse gas
(GHG) emissions to global warming.
3
On the importance of recognizing the agency of local actors, see Mohan and Lampert (2013)
and Corkin, 2013, Chapter 2) on SSA, and Levy (2015) on Latin America.
4
See Devlin et al. (2006) and Lederman et al. (2009) on Latin America, and Ajakaiye (2006)
and Knorringa (2009) on SSA.
6
Introduction
Source: Own elaboration based on Kaplinsky and Messner (2008, Figure 6).
role really justified? How much impact has China’s re-emergence as a global
economic power had on the two regions? Next, what are the main chan-
nels through which China is affecting SSA and LAC? What is the relative
significance of trade, FDI, engineering and construction projects, loans, and
ODA within the relationships? Then, what are the key drivers behind China’s
growing economic relations with SSA and LAC? Are the growing relations
a result of the strategic diplomatic or strategic economic interests of the
Chinese state or of the commercial motives of Chinese companies, and how
are these linked? Finally, the book considers the economic, social, political,
and environmental implications for SSA and LAC of China’s growing sig-
nificance. It discusses how these impacts vary both between countries and
between different groups within countries.
7
How China is Reshaping the Global Economy
The next chapter sets the scene by examining the transformation of the
Chinese economy since the start of the reforms in the late 1970s that led to
China’s integration into the global economy. It is not a comprehensive ac-
count of China’s economic development, but rather it concentrates on those
features that are essential to understanding the impacts that are discussed
later in the book. These include the growth of trade and FDI, the develop-
ment of the financial system, the changing nature of SOEs and the growth
of the private sector, the increases in productivity and wages, and the effects
of growth on natural resources and the environment.
The remainder of Part I consists of four chapters which discuss the most
important characteristics of China’s global economic integration. China is
best known as a manufacturing powerhouse, and Chapter 2 analyses the
way in which it became a global centre for industrial production, paying
particular attention to the factors that underlie its global competitiveness.
It describes some of the key characteristics of its manufacturing sector,
including its integration into regional and global production networks,
the role played by inward investment, and the increasing technological
sophistication of its production.
The growth of industrial production and rising incomes in China led to a
rapid increase in demand for natural resources and industrial raw materials,
which was increasingly supplied by imports. China went from a marginal
player in global commodity markets to a key consumer with a significant
impact on their prices and organization. Chapter 3 documents its role in dif-
ferent markets and its contribution to the commodity boom between 2002
and 2012. It discusses the strategies used to ensure a secure supply of key com-
modities, and the specific characteristics of the Chinese market that make it
different from the developed-country markets to which SSA and LAC have
traditionally exported.
Not only is China a significant destination for FDI, but it has also emerged
as a source of outward FDI, and of non-equity forms of international expan-
sion, such as engineering and construction contracts. Chapter 4 documents
this growth and analyses state and firm actors’ motives for investing abroad.
A key debate, the extent to which the internationalization of Chinese firms
is primarily state or market driven, is discussed.
The last chapter of Part I considers China’s growing role in international
finance. There is some confusion in the literature on China over the dis-
tinction between Chinese ‘aid’ and other forms of official finances provided
by Chinese banks. This has led to exaggerated accounts of the significance
of China’s financial contribution to the Global South. The chapter clarifies
some of these issues.
Part II of the book analyses China’s impact on SSA. Chapter 6 sets the
scene, documenting the growth of bilateral relations between China and
8
Introduction
9
How China is Reshaping the Global Economy
that specific local situations play an important part in determining the costs
and benefits. The final chapter looks at recent developments which are likely
to affect China’s relations with SSA and LAC in the future. These include the
changes in globalization including the increasing trade conflict between the
USA and China, the impacts of the COVID-19 pandemic, and the shift to
a slower rate of growth in China with greater emphasis on household con-
sumption and the quality of growth. It also considers the likely effects of the
Belt and Road Initiative (BRI) which has been closely associated with Presi-
dent Xi Jinping. Finally, it considers the prospects for resolving some of the
problems which have characterized China’s relations with SSA and LAC in
recent years.
Several previous monographs and edited collections on China’s impact
on SSA and on LAC have addressed some or all of these questions. Although
there are many parallels between the two regions, no previous study has
brought the two cases together in a systematic way, as here. By highlighting
both the similarities and the differences between the two regions, this book
brings out the importance of specific local contexts and agency in explaining
the ways in which changing global patterns play out.
10
Part I
China and the Global Economy
1
The growth of the Chinese economy since the late 1970s has been spectacu-
lar. Gross domestic product (GDP) increased at an average of over 10 per cent
per annum until 2011, when the growth rate began to slow down, although
still achieving significant increases. At market exchange rates, China’s total
GDP overtook that of Germany, in 2007, and of Japan, in 2009, and it is now
the second-largest economy in the world. Various sources predict that it will
overtake the USA in terms of total GDP in the late 2020s or early 2030s. In
purchasing power parity terms, the Chinese economy is already larger than
that of the USA.1
Gross national income per capita in China increased twenty-five times in
the four decades between 1979 and 2019, taking it from a low- to an upper-
middle-income country in terms of the World Bank’s classification. This has
led to a massive reduction in poverty. The proportion of the population living
below the international poverty line fell from 88 per cent in 1981 to 0.5 per
cent in 2016, and the absolute number of people living in poverty has been
reduced by over 850 million according to the World Bank.2
Economic growth has been driven by high levels of investment and rapid
export growth, which have led to significant structural change and pro-
ductivity increases. Investment levels were high and increasing over the
period, reaching over 40 per cent of GDP in the mid-2000s (Naughton, 2007,
p. 144). Exports grew at almost 17 per cent per annum between 1980 and
2010 (UNCTADStat). The share of industry in total output increased, par-
ticularly after 1990, to around 45 per cent of GDP (Naughton, 2007, Figure
6.4). Estimates put total factor productivity growth in China in the period at
around 3 per cent a year (Liu et al., 2014, pp. 231–3).3
1
Purchasing power parity takes into account differences in countries’ price levels in order to
compare GDP.
2
https://www.worldbank.org/en/country/china/overview (accessed 12 October 2020).
3
‘Total factor productivity growth’ refers to that part of the increase in output that is not
explained by increases in inputs such as capital and labour.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0002
How China is Reshaping the Global Economy
4
The pricing system created incentives for rent seeking and corruption, with SOEs sometimes
able to buy inputs cheaply via the plan and then sell them at higher market prices.
14
The Transformation of the Chinese Economy
15
How China is Reshaping the Global Economy
consumption rather than investment and exports.5 This led to new phase of
development referred to as the ‘New Normal’, with growth between 2012
and 2019 of around 6 or 7 per cent a year as opposed to 10 per cent, and
a rebalancing of the economy in favour of domestic consumption. There is
more emphasis given to the quality of economic growth, particularly in terms
of its environmental impacts, which had been largely ignored in previous
periods.
Partly as a response to the problems caused by slower economic growth,
President Xi Jinping launched the Belt and Road Initiative (BRI) in 2013
(Chen, S., 2020).6 The BRI involved ambitious plans to build new infrastruc-
ture such as railways and roads, port facilities, and energy pipelines. With
excess capacity growing in a number of industries within China, the large-
scale infrastructure projects planned under the BRI provided new markets for
Chinese producers of steel, cement, aluminium, railway equipment, as well
as projects for Chinese construction companies. The Silk Road Economic Belt
would also help to rebalance the Chinese economy towards the West and
away from the coastal areas where growth had been concentrated since the
reform process began in 1979.
Some 60 countries were originally identified as part of the BRI. In 2015,
the Chinese government launched its Action Plan on the Belt and Road
Initiative.7 It became a centrepiece of Chinese foreign policy under Xi
Jinping and the Communist Party of China amended its constitution, in
2017, to include a pledge to pursue the initiative, thus cementing its
significance.
This chapter does not attempt a comprehensive review of Chinese eco-
nomic development and economic policy. The focus is on those aspects
which are particularly relevant to understanding China’s impact on the
global economy. As such it begins with reforms that have affected trade
and FDI, before discussing the changes in the financial sector, enterprise
reform, and developments in the Chinese labour market. The final section
considers the impact of rapid growth on the environment and the demand
for resources in China.
5
The share of exports in GDP peaked at around 35 per cent in 2006–8 while the share of
investment peaked at 48 per cent in 2011 (Naughton, 2019, p. 22 & p. 30).
6
This had its origins in two speeches made by President Xi Jinping in Kazakhstan and Indone-
sia, proposing the development of a new Silk Road Economic Belt linking China, Central Asia,
South Asia, Russia and Europe by land and a twenty-first-Century Maritime Silk Road, linking
China with South-East Asia, South Asia, the South Pacific, the Middle East and East Africa by sea.
It was originally referred to as the ‘One Belt, One Road’ (OBOR) initiative. The official English
translation from the Chinese was changed to the Belt and Road Initiative (BRI) in 2016.
7
Available at: http://english.www.gov.cn/archive/publications/2015/03/30/content_
281475080249035.htm (accessed 23 June 2020).
16
The Transformation of the Chinese Economy
17
How China is Reshaping the Global Economy
8
Estimates of the scale of round-tripping vary from around a quarter to more than a half of
total FDI flows to China in the 1990s and early 2000s (Xiao, 2004).
18
The Transformation of the Chinese Economy
their imports with exports. Approval of FDI projects was also often contin-
gent on conditions regarding technology transfer or the establishment of
a research centre in China. The WTO’s Trade Related Investment Measures
Agreement outlawed many of these practices, and China agreed to abide by
these rules when it became a WTO member (Branstetter and Lardy, 2008,
pp. 651–2). Despite this, China’s FDI policy remained restrictive compared
to that of other countries.9
The decade that followed China’s accession to the WTO saw a substantial
increase in its integration with the global economy. Exports grew rapidly be-
cause Chinese exporters could now access foreign markets under the same
conditions as other WTO members. The average growth of exports dou-
bled from less than 15 per cent per annum in the 1980s and 1990s to over
30 per cent in the mid-2000s (UNCTADStat). Although imports also grew
rapidly, reflecting the growing demand for raw materials and the significant
imported content of many of the manufactured goods that China exported,
imports lagged behind exports and China’s trade surplus grew from around
$30 billion a year in 2002–4 to $300 billion by 2008 prior to the global
financial crisis.
Despite the comparatively restrictive FDI regime, the size and growth of
the Chinese economy has made it an attractive destination for foreign in-
vestment. Since joining the WTO, the stock of inward FDI in China has
increased more than eightfold in current dollars, from $203 billion in 2001
to $1,769 billion in 2019. In 2014 China was the largest recipient of FDI in
the world, ahead of the USA, although the latter regained the top position
in 2015 (UNCTAD, 2016, Figure 1.4).
Although China continues to be a major destination for FDI, the relative
significance of foreign firms in the Chinese economy has declined. The stock
of FDI as a share of GDP, and the share of foreign firms in industrial output,
peaked in 2003 (Huang, 2014, Figure 14.4; Davies, 2013, Figure 4). This does
not indicate a decline in foreign investors’ interest in China but rather the
increased competitiveness and growth of Chinese firms.
As a result of persistent trade surpluses and inflows of capital, China’s
foreign exchange reserves grew more than tenfold in less than a decade
(World Bank, World Development Indicators, n.d.). The bulk of the reserves
were held in US Treasury bills, but with low interest rates, this was not a
productive use of reserves, and the Chinese authorities have tried to di-
versify their holdings and find alternative ways of utilizing these surpluses
(see section 1.2).
9
According to the Organization for Economic Co-operation and Development (OECD) FDI
Restrictiveness Index, which covers a number of OECD and non-OECD countries, despite a sub-
stantial reduction in the index for China since 1997, it remained the second most restrictive
country after the Philippines in 2015 (OECDStat).
19
How China is Reshaping the Global Economy
One of these ways was through encouraging OFDI. During the first period
of economic reform, foreign exchange shortages and the priority given to
domestic accumulation meant that OFDI policy was highly restrictive. In
the 1990s the approval procedures were gradually eased, and it became easier
for firms to obtain foreign exchange. However, in the aftermath of the 1997
Asian financial crisis, regulation was tightened once more, and it became
more difficult to obtain foreign exchange for overseas investment.
The Tenth Five Year Plan (2001–5) and the adoption of a series of de-
crees between 2000 and 2002 to regulate and promote OFDI (Shambaugh,
2013, pp. 174–6) marked the start of the ‘Go Out’ or ‘Go Global’ policy of
encouraging Chinese firms to expand abroad. Over the past two decades, gov-
ernment policy towards OFDI has evolved in a number of ways (Rosen and
Hanemann, 2009, pp. 11–12; Sauvant and Chen, 2014; Wong et al., 2020).
The state, although it can and still does intervene in high-profile invest-
ments, plays less of a directive role and acts more as a regulator, allowing
firms to make decisions on commercial grounds. The approval procedures
were gradually eased, and some of the decision-making decentralized to lo-
cal agencies. Access to foreign exchange for firms wanting to invest abroad
has been eased by the State Administration of Foreign Exchange (SAFE).
The government has also increased incentives and support to firms ex-
panding abroad, including finance from the China Development Bank (CDB)
and the Export-Import Bank of China (Exim Bank); subsidies through a
fund managed by the Ministry of Finance (MOF) and the Ministry of
Commerce; tax deductions and exemptions; investment insurance from the
China Export and Credit Insurance Corporation (SINOSURE); and the pro-
vision of information on investment opportunities to Chinese companies.
The Chinese government has also been extremely active in signing bilateral
investment treaties, and in June 2013, it had agreements with 125 countries,
second only to Germany (Sauvant and Chen, 2014, pp. 153–4).
The BRI promoted further international integration through its empha-
sis on reducing barriers to trade and investment; facilities coordination by
building roads, railways, ports, oil and gas pipelines, power grids, optical
cables and other communication networks; and the internationalization
of the Renminbi through currency swap arrangements with other coun-
tries. The geographic scope of the BRI was widened so that at the latest
count there were 145 countries signed up to the initiative.10 Substantial
amounts of funding were made available to finance BRI projects: $100 billion
was provided by the Asian Infrastructure Investment Bank, and $40 billion by
the Silk Road Fund (Yu, 2017, p. 2). It has also been reported that the China
Development Bank and Exim Bank have between them provided $110 billion
10
Figure reported for December 2021. See https://greenfdc.org/countries-of-the-belt-and-road-
initiative-bri/ (accessed 7 March 2022)
20
The Transformation of the Chinese Economy
in loans for projects in BRI countries since 2013, and that the four Chinese
commercial banks have provided a further $150 billion over the same period
(Stevens, 2017, p. 3).
These changes, together with the growing capabilities of Chinese com-
panies, led to the rapid growth of OFDI since the early 2000s. This has
considerably narrowed the gap between inward and outward FDI in China
with outward flows exceeding inflows in some years. Despite the relaxation
of some of the approval procedures for OFDI, the state continues to have
a considerable influence on the scale and type of investment carried out
by Chinese firms.11 The incentives and other state support also provide an
important means of influencing outward investment.
During the pre-reform era, the People’s Bank of China was the only bank
in the country, referred to as the ‘monobank’. The first phase of reform saw
the break-up of the monobank in the early 1980s, to create four state-owned
commercial banks: the Industrial and Commercial Bank of China, which was
responsible for lending and deposit taking in urban areas; the Agricultural
Bank of China, which did the same in rural areas; the China Construction
Bank, focussing on project finance; and the Bank of China, which dealt with
foreign trade and foreign exchange transactions. The People’s Bank of China,
which had previously been both a central bank and a commercial bank un-
der the MOF, became a separate entity, transferring its commercial banking
operations to the ‘Big Four’ (Allen et al., 2008; Naughton, 2007, pp. 454–6).
The second phase of reform in the 1990s saw a new round of banking re-
forms beginning in 1994, to allow the commercial banks more independence
from the government so that they could operate on a more commercial ba-
sis. At the same time, three ‘policy banks’, the CDB, the Exim Bank, and the
Agricultural Development Bank, were created to carry out lending that was
specifically related to government policy objectives and which would not
necessarily generate a commercial rate of return. The CDB and the Exim Bank
later expanded their international operations becoming the major channels
for Chinese loans to Africa and Latin America.
A number of new joint-stock commercial banks (JSCBs) were also created
in the late 1980s and 1990s, many linked to local rather than central govern-
ment and with the participation of both SOEs and non-SOEs. Eleven JSCBs
were created between 1986 and 2001, which increased competition in the
11
Concerns over ‘irrational’ investments in sectors such as real estate, sports clubs, gambling
and entertainment that provided little benefit to the Chinese economy led to restrictions being
imposed on such investments in 2017 (Wong et al., 2020, pp. 20–1).
21
How China is Reshaping the Global Economy
banking system (Naughton, 2007, p. 456). In 1998 the PBC was also restruc-
tured, and shortly afterwards, steps were taken to deal with problems arising
from the weakness of financial supervision and build-up of non-performing
loans in the state banking system (Naughton, 2007, pp. 103–4).
Further reforms to the domestic financial system took place after China
joined the WTO. In 2003 the regulatory functions of the PBC were trans-
ferred to a newly created China Bank Regulatory Commission. As a result
of its accession to the WTO, China agreed to allow foreign banks to operate
in China from 2006. However, other restrictions have meant that the share
of total banking assets controlled by foreign banks in China has remained
minimal.
The Chinese government attempted to insulate the domestic financial
market from international capital markets, maintaining tight capital con-
trols during the early years of economic reform up until the mid-1990s. There
was a dual exchange rate with a high official rate and a much lower market-
oriented rate that was available only to licensed foreign trade organizations.
In 1994 these two rates were unified, and two years later, the government lib-
eralized the current account, signing up to Article VIII of the International
Monetary Fund and announcing its intention to fully liberalize the capital
account by 2000.12 However, the East Asian Financial Crisis which broke out
in 1997 led to a renewed strengthening of capital controls to clamp down
on capital flight.
A new round of liberalization of capital flows began late in 2002, fol-
lowing China’s entry into the WTO. China’s Balance of Payments current
and financial account surpluses surged as both exports and inward FDI grew
rapidly. As a result China accumulated massive foreign exchange reserves
which came to US$3.9 trillion by 2014, the largest total of any country
(World Bank, World Development Indicators, n.d.). Initially much of this was
held in US Treasury securities, of which China has been the largest holder in
recent years. However, the return on these was very low, and the depreci-
ation of the dollar meant that the government was effectively suffering a
loss through holding them.13 In recent years, therefore, it has sought to di-
versify its overseas holdings and encourage investment in assets which can
generate higher returns. This partly explains the liberalization of outward
investment discussed in the previous section, but it has also involved the re-
laxation of controls on other forms of capital outflows. Two sovereign wealth
12
Article VIII of the International Monetary Fund requires currency convertibility for current
account transactions, i.e. primarily those involving transactions in goods and services.
13
Hanemann and Rosen (2013), Figure 8, shows that the implied return on Chinese foreign
assets in the late 1990s and early 2000s was only around 2 per cent. Santiso, ed. (2013) estimates
that in real terms, China was incurring large losses on its foreign exchange reserves, which came
to $125 billion in 2009 as a result of the depreciation of the dollar against the RMB.
22
The Transformation of the Chinese Economy
funds, the China Investment Corporation and the SAFE Investment Com-
pany, were set up to invest a portion of the country’s reserves. China’s policy
banks and commercial banks also became increasingly involved in lending
abroad through medium- and long-term loans and export credits.
Despite the steps taken to liberalize foreign transactions, capital controls
remain pervasive in comparison with other emerging markets, and most
types of capital outflows either require approval or are subject to quota
restrictions (Bayoumi and Ohnsorge, 2013, p. 4). According to various in-
dicators of financial openness, China still has the least open financial sector
of any major economy (Kroeber, 2016, p. 148).
Prior to the start of the reforms, virtually all industrial production in China
was in the hands of the state, either through SOEs directly controlled by the
relevant government ministry or in ‘collective enterprises’ nominally owned
by the employees but in practice controlled by local government or other
state organizations. A key feature of the transformation of the Chinese econ-
omy has been the change in the role played by SOEs and privately owned
firms. It is clear that the private sector has become a much more significant
economic actor since 1978 (Lardy, 2014).
However, it is difficult to analyse this simply in terms of changes in the
shares of SOEs and private firms in output, employment or assets since
the boundary between them is blurred (Milhaupt and Zheng, 2015). First,
Chinese statistics are often contradictory, and the distinctions between dif-
ferent forms of ownership are not always clear, with definitions changing
over time.14 Second, changes in governance and managerial incentives may
be as or even more important as changes in formal ownership in understand-
ing the roles played by state and private firms, so that focussing merely on
the shares of different types of firms may at best only give a partial picture.
Third, firms which are formally privately owned may be highly dependent
on their links with the state: ‘private but not independent’ (Breslin, 2010,
pp. 23–5). Fourth, state-owned firms may vary considerably in terms of the
degree to which they are effectively controlled by the state.
In contrast to the ‘Big Bang’ approach used in the former Soviet Union
and Eastern Europe to transfer SOEs to the private sector, the Chinese govern-
ment adopted a gradualist approach, concentrating initially on changing the
14
See Lardy (2014, Chapter 3) for a detailed account of the problems of estimating the share
of Chinese production according to type of ownership.
23
How China is Reshaping the Global Economy
way in which SOEs were managed and allowing alternative forms of owner-
ship to grow up alongside them. In the 1980s state control was decentralized
to the provincial, municipal, and township levels, which increased competi-
tion between different areas to attract resources (Guthrie et al., 2015, p. 77).
The government also reformed the incentive system, so that managers would
become more concerned with increasing the efficiency and productivity of
their firms. This gave rise to a more market-oriented approach in which man-
agers had increased power to make key economic decisions (Naughton, 2007.
pp. 310–13).
The adoption of a ‘socialist market economy’ in 1992 marked the start
of a decade of radical change during which the state sector was subject to a
wave of market-oriented reforms and SOEs were forced to adapt to market
competition, shut down or move out of the state sector. The process of the
corporatization of SOEs began in 1993, with the setting out of a blueprint for
adopting what was termed a ‘modern enterprise system’. In 1994 a Company
Law was passed, which provided a clearer separation between ownership
and management in SOEs and made it possible to create better incentive
systems for managers. In 1995 the Central Committee of the Communist
Party announced the ‘grasping the large, letting go the small’ policy (Breslin,
2010, p. 8). This maintained central government control of the ‘command-
ing heights’ of the economy while allowing competitive sectors that were of
no strategic significance to be opened up to the private sector. Many locally
owned SOEs and collective enterprises were privatized through employee
buyouts.15 Tens of thousands of ‘zombie’ SOEs that had been kept in pro-
duction by government loans and subsidies were closed down, and millions
of SOE employees laid off. The number of SOEs fell from more than 100,000
in 1993 to less than 30,000 in 2002 (Song, 2014, p. 189).
By the early 2000s, the process of replacing a planned economy with a
‘socialist market economy’ was largely complete, and most prices were de-
termined by market forces. This was followed by a period of consolidation.
In 2003 the State-owned Asset Supervision and Administration Commission
(SASAC) was created to hold the assets of central SOEs, and in 2004, local
SASACs were set up at provincial level to own local-level SOEs. SASAC oper-
ated as a holding company, and this tended to increase the SOEs’ emphasis
on profitability and shareholder value. SOEs were encouraged to merge and
consolidate into large groups. By 2010 the number of core companies owned
15
Although initially these involved worker buyouts, they were soon eclipsed by ‘elite’ forms of
ownership transfers to managers and relatives of government officials (Breslin, 2010, p. 9). Some
nominally collective firms were in any case in fact privately run firms registered as collectives to
take advantage of the benefits that this status brought. In 1998 the government issued a policy
to encourage such firms to ‘take off the red hat’, leading to a significant reduction in the reported
share of industrial production accounted for by collective enterprises in subsequent years (Song,
2014, p. 189).
24
The Transformation of the Chinese Economy
by SASAC had been reduced to 121, but the total number of companies under
SASAC control came to 23,738, an average of almost 200 subsidiaries per core
company (Naughton, 2015, p. 53). In 2001 a target of creating between thirty
and fifty national champions by 2010 was set (Pearson, 2015, p. 33). Not all
national champions were state owned: some, such as the Shanghai Automo-
tive Industry Corporation, were owned by local authorities, and others, such
as Huawei, were privately owned.
The period saw further rapid growth of the domestic private sector, which
increased its share of industrial output from less than 10 per cent in 2001 to
almost 30 per cent in 2008.16 Foreign firms also continue to play a signifi-
cant role in China, and despite the decline in their share in recent years, they
account for 30 per cent of industrial output and almost half of Chinese ex-
ports. Over the same period, the share of SOEs in industrial output fell from
45 per cent in 2001 to less than 30 per cent in 2008 (Song, 2014, Figure 12.5).
Although there has been talk of ‘the state advancing and the private sector
retreating’ in the aftermath of the global financial crisis, what in fact appears
to have happened is that the pace at which the share of the private sector is
increasing has slowed down (Kroeber, 2016, pp. 106–7). The economic stim-
ulus created by the government to deal with the effects of the financial crisis
has been largely implemented through SOEs, giving them a boost (Fan and
Hope, 2013, p. 4).
Pearson (2015) identifies three tiers of business in China. The top tier is
made up of central SOEs in strategic industries such as defence, finance, oil
and gas, petrochemicals, electricity, telecommunications, coal, civil aviation,
and shipping. These industries are considered strategic in terms of national
security. Indeed Chinese political leaders have increasingly used both tradi-
tional national defence and ‘economic security’ to justify public ownership
in these sectors (Tsai and Naughton, 2015, p. 9). These companies control
the ‘commanding heights’ of the Chinese economy and are very large. In
2014, fifty-nine centrally owned Chinese SOEs were listed in Fortune’s Global
500 list of the largest firms in the world in terms of revenue (Kroeber, 2016,
p. 100).
A middle tier is made up of firms in sectors which have been classified
as ‘pillar industries’. These include heavy industrial machinery, automo-
biles, information technology, chemicals and pharmaceuticals, steel, and
base metals. In this tier there is a mix of ownership, including some cen-
trally owned SOEs, large provincial or municipally owned SOEs, and large
privately owned firms (Pearson, 2015, p. 34). Although on average, local SOEs
are much smaller than those under central control, some, such as Shanghai
Automotive Industry Corporation and Hebei Group, China’s largest steel pro-
ducer, are very large companies. Twenty-three local SOEs are included in the
16
These figures refer to firms with annual sales of more than RMB 5 million.
25
How China is Reshaping the Global Economy
Fortune Global 500 list. There are also a number of large privately owned
companies such as Huawei and ZTE,17 and ten of these made it on to the
Fortune list (Kroeber, 2016, p. 100).
The bottom tier comprises the vast majority of firms in China and is made
up of largely competitive industries where barriers to entry are low. This tier
is made up of privately owned, mainly small and medium enterprises. The
state is not directly involved in this tier, acting primarily as a regulator to
protect consumers and workers (Pearson, 2015, pp. 41–2).
One of the major debates about SOEs in China concerns the extent to
which they have the autonomy to pursue their own commercial inter-
ests or are subject to political control by the government and are used
to fulfil the Chinese state’s strategic objectives (Kroeber, 2016, pp. 103–4).
On the one hand, both the corporatization of SOEs and SASAC’s empha-
sis on maximizing (government) shareholder value suggest that SOEs are
likely to pursue commercial goals. On the other hand, the continuing role
of the Communist Party in appointments to the top posts in many SOEs
and the ‘revolving door’ of personnel between the Party, the state apparatus,
and the SOEs suggest that SOEs’ strategies may well be subject to significant
political influence.
While the debate implies that SOEs are either instruments of the
party/state or no different from large private corporations, the evidence sug-
gests a more nuanced picture. First, SOEs in the middle tier are likely to be
allowed more autonomy than those in the top tier of strategic industries
(Pearson, 2015, p. 35). Second, those firms that come under provincial or
municipal authorities, if they are subject to state control, are more likely to be
affected by the strategies of those local authorities than to follow a centrally
mandated government policy (Breslin, 2010, pp. 25–6).18 Even in the case
of strategic sectors, SOE managers have been granted managerial autonomy
and are far from being simply instruments of central state policy.19
Under the centrally planned economy, there was no real labour market in
China. Urban labour was allocated to different work units by the Bureau
17
ZTE is sometimes regarded as an SOE and sometimes as a private company (Milhaupt and
Zheng, 2015, pp. 674–6).
18
Although as Pearson (2015, p. 40) points out, central government does have some leverage
over locally owned SOEs because the National Development and Reform Commission of the
People’s Republic of China (NDRC) maintains the formal right to approve large investments.
19
For further evidence of the extent of managerial autonomy of SOEs, see Milhaupt and Zheng
(2015, pp. 676–83).
26
The Transformation of the Chinese Economy
of Labour and Personnel in accordance with the plan. The work unit was
not only responsible for paying wages to the workers but also for provid-
ing for their health, housing, retirement income, and other social amenities.
This system was referred to as the ‘iron rice bowl’. It ensured full employ-
ment and job security. Workers often spent their entire working lives in
the same unit, and labour mobility was very limited. Wages were set by the
government, according to a national wage grid, which kept differentials low
(Freeman, 2014). In the rural areas, peasants were organized into communes,
brigades, and work teams. The household registration system (hukou) tied
people to their place of origin and was used, particularly after the failure of
the Great Leap Forward (1958–60), to restrict rural-urban migration, which
came to an almost complete halt in the 1960s (Naughton, 2007, pp. 114–16).
There was only limited change in the way that the urban labour market
functioned during the first phase of reform after 1979. Although SOEs were
allowed some flexibility in terms of hiring new workers, they were prevented
from laying off workers, and official government pay scales remained the
main determinant of workers’ pay (Cai et al., 2008, p. 171). The main change
during the first phase of the reforms was the substantial increase in off-farm
employment in rural areas as a result of the growth of TVEs.20 Wages were
kept low, and productivity growth was mainly driven by the reallocation of
labour from low-to higher-productivity sectors, particularly from agriculture
to non-agricultural activities (Yao, 2013, Table 5). This situation changed in
the second phase of the reform from 1992. The demand for labour increased,
and many city governments became aware of the benefits of migrant work-
ers. From the mid-1990s, it became easier for migrants to stay and work in
urban areas without possessing a formal urban hukou. As a result there was
a continuous stream of migrants to the main industrial centres (Yao, 2013,
pp. 66–7).
In 1994 the government passed a Labour Law which provided a unified
framework for labour relations. While on the one hand, it protected core
labour rights, it also allowed for no-fault dismissal of workers where eco-
nomic circumstances required it (Cai et al., 2008, p. 174). This set the scene
for the economic restructuring that took place in the late 1990s, when, as
discussed above, millions of SOE workers lost their jobs. Unemployment
increased dramatically to reach over 11 per cent amongst urban residents
in 2002 (Cai et al., Table 6.3). Employment was no longer guaranteed, and
labour mobility increased significantly. By the turn of the millennium, the
administrative system under which labour bureaus had assigned workers to
20
According to Cai et al. (2008, p. 171), employment by TVEs increased from 28 million in
1978 to 70 million in 1985 and 123 million by 1993.
27
How China is Reshaping the Global Economy
jobs had largely disappeared, to be replaced by market forces as the key de-
terminant of employment and wages (Freeman, 2014, p. 106). The ‘iron rice
bowl’ had been shattered.
Despite the development of a labour market, the wages of unskilled work-
ers in urban areas did not increase significantly, only starting to rise after
2000 (Freeman, 2014, p. 110; Wang and Weaver, 2013). Several factors helped
to keep unskilled wages low in the 1980s and 1990s. First, the population
of working-age persons grew rapidly and significantly faster than the total
population during the 1980s and 1990s (Naughton, 2007, p. 174). Second,
despite the hukou system, there was substantial rural-urban migration dur-
ing the period.21 Third, in the late 1990s, the available labour force included
large numbers of workers dismissed by SOEs.22
Productivity growth accelerated significantly after 1990, particularly in
manufacturing (Yao, 2013, Figure 12). Both the growth of foreign firms,
which brought with them more advanced technology and increased SOE pro-
ductivity as a result of changes in management, and the dismissal of millions
of redundant workers contributed to the increase in manufacturing produc-
tivity in the 1990s. Since wages lagged behind productivity growth, unit
labour costs fell significantly during the 1990s, contributing to the increased
competitiveness of Chinese industry (Yao, 2013, p. 67).
In the twenty-first century, there have been changes in these conditions.
The rate of growth of the working-age population slowed down, and the
total numbers peaked in 2013 (Wildau, 2015). Although migration from rural
areas continued, the growth rate of migrant workers slowed down compared
to that in the 1990s (Li et al., 2012, p. 69). Finally, the number employed in
SOEs has stabilized since 2003 and so no longer constitutes a major source
of surplus labour (Yueh, 2013, Table 3.2).
These factors combined to create a situation in which labour shortages
began to emerge in the more industrialized coastal areas. These were first
identified following the Spring Festival holiday of 2003 and have continued
since then (Pringle 2013). There was a sharp increase in labour militancy
amongst private-sector migrant workers, reflected in an increased number of
strikes as workers became aware of their greater bargaining power (Elfstrom
and Kuruvilla, 2014). Following a wave of strikes in 2004 and 2005, the city
authorities in Shenzhen increased the minimum wage substantially in 2005
21
There are numerous estimates of the level of migration based on different sources and defini-
tions. (See Cai et al., 2008, Table 6.7 for a number of these estimates.) According to the population
censuses, the so-called long-distance ‘floating population’ increased from 7 million in 1982 to
22 million in 1990 and 79 million in 2000 (Naughton, 2007, p. 130).
22
Again, there are different estimates of the numbers involved. The official figures indicate that
28 million SOE workers lost their jobs between 1993 and 2003. Naughton (2007, p. 301) suggests
that this is an underestimate, and Song (2014, p. 191) gives a figure of 44 million between 1995
and 2003.
28
The Transformation of the Chinese Economy
and 2006 (Pringle, 2011, p. 103). Wage increases also spread to other parts of
the country.23
Productivity continued to grow during this period as firms faced increased
competition and gained more access to advanced technology following
China’s accession to the WTO. The bulk of productivity growth since 2000
has been the result of increases within sectors, rather than structural shifts
to more productive sectors (Molnar and Chalaux, 2015; Yueh, 2013, p. 64).
However, since 2003, wages have grown faster than productivity (Ceglowski
and Golub, 2012, Table 1). As a result unit labour costs in China have in-
creased in recent years, giving rise to a lot of discussion about ‘[t]he end of
cheap Chinese labour’ (Li et al., 2012).
23
There has been intense debate over whether or not China’s economy has reached the ‘Lewis
turning point’, when wages start to rise as the labour surplus in rural areas disappears. Nobel-
winning economist Sir Arthur Lewis argued in the 1950s that economic growth involves a transfer
of surplus labour from low-productivity agriculture to a more productive industrial sector (1954).
The existence of ‘unlimited supplies of labour’ in the rural areas meant that industrial wages can
be kept low and profits reinvested in industry. Eventually as the surplus labour in agriculture is
absorbed, the economy reaches a turning point beyond which agricultural incomes and industrial
wages start to rise. While some economists point to the increase in urban wages as evidence that
the economy has already reached this turning point in China, others argue that there is still
significant surplus labour in rural areas. Various attempts have been made to resolve this apparent
paradox.
24
Various estimates have been made of the costs of environmental degradation in China,
which vary from 2–6 per cent of GDP (World Bank, 2007).
29
How China is Reshaping the Global Economy
Water pollution has also been a major problem in China. Many of the
country’s river systems are highly polluted as a result of discharges of un-
treated industrial and municipal waste. The water quality of seven major
Chinese rivers deteriorated significantly up to the early 2000s (He et al.,
2012, Figure 1). In 2005 an explosion at the Jilin Petrochemical Corporation
led to a major spill of toxic chemicals (primarily benzene) into the Songhua
River. This is only the most dramatic example of such pollution incidents
in China in recent years. Problems of water quality are also accentuated by
water shortages, particularly in Northern China.
Internationally, China’s growth has led to increasing attention being
given to its role in greenhouse gas (GHG) emissions. In 2007 it became the
world’s biggest emitter of GHGs, overtaking the USA, although emissions per
head of population remain much lower than in the USA.25 Efforts to reduce
the energy intensity of output and the share of coal in the energy mix have
succeeded in reducing carbon emissions per unit of GDP since 2005, but total
carbon emissions from China continued to rise until they were temporarily
interrupted by the Coronavirus pandemic in 2020.
Rapid economic growth inevitably brings with it increased levels of emis-
sions and waste production, as well as increased demand for energy and
resources. However, the extent to which it does so depends on the composi-
tion of output and on the technologies used in production.26 These in turn
can be affected by a country’s overall strategy of development and the en-
vironmental policies that it applies. An emphasis on economic growth and
industrialization at all costs, with little attention to the environmental im-
pacts, tends to lead to high levels of environmental degradation and resource
depletion.
At the start of the economic reforms in China, a number of factors con-
tributed to high levels of environmental degradation, resource use, and
energy consumption relative to the country’s level of output. The emphasis
on industrialization in the Maoist period meant that the share of industry
in total output was far greater than that of other countries at the time, and
that less polluting service sectors were much smaller. Moreover, the type of
industry that developed in China tended to be heavy industries such as steel
and cement, which are the most polluting and energy and resource inten-
sive within the industrial sector. On top of this, the bulk of the country’s
power came from coal, the most polluting type of energy. The SOEs, which
accounted for the bulk of production, also tended to be inefficient in their
25
It should also be noted that a significant proportion of Chinese emissions are generated in
the production of goods for export to other countries rather than for local consumption.
26
There is an extensive literature on this which distinguishes between the scale, composi-
tion, and process/technique effects in analysing the environmental impacts of economic growth
(Grossman and Krueger, 1995; Frankel, 2003).
30
The Transformation of the Chinese Economy
use of energy and raw materials. Environmental regulation was not a priority
under central planning.
During the 1980s and 1990s, the changes in the Chinese economy had
two opposing effects. On the one hand, the acceleration of economic growth
increased demand for energy and resources and caused higher levels of pol-
lution; on the other, changes associated with the economic reforms led to
a reduction in resource- and energy intensity and in emissions per unit of
output. There was a shift from heavy industry to light manufacturing of
consumer goods, which is less polluting and energy and resource intensive
(UNCTAD, 2005, Ch. II; Naughton, 2007, Chapter 14).27 Greater efficiency in
SOEs also contributed to a reduction in resource and energy intensity. As a re-
sult the level of emissions grew less rapidly than GDP. Nevertheless, this was
not sufficient to offset the effects of the growth in output, so that the demand
for energy and resources and the absolute level of emissions increased.
Although the first Environmental Protection Law of the People’s Repub-
lic of China was passed in 1979, environmental policy had a very limited
impact during the 1980s and 1990s. The emphasis was very much based on
end-of-pipe measures (He et al., 2012). The National Environmental Protec-
tion Agency was only given ministerial status in 1998, when it was renamed
the State Environmental Protection Administration (SEPA). Although several
environmental measures and regulations were passed by the central gov-
ernment their implementation depended on local governments, which had
little incentive to prioritize environmental protection and tended to focus
on promoting their region’s economic development (Zheng and Khan, 2013,
pp. 759–61).
Significant environmental measures tended to come about in reaction to
major disasters. For example, in 1998, severe flooding in the Yangtze and
Yellow River basins was attributed to deforestation as a result of the extensive
logging of upstream watersheds. This led to the government setting up the
Natural Forest Protection Program in 2000, which banned logging over a
wide area and undertook the reforestation of affected watersheds.
The fact that pollution and energy use did not grow as rapidly as output
in this period was largely an indirect consequence of the economic reforms
rather than a result of government environmental policies. This situation
began to change in the late 1990s, following an increased level of invest-
ment, particularly in infrastructure, which meant that the leading industrial
sectors shifted once more from light manufacturing to heavy and chemical
industries (Naughton, 2007, Chapter 14). These industries tend to be more
polluting and resource- and energy-intensive, so that the gap between the
27
The World Bank estimated that changes in the structure of production accounted for about
two-thirds of the total reduction in energy intensity (1997, p. 47).
31
How China is Reshaping the Global Economy
28
This is also seen as a means of achieving domestic energy security in the face of growing
demand (Zheng and Kahn, 2013, p. 758).
32
The Transformation of the Chinese Economy
within China. Air quality in major Chinese cities has improved somewhat
in recent years, with lower atmospheric concentrations of sulphur dioxide
and particulates (PM10 ) (Zheng and Khan, 2013, Figure 1; World Bank and
Development Research Centre, 2013, Figures 3.11 and 3.12). However, major
challenges remain. The Chinese government is now giving more priority to
environmental protection, as reflected in a new Environmental Protection
Law that came into force in 2015, and measures to ensure more effective
implementation of its policies such as incorporating environmental aspects
into the performance evaluation of local officials, increasing fines for non-
compliance, and expanding the right to information (UNDP China, 2015,
p. 12). It is no longer the case that the Chinese strategy is one of growth
at all costs. However, even with the ‘new normal’, with its emphasis on the
quality as opposed to the rate of growth, Chinese demand for resources and
energy will continue to grow in absolute terms for the foreseeable future.
1.6 Conclusion
The Chinese economy has been radically transformed since 1979, from a
closed, centrally planned economy to a much more market-based economy,
which is highly integrated into the global economy in terms of trade and
financial flows. In terms of ownership, it has changed from an almost ex-
clusively state-owned to a mixed economy in which both private domestic
and foreign capital play significant roles. It has gone from a low-wage, low-
productivity economy, in which workers remained with the same production
unit and were guaranteed a basic standard of living via the ‘iron rice bowl’, to
one in which there is a high degree of labour mobility, rapidly growing pro-
ductivity, and an increasingly active labour movement which has seen wages
rise in recent years. These impressive changes have not been without signif-
icant costs in terms of increased inequality and environmental degradation
within China.
China’s transformation has also had major impacts on the global econ-
omy over the past four decades. The next four chapters discuss these in detail.
Chapter 2 looks at the impact of China’s emergence as a global manufactur-
ing powerhouse. One of the impacts of China’s industrial growth has been to
create massive demand for raw materials, and this is discussed in Chapter 3.
Since the start of the millennium, Chinese firms have been ‘going out’, set-
ting up subsidiaries and carrying out projects around the world, and the
implications of this are analysed in Chapter 4. Finally, China has also be-
come increasingly involved in international finance as an investor, lender,
and aid donor, as discussed in Chapter 5.
33
2
How then did China go from being a minor industrial power at the
end of the 1970s to become the ‘workshop of the world’ in the early
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0003
The Workshop of the World
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1980 1985 1990 1995 2000 2005 2010 2015 2019
MVA Exports
Figure 2.1. China’s share of world manufacturing value added and world manufac-
tured exports, 1980–2019 (%)
Source: MVA–UNIDO, Yearbook of Industrial Statistics, various years; Exports—WTO Statistical
Database.
35
How China is Reshaping the Global Economy
TVEs were not subject to the same level of state control as SOEs, and their
growth increased market competition. They were also much more labour
intensive. As incomes increased in rural areas and growing numbers of
workers migrated to urban areas in the 1980s, demand for simple consumer
goods grew. As a result there was a significant shift in the structure of Chinese
manufacturing, away from heavy industry and towards the production of
labour-intensive consumer goods (Naughton, 2007, pp. 329–32).
Neither exports nor foreign direct investment (FDI) played a major role in
manufacturing growth in the 1980s. Although manufactured exports grew
five-fold in the 1980s, this was from a low base, and China’s position in
global trade remained marginal, accounting for less than 2 per cent of world
exports (see Figure 2.1). Even a decade after China adopted its open-door
policy, foreign-invested firms accounted for less than 3 per cent of the value
of industrial output (Davies, 2013, p. 17), and 12.5 per cent of China’s to-
tal exports in 1990 (Lardy, 1995, Table 6). The bulk of FDI consisted of
Hong Kong and Taiwanese firms relocating labour-intensive manufacturing
activities in industries, such as textiles, garments, footwear, and toys, to the
southern coastal provinces, including the Special Economic Zones (SEZs).
Although manufacturing output grew rapidly in the 1980s, this was not
associated with rapid growth in labour productivity, which increased little
prior to 1990 (Yao, 2013, p. 35). Output also failed to keep pace with the
growing demand for consumer goods, which led to an increase in inflation
in 1988–9.
During the second phase of reform, China embarked on a major effort to
attract FDI in the early 1990s. There was a substantial increase in foreign in-
vestment in manufacturing, as foreign firms were now given access to the
domestic market. As incomes rose, consumer demand shifted from basic
items such as food and clothing to durable consumer goods such as radios,
TVs, and refrigerators. This led to a wider range of investors from the USA,
Europe, and Japan entering China so that by the early 2000s, foreign-invested
firms accounted for around 30 per cent of manufacturing output (Song, 2014,
Figure 12.3).
Foreign transnational corporations (TNCs) brought technologies that
were more advanced with them, which helped to increase productivity in
manufacturing. Also, as noted in Chapter 1, a major shake-out of SOEs oc-
curred during the second phase of reform, which led to large numbers of
workers being laid off in the late 1990s, further contributing to increased
productivity.
The surge in inward FDI in the early 1990s also contributed to an ac-
celeration of the growth of exports. The share of foreign-invested firms
in exports increased from less than a third in 1995 to a half by 2001
(Lardy, 2014, Figure 3.3). By the early 2000s, more than a quarter of
36
The Workshop of the World
1
A significant proportion of these exports had a high level of import content and so exports
were not as significant in terms of the value added in the manufacturing sector in China as their
share of industrial output might suggest.
37
How China is Reshaping the Global Economy
2
Own calculation from UNIDO data on industrial output and WITS data on exports according
to the International Standard Industrial Classification (ISIC).
38
The Workshop of the World
Since around 2012 the shift to a ‘new normal’ in China has marked
a new phase in terms of the country’s industrial development. Economic
rebalancing internally involves an increase in the share of GDP going to
consumption, as opposed to investment and exports. Externally it involves
a reduction in the large current account surpluses which China generated in
the previous phase of development and which have been a cause of trade
tensions with other countries.
As far as industry is concerned, the ‘new normal’ implies a slower rate of
growth, with services accounting for an increasing share of GDP. It also puts
more emphasis on innovation and improving technological capabilities, as
opposed to high levels of investment in fixed assets. It will see China moving
up the value chain to obtain sustained productivity growth, a strategy set
out in the twelfth Five Year Plan (World Bank, 2014, p. 30) and developed
further with the launch in 2015 of ‘Made in China 2025’, an ambitious plan
to build one of the world’s most advanced and competitive economies based
on innovative manufacturing technologies (Wübbeke et al., 2016). Although
the rate of growth of both manufacturing output and exports is likely to be
lower than in the past, they will continue to grow at a significant rate with
major impacts on the global economy.
What factors have made it possible for China to increase its share of the world
market for manufactured products so dramatically since the early 1990s? In
other words, what makes China so competitive internationally? This is a
source of considerable debate, in particular over the extent to which export
growth has been stimulated by an undervalued exchange rate and ‘unfair’
trade practices by the Chinese government (Kroeber, 2016, pp. 59–64). The
issue is highly political because many countries have used anti-dumping
measures against Chinese exports.
39
How China is Reshaping the Global Economy
3
Between 1990 and 2009, unit labour costs in manufacturing fell by 66 per cent (Yao, 2013,
p. 67). Unit labour costs fell from over 70 per cent of US levels in the early 1980s to about
30 per cent in the mid-1990s (Ceglowski and Golub, 2007 cited in Li et al., 2012, p. 63).
4
Since 2009 there have been significant increases in wages in China, which are likely to have
reduced this advantage in terms of labour costs.
5
For a discussion of industrial clusters in China, see Frattini and Prodi (2013).
40
The Workshop of the World
6
Chin (2013) shows that estimates of RMB undervaluation vary considerably depending on
the methodology and data used. By way of illustration of the difficulties of arriving at an exact
figure, Morrison and Labonte (2013, p. 21) quote four studies of the extent of undervaluation of
the RMB relative to the USD in 2009 at 12, 25, 40, and 50 per cent.
7
Cheung et al. (2010) find no relationship between the RMB real exchange rate and exports
in aggregate. However, when they separate out ordinary exports from processing exports (see
Chapter 1 for an explanation of the distinction), they find that the exchange rate does have the
expected impact on ordinary exports. However, in the case of processing exports, the relationship
is the opposite to what would be expected, with a depreciation of the exchange rate leading to
41
How China is Reshaping the Global Economy
a reduction in exports. This could reflect the increased cost of imported inputs when the RMB
depreciates.
8
See ICTSD, ‘WTO panel Grants China Victory in US Dispute over State-Owned Enterprises’,
Bridges, 17 July 2014. These cases all involved Chinese SOEs which, the USA claimed, were being
unfairly subsidized.
42
The Workshop of the World
There are three questions which need to be asked about China’s exports of
manufactures when considering its role as the ‘workshop of the world’. First,
given the high import content of such exports, is China better described as
the ‘assembly line of the world’? Second, is it simply an exporter of low-
cost, labour-intensive products or has it been able to upgrade its production
to more technologically sophisticated products? Last, is China simply an ex-
port platform for foreign companies or have locally owned firms also become
involved in production for global markets?
It is certainly true that products carrying a ‘Made in China’ label may
only be assembled in China from parts imported from other Asian and West-
ern economies. The classic example of this is the Apple iPhone. Of the total
value of an iPhone exported from China, the greatest proportion consists of
parts and components from South Korea (43 per cent), the USA (12 per cent),
Taiwan (11 per cent), Germany (9 per cent), and the rest of the world (22 per
cent). The share actually produced in China via the final assembly of the
iPhone accounts for only 3.5 per cent of the export value.10
If the iPhone were representative of China’s exports as a whole, the figures
discussed so far would greatly exaggerate the significance of China as a global
manufacturing powerhouse. The question, as posed in a recent article by
Koopman, Wang, and Wei, is ‘How much of China’s exports are really made
in China?’11 This question arises because Chinese exports began to grow
significantly with the establishment of SEZs, where firms were able to im-
port inputs duty-free in order to produce for export, and because processing
exports, which enjoyed the same privileges, account for a large share of
exports.
9
Girma et al. (2008) find that production subsidies had an impact on the level of existing
exporters’ exports but a minimal effect on the probability of a firm becoming an exporter. They
find that the effect of subsidies on exports has decreased since China joined the WTO. They
also report that subsidies have most effect on exports in capital-intensive industries and on firms
located in non-coastal regions.
10
Own calculation from figures provided in OECD (2011) Box 2. For similar estimates for the
iPhone and iPad, see Kraemer et al. (2011).
11
This was the original title of a 2008 National Bureau of Economic Research Working Paper
(No. 14109), which was subsequently published as Koopman et al. (2012).
43
How China is Reshaping the Global Economy
This suggests that a better way to look at Chinese exports is to measure the
value added within China rather than the gross value of the exported prod-
uct.12 Because of the high import content of processing trade exports, this
figure is likely to be considerably lower than the reported value of Chinese
exports. Estimates by the Organization for Economic Co-operation and De-
velopment (OECD) and the WTO show that for China, in 2011, the domestic
value-added content of manufactured exports was around 60 per cent of the
gross value of exports, significantly lower than that of the USA or Japan
(78 and 82 per cent, respectively). Several other studies have also found that
Chinese exports contain a high share of foreign content, and consequently
only 50–60 per cent of the value of gross exports was actually created within
China (Chen et al., 2012, 2020; Dean et al., 2011; Koopman et al., 2012;
Upward et al., 2013; Wen, 2018).
All of the studies which have looked at domestic value added in Chi-
nese exports over time agree that the share has increased since the start
of the century. According to OECD–WTO figures, the share of imported in-
puts in Chinese manufactured exports fell from over half in 2000 to around
40 per cent in 2011, with most of the reduction coming after 2005. This
is not surprising, since the share of processing exports in total exports has
been falling since the late 1990s. There is also evidence that the share of do-
mestic value added in processing exports has tended to increase over time
(Koopman et al., 2012, Table 3; Chen et al., 2012, Table 1; Chen et al., 2020,
Table 2).
One implication of the high import content of Chinese manufactured ex-
ports is that the figures on China’s share of global exports quoted earlier tend
to exaggerate its role as a trading power. In 2009, for example, when China
accounted for 9.4 per cent of global gross exports, its share of value-added
exports was only 8.3 per cent (Kwan, 2014, Table 1). Nevertheless, even when
this is taken into account, it remains the case that China’s share of world ex-
ports has increased significantly over time, and it has become a major centre
for global industrial production.
Another important implication of looking at trade in terms of value added
rather than gross trade flows is that it can significantly alter perceptions of
bilateral trade balances between countries. For instance, China’s large trade
surplus with the USA is substantially reduced when account is taken of the
fact that much of the value of Chinese exports is value added from other
12
Trade flows are usually measured in gross terms; in other words, they measure the total value
of products crossing national borders. This gives rise to an element of double counting when there
is a lot of trade in inputs for use in products that are subsequently exported. When country A
exports parts to country B for assembly, with the assembled product exported to country C, the
value of the exports of parts is counted twice, first as exports from A to B and then as part of the
value of the assembled product being exported from B to C.
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The Workshop of the World
Asian countries. For example, in 2009, China’s trade surplus with the USA,
which was reported to be $189 billion, dropped by a third when calculated
in value-added terms (Kwan, 2014, Figure 1).
When China began to export manufactured goods in the 1980s, the initial
focus was on labour-intensive consumer goods such as clothing, footwear,
toys, and sports goods. Over time the range of goods exported grew to include
consumer durables such as laptops, mobile phones, and TVs; intermediate
goods such as steel and chemicals; and capital goods including machinery,
trucks, and locomotives.
There has been a lively debate about the ‘sophistication’ of Chinese ex-
ports. The growing share of medium- and hi-tech products in China’s exports
does suggest a process of upgrading in which they are becoming increasingly
sophisticated. This debate has major implications, both for China itself in
terms of the impact of exports on structural change and economic growth,
and for other countries in terms of which economies and industries are likely
to face serious Chinese competition.
The ‘sophistication’ of exports can be defined in a number of differ-
ent ways. There are several classifications of industries or products which
identify those that use high, medium, or low technology. One commonly
used classification is that of Lall (2000), which classifies products into
primary products, resource-based manufactures, and low-, medium-, and
high-technology manufactures.13 Other measures that have been used are
indices of similarity or dissimilarity between Chinese exports and those of
developed countries (Schott, 2008; Wang and Wei, 2010) and the Hausmann
et al. (2007) index of export sophistication (EXPY14 ) (Rodrik, 2006; Xu, 2010;
Jarreau and Poncet, 2012).
Figure 2.2 shows the share of China’s manufactured exports according to
Lall’s classification of technology level. The share of high-technology prod-
ucts, accounted for mainly by electrical and electronic products, increased
significantly between 1995 and 2005, while that of low-technology products
fell by a similar amount. Since 2005, the shares of different product groups
have remained constant.
There is also evidence that China’s exports have become more like those
of the developed countries over time (Schott, 2008, Table 12; Wang and
13
The OECD has a classification of manufacturing industries which distinguishes between
high-, medium-high-, medium-low, and low-technology industries, based on R&D intensity. This
is more aggregated than the Lall classification. See Yang (2016), Tables 5 and 6.
14
This index assumes that countries with higher per capita income tend to export products
that are more sophisticated. A product’s level of sophistication can, therefore, be calculated as the
weighted average of the per capita income level of those countries that export the good (referred
to as PRODY). The sophistication level of a particular country’s export basket (EXPY) is then the
weighted (by share in exports) average PRODY of its export basket, so that the higher the share
of high PRODY (i.e. sophisticated) products in its exports, the higher the value of EXPY.
45
How China is Reshaping the Global Economy
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
19 5
19 6
97
19 8
20 9
20 0
20 1
20 2
03
20 4
05
20 6
20 7
08
20 9
20 0
11
20 2
20 3
14
20 5
16
20 7
18
19
9
9
9
9
0
0
0
0
0
0
1
1
1
1
19
19
20
20
20
20
20
20
20
Low tech Medium tech High tech
Wei, 2010, Table 2.1) and that they have been characterized by an increasing
EXPY (Jarreau and Poncet, 2012). It has been claimed that China’s exports
are more sophisticated than would be predicted from its per capita income,
and that this has contributed to the rapid growth of the Chinese economy
(Rodrik 2006).
Claims about the sophistication of Chinese exports have been challenged
on a number of grounds. First, although the range of products that China
exports is relatively sophisticated, it tends to export low-quality varieties of
each type of product, as indicated by lower prices than those charged by
exporters from higher-income countries (Schott, 2008; Xu, 2010). Second,
most of China’s exports come from the coastal provinces, which have con-
siderably higher levels of income than the average for the country as a whole,
which is used to predict the sophistication of exports (Xu, 2010). A third ar-
gument is that even though China is exporting high-tech products, such
as laptops and mobile phones, the production processes that take place in
China are relatively labour-intensive assembly and packaging rather than
high-technology design and sophisticated component manufacturing (Amiti
and Freund, 2010).
This last argument is related to the importance of processing trade in
Chinese exports, as discussed previously. It is clear that processing trade
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The Workshop of the World
47
How China is Reshaping the Global Economy
the share of private domestic firms increased from 1 to 39 per cent in 2000–13
(Lardy, 2014, Figure 3.3).
15
Although there are distinct intellectual traditions and bodies of literature associated with
global production networks and global value chains, the two approaches have much in common.
Since the discussion draws on both sets of literature, the terms are used interchangeably here.
48
The Workshop of the World
trade regime and accounts for the very high share of foreign value added
in Chinese exports of electrical and electronic products. Over time, China
expanded from assembly activities to the production of lower-technology
peripheral products, such as computer keyboards, and then to an increasing
number of parts and components. As technological capabilities and skills
in China increased and foreign firms’ confidence in moving production to
China grew, China was able to upgrade its production, and Chinese-owned
firms were able to become increasingly involved in some global production
networks.
The extent to which China is integrated into global production networks
and global value chains can be measured by looking at the share of foreign
value added in their exports (upstream links) and the extent to which their
exports are incorporated into other products abroad and then re-exported
(downstream links). On this basis, China is one of the leading developing-
country exporters to be integrated into global value chains, behind only its
neighbours Singapore, Hong Kong, Malaysia, and South Korea (UNCTAD,
2013, Figure IV.13). It is far more integrated into global value chains than
other large developing countries such as Brazil or India.
Although this has so far been described as integration into global produc-
tion networks or value chains, it would be more accurate to describe China
as an example of integration into a regional East Asian network or value
chain. One indication of this is that half of the processing trade imports to
China in the mid-2000s came from Japan, South Korea, and Taiwan, and
70 per cent from East Asia as a whole. In contrast, the USA and Europe, com-
bined, accounted for less than 10 per cent of processing imports (Tong and
Zheng, 2008, p. 74). This has given rise to what has been described as a trian-
gular trade pattern between East Asia, China, and the West, in which now,
instead of exporting finished products directly, the East Asian economies ex-
port parts and components to China, which in turn exports finished products
to the USA and Europe (Tong and Zheng, 2008, p. 73; Gaulier et al., 2007,
pp. 56–8).
The picture is continually evolving, however, and China has become
much more than simply a platform from which other East Asian countries
export to developed-country markets. Increasingly there are two-way flows
of trade in parts and components between China and its neighbours, so that
imported inputs used in Chinese exports may themselves include some parts
originally produced in China. Regional integration is likely to be further
boosted by the signing of the Regional Comprehensive Economic Partner-
ship (RCEP) involving China, ten ASEAN countries, Japan, South Korea,
Australia and New Zealand in November 2020.
Although growing vertical integration within China has recently reduced
upstream links into global and regional value chains, this has been offset
49
How China is Reshaping the Global Economy
What has been the impact on the global economy of the emergence of China
as a manufacturing centre? If it were just a case of foreign companies re-
locating the final stages of their value chains from other Asian countries,
such as Hong Kong or Taiwan, to mainland China, the global impacts would
have been limited to some reconfiguration of trade flows, with goods previ-
ously imported from elsewhere in Asia now apparently being imported from
China. However, this would exaggerate the real changes in location that took
place, since much of the value added embodied in Chinese exports would
have been produced elsewhere. There would have been an impact on Asian
countries off-shoring production to China, but this would not necessarily
be negative since the relocated production processes would be relatively low
skilled, and this could be part of a process of industrial upgrading by those
countries.
This indeed is what began to happen in the 1980s and continued into
the 1990s with the transfer of production from Hong Kong, Taiwan, and
South Korea to China. For example, the two major categories of goods im-
ported to the USA from China at the end of the 1990s were footwear and
baby carriages, toys, and games and sporting goods. In the case of footwear,
in the late 1980s, almost 60 per cent of US imports came from South Korea
50
The Workshop of the World
and Taiwan, with only 2 per cent from China, but by the end of the 1990s,
these proportions had been reversed. Similarly, with baby carriages, toys,
and games and sporting goods, the fall in the share of imports from Hong
Kong, South Korea, and Taiwan from the mid-1980s almost exactly matched
the increase in imports from China (Branstetter and Lardy, 2008, Figs. 16.11
and 16.12).
Another reason why China’s impact on the global economy in the 1980s
and much of the 1990s was limited was its relatively small share of global
manufacturing value added (MVA) and global exports of manufactures
(Figure 2.1). However, the situation began to change in the late 1990s, and
China’s share of world MVA and world exports of manufactures increased
five-fold over the next two decades. By the mid-2010s China accounted for
almost a quarter of world MVA and a fifth of manufactured exports. It was
no longer a minor player in terms of its impact on global manufacturing.
The world began to take notice of China’s growing impact on the global
economy at the time of its accession to the WTO in 2001. In the immediate
aftermath of this event, a number of studies were published which analysed
the effects of its increased international integration on the rest of the world
(Lardy, 2004; Yang, 2003; Rumbaugh and Blancher, 2004; Ianchovichina and
Martin, 2004; Prasad and Rumbaugh, 2003). These were generally optimistic
and emphasized the positive impacts of China’s growing role in the global
economy in contrast to concerns expressed about the negative effects of in-
creased competition from China in the media and some business sectors in
both developed and developing countries.
China’s growth since the early 2000s has affected the global economy in
several ways. The rapid growth of its exports has had a major impact on the
prices of the manufactured goods that it exports.16 This has been particularly
marked in clothing and footwear, where prices have tumbled in recent years,
but it is also affecting a much broader range of products.
This price effect has a number of positive impacts, in that it helps reduce
inflationary pressures in importing countries and raises the real incomes of
consumers. Where China exports low-cost intermediate or capital goods, this
can help raise profitability and reduce the cost of investment. On the other
hand, falling prices have a negative effect on other exporters of similar prod-
ucts, leading to deteriorating terms of trade and the loss of export markets.
At the same time, domestic manufacturers faced with increased competi-
tion from cheap imports may be forced to retrench, laying off workers or
accepting smaller profit margins.
16
See Kaplinsky (2006) for evidence of the impact of Chinese imports on prices in the EU;
Amiti and Freund (2010) on the impact in the USA, and Fu, Kaplinsky, and Zhang (2012) on the
impact in the EU, the USA, and Japan.
51
How China is Reshaping the Global Economy
17
The MFA was a system of export quotas for textiles and garments in force between 1974 and
2004, which restricted the exports of developing countries and led to the spread of the industry
to new producing countries.
52
The Workshop of the World
EU.18 As China moves up the value chain, these effects may also extend to
the more skilled workers as they face more competition.
In the immediate aftermath of the global financial crisis, continued
growth in China as a result of the government’s stimulus package was seen
as making a major contribution to preventing the global economy from
plunging into a deep recession. More recently, however, it has become
evident that, as seen earlier, large-scale industrial investment has led to sub-
stantial excess capacity in many industries. Since China now accounts for
a major share of global production in industries such as steel, aluminium,
leather, and textiles; it also contributes to a situation of global excess capac-
ity. This put further pressure on international prices in these industries and
contributed to increasing trade tensions between China and other countries.
This was most graphically illustrated by the outbreak of the US-China trade
war in 2018.
18
Despite earlier scepticism amongst economists regarding the effects of imports from devel-
oping countries on wages and employment in developed countries, several recent studies have
concluded that competition from Chinese imports has affected either wages or employment or
both. See, for example, Acemoglu et al. (2014) and Autor et al. (2013) on the USA, Auer et al.
(2013) and Bloom et al. (2016) on Europe and Thewissen and van Vliet (2019) on 18 OECD
countries.
53
3
A Voracious Dragon?
China and Global Commodity Markets
China has not only transformed global manufacturing production but has
also had a major impact on world commodity markets. It is often portrayed
in the media as a ‘voracious dragon’ ‘prowling the globe in search of en-
ergy resources’, (The Guardian, 2005) and ‘scouring the world for minerals,
no regime is off limits’ (Financial Times, 2006), with little regard for the in-
terests of the countries that supply them (both quoted in Mawdsley, 2008,
p. 521). On the other hand, China’s demand for resources has also been seen
as a major boon. ‘For commodity producers in Africa, Latin America and
elsewhere, it primarily meant higher prices for their exports, thereby stim-
ulating economic growth’ (Jacques, 2012, p. 412) What lies behind both of
these perceptions is the fact that China’s rapid economic growth and trans-
formation into the workshop of the world has also made it a major factor in
many international commodity markets.
This chapter considers the implications for global commodity markets of
the rise of China and the effects on China itself and the strategies it employs
internationally. During the 1970s China was largely self-sufficient in terms
of raw materials and foodstuffs. This, together with the way in which the
state regulated the domestic market, separating it from international markets
through its monopoly of foreign trade, meant that China had little impact on
global markets. This began to change after the introduction of economic re-
forms, which gradually liberalized foreign trade, as described in Chapter 1. In
the mid-1990s China became a net importer of some key commodities such
as oil and soybeans (UNCTAD, 2005, Figure 2.8). From the late 1990s, with
changes in its industrial structure towards heavy and chemical industries,
China’s share in the global consumption of many commodities increased,
leading to it playing a more significant role in international markets. It also
meant that the Chinese economy became more dependent on imported raw
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0004
A Voracious Dragon?
1
See Farooki and Kaplinsky (2013, Chapter 5) for an extended discussion of the factors that
affect the supply of different types of commodities.
55
How China is Reshaping the Global Economy
2
Although a high share in global consumption of a commodity may mean that China has
a significant effect on global prices, in some cases, government policies insulate the Chinese
market from the world market so that the link between Chinese demand and international prices
is broken, e.g. through the policy of self-sufficiency for wheat and rice.
56
A Voracious Dragon?
Table 3.1. China’s significance in commodity markets, 2000, 2010, 2019 (%)
Iron ore 19.6 52.5 55.9* 14.9 57.7 67.1* 39.9 66.2 88.8*
Copper 12.7 38.2 53.6 11.4 34.9 52.3 64.6 66.9 76.7
Aluminium 13.4 39.1 58.1 1.5 52.5 84.0 4.9** 44.9** 60.9**
Oil 6.1 10.8 14.3 4.3 10.6 16.7 40.3 62.7 84.1
Coal 29.9 48.4 51.7 0.4 17.5 18.1 0.2 6.1 7.8
Gas 1.0 3.4 7.8 0 2.2 13.5 0 15.1 48.1
Cotton 22.8 39.2 31.0 0.8 33.0 18.3 1.2 26.9 20.1
Hides & Skin 19.8 28.7 27.9 15.8 43.2 44.9 25.6 46.2 44.9
Roundwood 9.6 10.7 10.2 11.6 29.9 41.6 4.1 9.0 15.0
Sawn wood 2.5 13.8 26.4 3.2 13.6 25.0 38.4 28.7 29.7
Wheat 19.7 17.7 16.8 0.4 0.6 2.0 0.3 0.7 2.7
Maize 19.1 21.6 25.2 0.1 1.0 2.8 0.0 0.5 1.5
Rice 32.2 28.3 28.7 1.0 1.2 5.5 0.2 0.3 1.7
Soybean 16.3 26.1 29.0 25.9 57.2 57.3 47.0 76.4 83.3
Fishmeal 26.4 31.9 35.0 28.8 33.2 43.7 65.6 69.7 71.7
Beef 8.4 9.6 11.9 0.2 0.5 13.9 0.3 0.7 19.8
Pork 44.5 47.4 41.0 4.1 3.7 23.6 0.4 0.5 5.4
Poultry 18.1 16.7 17.7 13.8 4.8 6.4 7.0 3.3 12.3
Bananas 8.2 9.4 11.8 4.1 3.7 8.4 10.7 6.5 14.3
Coffee 0.2 0.6 1.1 0.1 0.4 0.7 37.7 61.0 49.6
Sugar 15.8 8.9 9.5 6.7 4.0 8.0 9.4 15.2 27.1
•2018
** Share of imported bauxite in total bauxite consumption
Sources: Own elaboration from World Bank, Global Commodity Outlook; UNComtrade; World Steel Association,
Steel Statistical Yearbooks; COCHILCO, Anuarios Estadísticos del Cobre y Otros Minerales; US Geological Services;
BP, Statistical Review of World Energy, 2020; International Energy Agency, World Energy Statistics database;
OECD-FAO, Agricultural Outlook 2020–29 Database; FAOSTAT.
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How China is Reshaping the Global Economy
China’s accession to the World Trade Organization (WTO) in 2001 was fol-
lowed by a decade-long boom in commodity prices (see Figure 3.1). This was
interrupted in 2009 as a result of the global financial crisis, and resumed in
58
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140
120
100
80
60
40
20
0
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98
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Energy Metals and Minerals Agriculture
2010 and 2011. Commodity prices fell significantly after 2011, although they
recovered somewhat towards the end of the decade and they remain higher
in real terms than they were at the close of the twentieth century. That the
commodity boom coincided with a period of rapid economic growth and
growing integration with the global economy in China gave credence to the
view that China was a main driver of the commodity boom. The recent de-
cline in commodity prices coinciding with a slowdown in Chinese growth is
seen as further evidence that the two are connected. On the other hand, the
role of China in global markets differs considerably according to the com-
modity concerned, so the view of China as the key driver of commodity
prices needs to be considered further.
Demand from China is only one of the factors which have affected com-
modity prices. On the demand side, consumption in other markets plays
a role, particularly in those commodities in which China’s market share is
relatively modest. In some cases the growth of demand from China substi-
tutes for demand from other countries, rather than adding to global demand.
Many industries have shifted their production for world markets to China.
Where the industries concerned are resource based, increased demand for
resources in China will partly be offset by a reduction in demand in those
countries where production was previously located, so the growth of Chi-
nese demand will not have the same impact on commodity prices as in cases
where the industry has developed to meet local demand.
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How China is Reshaping the Global Economy
The extent to which changes in demand affect prices depends on the price
elasticity of supply.3 This differs across commodities and affects the extent
to which an increase in demand results in an increase in price or output.
Commodities with a low elasticity of supply (e.g. minerals) will see prices
increase more as a result of an increase in demand than those with higher
elasticity (e.g. cereals).
Commodity prices are also affected by changes in supply conditions
including the weather, disruptions caused by political conflict or labour
unrest in major producing countries, changes to the cost of inputs, techno-
logical change, and new resource discoveries. Many countries hold stocks
of commodities either for strategic reasons or in order to stabilize prices.
China, for example, has stockpiles of oil, copper, iron ore, wheat, rice,
soybeans, cotton, and other commodities. These have the potential to affect
global prices in the short term through destocking or decisions to increase
reserves.
In addition to the forces of supply and demand in the real economy,
commodity prices are also affected by financial factors. Since commodity
prices are normally measured in US dollar terms, changes in the value of the
dollar can affect the dollar price of commodities. The effect of changes in
the value of the dollar varies between commodities, with the most impact
on oil and gold, followed by metals, and a negligible impact on grains (IMF,
2008, Box 1.4). The growing financialization of commodity markets can also
affect prices. There is general agreement that there has been an increase
in the significance of financial investment in many commodity markets
in recent years (World Bank, 2009, Chapter 2; UNCTAD, 2009, Chapter 2),
with considerable debate over whether or not this has had a significant ef-
fect on prices, in terms of their level or their volatility (UNCTAD, 2011;
Cheng and Xiong, 2014). Again, it seems likely that the effect of financial-
ization on prices differs across commodities (Farooki and Kaplinsky, 2013,
Chapter 6).
3
The price elasticity of supply is the percentage change in output that results from a 1 per cent
change in the price of a good.
60
A Voracious Dragon?
particularly oil.4 Fewer studies also cover the effect of China on the prices of
agricultural commodities.5
Not surprisingly, given China’s large share of global consumption and
imports of minerals such as iron ore, copper, and aluminium (Table 3.1),
its impact on prices has been most marked in minerals and metals. Rapidly
growing demand from China, together with long gestation periods and a lack
of investment in new mines over a number of years, combined to increase
prices. Metal prices increased more than four-fold during the boom, faster
than any other commodity group.
Oil prices play the key role in energy markets, with gas and coal prices
following, albeit with a time lag (IMF, 2015, p. 38). Because China’s share of
both world consumption and imports of oil is still relatively modest in com-
parison to minerals and metals (Table 3.1), the impact of its growing demand
on energy prices has been quite limited, despite its growing dependence on
imported oil. While oil prices rose significantly during the boom, this was
mainly a result of supply-side factors, including limited investment in ex-
ploration and new oilfields, and geo-political problems in major producing
regions, particularly the Middle East (Streifel, 2006).
The prices of agricultural commodities did not rise as much as those of
minerals and energy commodities during the boom. One reason for this is
that it is much easier to increase the supply of particular agricultural products
in the short term since farmers can switch between crops and the invest-
ment requirements are lower and gestation periods shorter than for minerals,
oil, and gas resources.6 Even where Chinese demand is growing rapidly, the
impact on prices is, therefore, likely to be less pronounced than for minerals.
In the case of food and tropical beverages, China’s share of world con-
sumption either did not increase significantly, as in the case of grains; was
relatively low (coffee and sugar); or was largely supplied by domestic pro-
duction (meat products and bananas) (see Table 3.1). The few studies of such
products have concluded that Chinese demand was not a significant fac-
tor in the rise in food prices during the commodity boom (Headey and Fan,
2010; Jenkins, 2011; Villoria, 2012). In the case of grains, the higher prices in
the late 2000s were mainly driven by growing Western demand for biofuels
rather than by demand from China.
4
Studies of the effect of China on hard commodity prices include Cheung and Morin (2007),
Streifel (2006), Roache (2012) and Ghoshray and Pundit (2020) on minerals and metals and oil;
USITC (2006) on oil and aluminium; Yu (2011) on minerals.
5
Jenkins (2011), Farooki and Kaplinsky (2013) and Kolerus et.al. (2016) discuss a range of com-
modities, including examples of minerals, energy, and agricultural commodities. Villoria (2012)
analyses China’s effect on food prices.
6
This is particularly true for annual crops, although some tree crops such as coffee have a
longer gestation period between planting and production.
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How China is Reshaping the Global Economy
China is likely to have had a more significant effect on the price of feed-
stuffs such as soybeans and fishmeal, owing to its substantial and increasing
share in both consumption and imports of these commodities (Table 3.1).
Fishmeal prices tend to be linked to soybean prices because fishmeal is a sub-
stitute for soybean as animal feed. Although demand in China has grown
significantly, the effect on prices has been counteracted by increased pro-
duction, especially in Argentina and Brazil. So while the impact on prices of
feed has been greater than that on food and beverages, it has been nowhere
near as significant as the impact on minerals (Jenkins, 2011).
Although China accounts for a significant share of world consumption
and imports, in the case of agricultural raw materials, such as cotton, and
hides and skins (Table 3.1), the impact of Chinese demand on prices has
been relatively limited. Because demand was mainly driven by the relocation
of textile and garment and footwear production to China, growing demand
from China did not add significantly to global demand. In fact the prices of
hides and skins fell as other commodity prices were increasing, and cotton
prices did not rise above the levels of the late 1990s until 2010. Timber price
increases were also relatively modest during the commodity boom.
In conclusion then, it is clear that growing demand in China did make
a significant contribution to the commodity boom as far as minerals and
metals are concerned. The rapid growth in demand after a period of low
mining investment which resulted in capacity limits being reached was a
key factor in the surge in prices. The other commodities in which China
played a part in the boom were feedstuffs. These all belong to the first two
groups of commodities characterized by China’s significant share in world
consumption and trade. The commodities in these two groups where there
was little evidence of China fuelling a commodity boom were cotton and
skins and hides, where the growth in demand from China was mainly the
result of a shift in the location of the textile and garment and footwear in-
dustries to China. In the case of energy, the surge in prices was mainly due
to supply-side factors rather than growth of demand from China, reflecting
the country’s relatively low share of world demand and imports of oil and
gas. Finally, China’s impact on the prices of foodstuffs and tropical beverage
was also limited because of the government’s policy of food self-sufficiency
that restricted imports, or because China was a relatively small consumer of
these products.
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63
How China is Reshaping the Global Economy
attractive alternative with lower energy prices, which released land for other
crops.
It is of course true that had Chinese demand continued to grow at the
same rate as it had before 2011, commodity prices would (other things being
equal) be higher, particularly in the case of minerals and metals. It is also true
that a ‘hard landing’ in China, in which gross domestic product growth fell
to around 3 per cent a year, would have a more significant impact (Gauvin
and Rebillard, 2015). However, this does not mean that the reversal of the
commodity boom was a result of changes in China since 2011.
The impact of China’s growing demand for resources goes beyond simply
the effect (or lack of effect) on commodity prices. These other effects are a
result partly of the resource-security and industrialization strategies pursued
by the Chinese state, and partly of the specific characteristics of the Chinese
market.
7
Imports also account for more than 50 per cent of Chinese leather consumption, but this
does not have the same strategic significance as the other commodities discussed here.
64
A Voracious Dragon?
OIL
The above strategies have been most extensively used in the case of energy,
especially oil. China became a net oil importer in 1993, and since 2009, it
has relied on imports for more than half of its total consumption, increasing
to more than four-fifths in 2019 (Table 3.1). The debate on energy security
in China escalated in 2000, when oil imports increased sharply (Downs,
2004, p. 22). The debate involved a number of participants including the
State Development Planning Commission, the state oil companies, the Min-
istry of Foreign Affairs, the military, and various government think tanks.
The focus of the debate was very much on the supply side, with little atten-
tion to measures to reduce the demand for energy in China. Strategies to
increase security discussed included the diversification of sources of imports,
investment overseas by Chinese oil companies, the creation of a Strategic
Petroleum Reserve (SPR), the construction of international oil pipelines, and
building closer links with oil producing countries.
Historically, China has depended on imports from a small number of
countries, particularly in the Middle East. The effort to diversify sources
of supply has been an important part of the state’s strategy to reduce the
risk of supply disruption, which would have major adverse effects on the
country’s growth trajectory. Given the volatility of the Middle East, the gov-
ernment has tried to reduce its dependence on the region by developing
alternative sources of supply (Qian, 2013, p. 397). Although four countries
(Saudi Arabia, Angola, Iran, and Russia) account for more than half of China’s
imports of crude oil in recent years (Camus et al., 2013, Figure 4.4), their
share has declined significantly since the mid-1990s, as China has diversi-
fied its suppliers to include other African countries, Central Asian suppliers,
and Latin American producers (ibid., p. 12).
The largest Chinese oil SOEs, China National Petroleum Company
(CNPC), China Petrochemical Corporation (Sinopec), and China National
Offshore Oil Corporation, began to invest abroad in the early 1990s before
energy security became a major policy concern (Meidan, 2016, pp. 19–21).
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How China is Reshaping the Global Economy
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A Voracious Dragon?
8
Jinchuan Group, China’s largest nickel producer, comes under the Gansu province govern-
ment, and Nanchuan/Bosai, in bauxite, and the steel and mining Luanhue Industrial Group are
both privately owned (Shankleman, 2009, pp. 23–5).
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How China is Reshaping the Global Economy
and in Zimbabwe, profits from diamond mining have been linked to Chinese
loans.
9
A major investment planned by the Beidahuang Group of $1.4 billion in irrigation infrastruc-
ture in return for a 20-year contract to grow corn, wheat, soy, and dairy in Rio Negro province of
Argentina fell through (Smaller et al., 2012, Annex 1). A Jilin Grain Group project for 1 million
hectares of soybean production in Kazakhstan is in the planning stage (Smaller et al., 2012, Annex
1). Several projects have also been announced in Brazil (CEBC, 2011, Appendix 2).
68
A Voracious Dragon?
10
Peru is the world’s leading producer of fishmeal. China Fishery Group recently experienced
financial problems and put its Peruvian operations up for sale, but reports suggest that they are
likely to be bought by another Chinese company (Peru Reports, 2016).
11
This has been a concern of the US-China Economic and Security Review Commission of
the US Congress for a number of years. See, for example, USCC (2012). An alternative view sees
China’s raw material strategy as a reflection of its vulnerability and insecurity rather than as a
predatory grab for resources (Jiang, 2009, p. 58). As a latecomer to the global energy and mineral
market, China has had to concentrate its efforts on countries which have potential for increasing
reserves in the future and whose existing reserves are not already under the control of others.
12
There is also evidence of a similar shift to more flexible market-based pricing in bauxite in
recent years (Economy and Levi, 2014, p. 40).
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How China is Reshaping the Global Economy
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A Voracious Dragon?
13
Own elaboration from UNCTADStat data using the Lall (2000) classification of primary
products and resource-based manufactures (see Chapter 2).
14
This has been prompted by the ban on exporting unprocessed minerals imposed by the
Indonesian government in 2014. Indonesia was a major supplier of bauxite to China.
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How China is Reshaping the Global Economy
3.4 Conclusion
Although it has often been claimed that China’s growth was a key factor
in the commodity boom and China has been blamed for the more recent
drop in commodity prices, the evidence provided in this chapter indicates
that this is an oversimplification. It applies most clearly to the case of min-
erals, with China accounting for a large share of global consumption and
imports, but other factors have played a more significant role in energy and
soft commodities. The corollary is that the economic slowdown in China
cannot explain the fall in prices since 2011. China’s demand has continued
to grow, and even in the case of minerals and metals, where its contribution
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A Voracious Dragon?
to the earlier boom in prices was most evident, increased supply rather than
reduced demand from China has been the main factor causing prices to fall.
Although economists have tended to concentrate on prices, China has
also had other impacts on commodity markets. Political analysis has drawn
attention to the strategic implications of China’s growing presence. Some see
its efforts to secure supplies of key raw materials as a threat that could lead to
Western countries being locked out of these markets. The discussion in this
chapter indicates that such fears are exaggerated.
Another feature of the growth of Chinese demand has been the
reorientation of trade from the traditional South-North pattern, with an in-
creasing share of South-South trade. Although the rhetoric of South-South
trade implies a more equitable trading relationship than that which his-
torically characterized North-South trade this is not necessarily the case, as
for most developing countries trade with China involves exporting primary
commodities and importing manufactured goods. In several value chains,
there is evidence that the shift in the market to China has in fact led to
the downgrading of exports to less-processed raw materials. This has been a
common source of concern about trade relations with China. A second char-
acteristic of the Chinese market is that standards tend to be lower than or not
as strictly enforced as in the West. While this may make it easier for exporters
to access the market, it can have negative effects in the exporting country.
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4
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Chinese Firms Abroad
There is no doubt that China’s outward foreign direct investment (OFDI) has
grown rapidly since the start of the twenty-first century and the adoption of
the Go Global policy. However, quantifying the scale and significance of this
growth is made difficult by problems associated with the available statistics
(see Box 4.1).
The official source of data on OFDI is the Ministry of Commerce (MOFCOM), which
since 2003, has adopted the OECD and IMF definitions and methodologies for esti-
mating foreign investment. These figures may underestimate the true level of Chinese
FDI, because only information from firms registering their investment with MOFCOM is
collected, and many firms, particularly smaller ones, do not do so (Shen, 2013). In addi-
tion, as was mentioned in Chapter 1, there was significant ‘round tripping’ by Chinese
firms because the advantages enjoyed by foreign firms investing in China made it prof-
itable for companies to export capital from China to bring it back as foreign investment.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0005
Going Global
By its very nature, it is difficult to know the extent of round tripping, but estimates sug-
gest that it might have accounted for 15–20 per cent of total OFDI in the mid-2000s
(Lunding, 2006, p. 3). The tax advantages given to foreign firms were withdrawn in
2008, reducing the incentive for Chinese firms to practice round tripping.
The data problems which affect the figures on aggregate OFDI from China are multi-
plied when it comes to the level of investment in individual countries. Official statistics
only record the initial and not the ultimate destination of OFDI. Because so much
Chinese investment is channelled through Hong Kong and various tax havens, in-
vestment in other countries is underestimated (Garcia-Herrero et al., 2015; Anderson
et al., 2021). When China’s reported figures on outward investment in OECD countries
are compared with those of partner-countries on inward investment from China, the
average stock according to China’s figures is 40 per cent lower (OECD, 2008, Box 3.1).
Figure 4.1 shows that Chinese OFDI was very limited throughout the
1980s, increased somewhat during the 1990s, and then grew rapidly, fol-
lowing China’s accession to the World Trade Organization (WTO) in 2001.
There was a further increase in OFDI following the global financial crisis in
2008, which led to a spate of mergers and acquisitions by Chinese firms.
FDI outflows peaked in 2016 and then fell in the later years of the decade
following the introduction of new controls in response to falling foreign
exchange reserves and a global decline in FDI flows. The Chinese govern-
ment identified excessive outflows of FDI into sectors such as entertainment,
real estate and football clubs as a major factor in the fall in reserves and re-
sponded by making it more difficult to obtain foreign exchange and bank
loans for non-priority investments (Blanchard, 2019, p. 83). Despite this the
total stock of Chinese outward investment continued to increase, albeit at a
slower rate than in earlier years.
China’s share of global investment flows has increased from negligible
levels in the 1980s and 1990s to around 0.5 per cent in the early 2000s to an
average of over 11 per cent between 2016 and 2019 (UNCTADStat, n.d.). This
made China the third-largest foreign investor in the world, after the USA and
Japan in that period.
Since China has only recently become a significant player in terms of out-
ward investment, its share of the global stock of OFDI lags some way behind
its share in new flows. By 2019 China’s total stock of FDI, over US$2,000
billion, accounted for 6.1 per cent of the global stock (UNCTADStat, n.d.) but
this was only a sixth of the stock of EU outward investment and a quarter of
that of the USA.
These figures suggest that despite the hype surrounding China’s invest-
ment, it has not yet achieved a leading position in global terms. Given
the problematic nature of official data on Chinese OFDI, is it possible
that this conclusion is based on gross underestimation of the real level of
China’s international engagement? Other evidence suggests not. Between
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How China is Reshaping the Global Economy
5000
500
50
0.5
0.05
0.005
82
84
86
88
90
92
94
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98
00
02
04
06
08
10
12
14
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19
19
19
19
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20
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20
20
20
20
20
20
20
OFDI Flow OFDI Stock Contracted Projects
Figure 4.1. Chinese stock and annual flow of outward FDI and turnover of contracted
projects fulfilled, 1982–2019 (US$ billion)
Source: UNCTADStat and China Statistical Yearbook, 2020.
2016 and 2019, China’s share of the value of global cross-border mergers
and acquisitions (M&As) and greenfield FDI announcements came to about
10 per cent and 9 per cent, respectively (UNCTAD, 2020, Annex Tables 6
and 13), slightly less than its share in outward investment flows. This again
indicates that China lags some way behind the EU and USA in terms of its
involvement in FDI.
Another indicator of the extent of China’s overseas expansion is the
number of Chinese companies ranked amongst the world’s leading transna-
tional corporations. Although the number of Chinese firms on lists of the
world’s largest companies, such as Forbes’ and Fortune’s, has grown sig-
nificantly in recent years, this is due to the scale of their production in
China itself. Until recently few Chinese companies could be considered
truly transnational corporations (TNCs) in the sense of having extensive
overseas operations. Only two Chinese corporations were in the top 100
non-financial companies in the world, ranked in terms of their foreign as-
sets in 2015: the China Ocean Shipping Company and the China National
Offshore Oil Corporation (CNOOC) (UNCTAD, 2016, Annex Table 24). The
recent growth in operations abroad has seen the number increase to nine by
2019, including major Chinese companies such as China National Petroleum
Company (CNPC), Sinopec, Sinochem, Tencent, Huawei and Legend
(UNCTAD, 2020, Annex Table 19). However the level of globalization of the
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1
Own elaboration from list of largest non-financial Chinese TNCs ranked by OFDI stock
(MOFCOM, 2016, Table 12).
2
See Low and Jiang (2003) on the development of the international activities of Chinese
construction companies.
3
In the period 1976–9, contracts were signed with only eleven countries (NBS, 1996, Tables
16–18).
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1998–2000 2016–2018
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How China is Reshaping the Global Economy
As was the case with OFDI, SOEs have played a major role in the growth of
overseas projects. Soon after the start of the reform four large SOEs were iden-
tified to specialize in engineering and construction projects abroad (OECD,
2008, pp. 81–2).4 The number and size of Chinese contractors operating
overseas grew steadily from the mid-1980s. They have been able to leverage
the experience gained at home with the Chinese government’s massive in-
frastructure programme to build capabilities which make them formidable
competitors internationally.5 They are now amongst the largest in the world
in terms of their overseas operations. A total of seventy-four Chinese com-
panies were ranked in the top 250 international contractors in terms of their
international revenue in 2019, more than from the whole of Europe and
twice as many as from the USA (ENR, 17–24 Aug. 2020, p. 40).
SOEs continue to play a leading role in international contracting. In 2010,
eighty-five centrally owned SOEs accounted for 36 per cent of the value
of foreign projects (Ohashi, 2013, p. 92). The remainder is dominated by
companies under provincial or local government ownership. Of the largest
twenty Chinese companies in terms of their international contracting rev-
enues, only one, Qingjian Group Co. Ltd, is privately owned. More than
forty of the largest fifty contractors are SOEs.6 The largest Chinese compa-
nies operating abroad were the China Communications Construction Group,
the Power Construction Corporation of China, the China State Construc-
tion Engineering Corporation, the China Railway Construction Corporation,
the China Railway Group, and the China Energy Engineering Corporation,
which are all in the international top twenty; they are also all state-owned
companies.
Discussing relations between China and the Global South, Breslin (2013) dis-
tinguishes between the strategic diplomatic or political objectives and the
strategic economic objectives pursued by the Chinese state, and the com-
mercial objectives of Chinese firms. This section considers the state’s strategic
4
These were the China State Construction Engineering Co. Ltd, the China Civil Engineering
and Construction Corporation, the China Road and Bridge Engineering Co. Ltd, and the China
Complete Set Equipment Import and Export Co. Ltd.
5
For example, China Gezhouba Group Corporation was set up in 1970 to build the Gezhouba
Dam, the first large-scale hydropower project in China. Similarly, the Three Gorges Corporation
was founded in 1993 to build the project of the same name. These are now amongst the leading
international dam builders (Hwang et al., 2015).
6
Own elaboration from the Chinese companies included in the Engineering News-Record
(ENR) list of the Top 250 International Contractors (ENR, 2020).
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How China is Reshaping the Global Economy
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How China is Reshaping the Global Economy
and railway equipment to utilize growing excess capacity and expand abroad
(Zha et al., 2019).
A further strategic objective that has become increasingly important is
obtaining foreign technologies through the acquisition of, or joint ven-
tures with, more technologically advanced companies in the West. As China
seeks to upgrade technologically it has not only sought to increase R&D
within China but also encouraged Chinese firms to set up R&D activities
abroad and collaborate with foreign R&D institutions and innovative en-
terprises (Sauvant and Chen, 2014, p. 143). This was set out explicitly in
the Twelfth Five-Year Plan on Inward and Outward FDI, published in 2012,
which identified three priority areas for OFDI. These are natural resource
projects to secure stable, sustainable supplies of energy and raw materials; in-
vestments that help to promote technological upgrading in China through
the acquisition of foreign know-how and brands; and investments to expand
China’s presence in overseas markets (NDRC, quoted in Sauvant and Chen,
2014, p. 144).
One indicator of the state’s strategic priorities in terms of promoting the
international expansion of Chinese firms is the distribution of government
loans to finance OFDI and build-own-operate-transfer projects.7 Irwin and
Gallagher estimated that almost four-fifths of such loans were for oil and
mining projects between 2003 and 2012, indicating that the acquisition of
natural resources was by far the state’s most important objective in that
period. They estimate that about 15 per cent of loans were motivated by
market access, particularly to support infrastructure projects in power, while
only 4 per cent were related to technology acquisition (Irwin and Gallagher,
2014). Since 2012 it is likely that these two objectives have become more
important.
7
The latter only includes projects where the Chinese company has a long-term involve-
ment and is not just a contractor providing goods and services rather than investing (Irwin and
Gallagher, 2014, p. 7).
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How China is Reshaping the Global Economy
8
Zhan (1995, Figure 3) estimates that 24 per cent of Chinese OFDI between 1980 and 1994 was
in natural resources. More recent data, from MOFCOM, shows the share of mining at 25 per cent
of the stock of OFDI in 2006. Agriculture, forestry, and fisheries account for a further 1–2 per cent
of the total.
9
Own calculation from the China Global Investment Tracker database. These figures overes-
timate the true share of extractive industries since energy also includes power generation while
although metals includes mining, some investments are in manufacturing activities such as steel
or aluminum.
86
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2009; Kolstad and Wiig, 2012; Wang and Yu, 2014, Zhang and Roelfsema,
2014; Dollar, 2017). This factor is particularly significant in explaining
Chinese investment in developing countries. Some of these studies also find
that the role of resources in explaining the pattern of investment has be-
come more significant in the first decade of the twenty-first century. This
reflects the Chinese economy’s growing dependence on imported resources,
as discussed in the Chapter 3.
More direct evidence of the motives of Chinese firms investing abroad is
provided by firm surveys. These have found that resource seeking is impor-
tant for a substantial minority of firms. In a 2005 United Nations Conference
on Trade and Development (UNCTAD) survey of Chinese firms, 40 per cent
of firms regarded this as an important motive (UNCTAD, 2006, p. 168, n.61).
Another survey by the China Council for the Promotion of International
Trade (CCPIT) (2011) reported that 28 per cent of firms considered accessing
natural resources a decisive or important factor in their investment deci-
sions, and this was the third most important decisive factor identified.10 One
limitation of these surveys is that they do not take into account the scale
of investment involved. Since resource-seeking FDI tends to be dominated
by large SOEs, the proportion of the value of investment motivated by re-
source seeking is likely to be greater than the proportion of firms citing it as
a motive.11
In the case of international projects carried out by Chinese firms, only a
minority can be directly identified as resource seeking from the point of view
of the firms concerned. According to the China Global Investment Tracker,
the oil, coal, and gas industries accounted for just over a fifth of the value
of Chinese projects since 2005.12 It is of course possible that projects are
indirectly linked to the acquisition of resources, as in the case of resources
for infrastructure deals, but the commercial objective of the firm building
the infrastructure, as opposed to the strategic objective of the Chinese state,
is not to obtain resources.
10
Note that these surveys do not require firms to identify the most important motive for OFDI,
and that they may select several important factors.
11
Huang and Wang (2013, Table 3) report that whereas over 40 per cent of the number of
projects approved by NDRC since 2003 were motivated by resource seeking, these accounted for
more than 50 per cent of the value of investment.
12
There may have been some projects in mining, but most of what is classified as metals
appears to be steel and aluminum plants rather than mining.
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13
Overcapacity in China’s home-appliance industry has been estimated at over 30 per cent for
washing machines, 40 per cent for refrigerators, 45 per cent for microwave ovens and 87 per cent
for televisions (OECD, 2008, Chapter 3, n.67) which has put pressure on manufacturers to find
new markets.
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Going Global
14
The econometric studies discussed earlier do not discuss the efficiency-seeking motive as an
explanation for Chinese OFDI.
15
Access to low-cost labour was the least significant of nineteen factors driving OFDI, accord-
ing to the first survey of Chinese FDI by the Asia Pacific Foundation of Canada and the China
Council for the Promotion of International Trade (APFC/CCPIT, 2005, p. 16).
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How China is Reshaping the Global Economy
such as Vietnam and Cambodia,16 where wages are lower than in China. An
econometric study of Chinese OFDI in the ASEAN countries between 2005
and 2016 found that low labour costs were a significant factor in attracting
investment in the region (Ma et al., 2020). Some authors, including former
World Bank Chief Economist Justin Lin, have suggested that such investment
could also occur in Africa in the foreseeable future (Lin, 2011). However,
there is little evidence of this occurring on a significant scale to date (see
Chapter 7). The last APFC/CCPIT survey of Chinese investors ranked ‘mak-
ing use of overseas low-cost labour’ last of twenty-one objectives of future
planned investment by Chinese firms (APFC/CCPIT, 2013, Figure 21).
16
Examples include Wuxi Huanyauan Garment Co. Ltd, which operates a textile factory in
Vietnam, exporting to the European and US market, and Ningbo Shenzhou Knitting Co. Ltd,
which exports clothing from Cambodia to the USA (OECD, 2008, Chapter 3, n.72).
90
Going Global
previously, over 90 per cent of the value of Chinese projects has been in
the Global South.
The econometric evidence on strategic asset seeking is mixed. Buckley
et al. (2007) and Wang and Yu (2014) find no evidence that such a motive
affects the pattern of OFDI,17 but Zhang and Roelfsema (2014) do find that
their indicator of the technology intensity of host countries has a positive
impact on Chinese investment, and that this appears to be stronger follow-
ing the adoption of the Go Global policy. Using firm-level data, Ramsamy
et al. (2012) find that strategic asset seeking, as proxied by technology level,
is a significant driver of SOE investment abroad, although not for private
Chinese firms.
One limitation of these studies is that they refer to the period before the
global financial crisis. The crisis opened up new opportunities for Chinese
investors to acquire Northern companies, so while the picture may have
changed somewhat, strategic asset seeking probably remains less important
than resource-seeking or market-seeking investment.18 Looking to the future,
‘upgrading its own brand in international markets’ was cited as the most
important driver of intended OFDI by Chinese firms in 2013 (APFC/CCPIT,
2013, Figure 21) and a survey of more than 200 Chinese companies in 2016
found that branding was the most important motive for going abroad (Wang,
2019, Figure 2.14). This suggests that strategic asset acquisition is becoming
a more significant factor.
Although the evidence discussed so far shows that market-seeking,
natural- resource-seeking, and strategic-asset-seeking motives have all been
significant factors in the growth of Chinese investment, this does not imply
that overseas expansion by Chinese firms does not respond to the gov-
ernment’s strategic priorities. In fact the various surveys of Chinese firms
consistently rank the Go Global policy as one of the major factors that led
them to invest abroad.19 This highlights the fact that the Chinese govern-
ment’s strategy sets the context within which firms make their decisions,
even if they are pursuing their own commercial interests.
17
Anderson et al. (2021) suggest that studies based on official Chinese statistics underestimate
the importance of strategic assets as a motive for Chinese firms because such investment often
occurs through Hong Kong or tax havens.
18
The analysis of NDRC-approved projects by Huang and Wang (2013, Table 3) supports
this. When classified according to their primary motivation, resource seeking accounted for
51.3 per cent; market seeking for 28.4 per cent; and technology seeking for 20.1 per cent of the
value of investment between 2003 and 2011.
19
In the CCPIT survey for 2010, the Going Global policy and relevant favourable support
was rated as either a decisive or an important factor in the investment decisions of more than
90 per cent of those questioned (CCPIT, 2011, Table 1.2). In a 2016 survey it was joint second in
terms of the proportion of firms reporting it as a key factor (Wang, 2019, Figure 2.14).
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92
Going Global
20
Downs (2008, p. 88) estimates that 40 per cent of the production of Chinese SOEs was sold
outside China in 2007.
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How China is Reshaping the Global Economy
94
5
At the height of the Eurozone crisis in 2011, China was heralded as the so-
lution to Europe’s debt crisis (The Economist, 2011). European governments
were approaching China, cap in hand, for financial support. This is one in-
dication of China’s growing importance in global financial markets. How
has a country with an income per capita far below that of even the poor-
est countries in the Eurozone acquired the means to be seen as the zone’s
saviour?
Another often-cited indication of China’s global financial prowess is its
role in lending to developing countries. It is widely claimed that China is
now lending more than multilateral and regional development banks to de-
veloping countries, and that it is giving more aid than other donor nations.
How did a country that was a net recipient of foreign aid until the mid-2000s
become a major donor within a decade? How has it gone from a junior part-
ner in institutions such as the World Bank and Asian Development Bank
to the force behind the creation of new financial institutions such as the
Asian Infrastructure Investment Bank (AIIB) and the New Development Bank
(NDB)?
It is the massive growth in China’s foreign exchange reserves that has
made the country a significant player in global financial flows. After joining
the World Trade Organization in 2001, China’s balance of payments sur-
plus surged, as both exports and inward foreign direct investment (FDI) grew
rapidly. As a result China accumulated foreign exchange reserves which came
to US$3.9 trillion in 2014, the largest total of any country, according to the
World Bank, World Development Indicators.
Rather than simply accumulating reserves, the Chinese government has
taken steps to relax some of its restrictions on capital outflows and has
increased foreign investment and lending abroad. Outward financial flows
other than outward foreign direct investment (OFDI) have taken a variety of
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0006
How China is Reshaping the Global Economy
In 2007 the State Council decided to invest about 20 per cent of its foreign
exchange reserves in domestic and foreign alternative investments, and put
$270 billion into two sovereign wealth funds, the China Investment Cor-
poration (CIC) and the State Administration of Foreign Exchange (SAFE)
Investment Company (SIC) (Thomas and Chen, 2011). These, together with
the National Social Security Fund (NSSF), which was authorized to invest
abroad in 2005 in order to diversify the fund’s assets (Herd et al., 2010,
p. 35), became important vehicles for Chinese portfolio investment abroad.2
CIC was set up in 2007 with initial capital of $200 billion from China’s
foreign exchange reserves. It was created after economists from the Ministry
of Finance (MOF), the National Development and Reform Commission, and
the State Council’s Development Research Council criticized SAFE’s manage-
ment of foreign exchange reserves (Koch-Weser and Haacke, 2013, p. 15). It
was established with ministerial rank and reports directly to the State Coun-
cil. In terms of operational control, the MOF has most influence within the
CIC, and its first chair, Lou Jiwei, was a former Vice Minister of Finance
who subsequently became Minister of Finance. In 2019 CIC was the world’s
second largest sovereign wealth fund (SWF), with total assets under manage-
ment of more than $1,000 billion (IE Center for the Governance of Change,
2019)). Its international portfolio increased from $56 billion to $250 billion
between 2008 and 2015 (Sovereign Wealth Center, 2017).
In 2019 SIC, the other major Chinese SWF, managed assets of almost
$700 billion, making it the sixth-largest SWF in the world (IE Center for the
Governance of Change, 2019) The SAFE Investment Company was set up in
Hong Kong in 1997 as a subsidiary of SAFE, which is responsible for manag-
ing China’s foreign exchange reserves, with an initial capital of $20 billion.
1
As was the case for OFDI, there are significant problems in measuring other Chinese financial
flows so that official figures probably underestimate the true extent of such flows. See Horn et al.
(2019) for estimates of what they refer to as ‘hidden debts’ to China.
2
Portfolio investment refers to investment in stocks and shares, which, unlike foreign direct
investment, does not give the investor managerial control over the company in which the in-
vestment is made. The International Monetary Fund (IMF) regards investments where the holding
represents more than 10 per cent of the company as direct investment, and those with less than
10 per cent as portfolio investment.
96
The World’s Wallet?
SIC makes both direct and portfolio investments abroad. Although the bulk
of its assets are in government bonds, cash, and other liquid assets, it has
also invested in oil and gas, with a stake in Total Société Anonyme. During
the global financial crisis SIC invested $150–$200 billion in US, European,
and Australian shares. It has also invested in property and utilities in the
UK. At the end of 2012, it was estimated to hold at least $21 billion in FTSE
100 stocks (Santiso, 2013, p. 48).
NSSF was created by the Chinese government in 2000 as a strategic fund
to support future social security expenditure. In 2019 it was also ranked as
one of the top ten SWFs in the world, with assets of over $400 billion (IE
Center for the Governance of Change, 2019). NSSF was only allowed to invest
7 per cent of its assets abroad until 2009, when the allowance was increased
to 20 per cent, giving it a capacity to acquire $30–40 billion in overseas assets
(Koch-Weser and Haacke, 2013, p. 24).
The China-Africa Development Fund (CADFund) was announced by
President Hu Jintao at the 2006 Forum on China-Africa Cooperation, and
set up in the following year under the auspices of the China Development
Bank (CDB), with a specific mandate to finance investment by Chinese firms
in Africa. It is much smaller than the other three Chinese SWFs, with assets
of $10 billion, and is the only one that focuses exclusively on developing
countries.
Although it is an SWF, its investments do not qualify as portfolio invest-
ments as defined by the International Monetary Fund (IMF). It was originally
set up to acquire majority shareholdings in Chinese investments in Africa,
but this was subsequently modified so that it can hold shares of between
10 and 40 per cent (Grimm and Schickerling, 2013). It has invested in a cot-
ton cultivation project in Southern Africa, power generation in Ghana, and
manufacturing in Ethiopia. CADFund also provides advice and information
to Chinese companies considering investing in Africa.
In 2011 these four funds between them accounted for about a quarter of
the total assets managed by all SWFs in the world (Koch-Weser and Haacke,
2013, p. 8). However, SWFs only accounted for 3.6 per cent of the total
global management fund industry in that year (ibid. Table A3), so the share
of Chinese SWFs in global funds would be less than 1 per cent.
Rather surprisingly in view of the rapid growth of Chinese SWFs over
the past decade, Figure 5.1 shows that Chinese portfolio investment did not
grow in the decade to 2015 when it was slightly lower than before the global
financial crisis. A major reason for this is that the two main Chinese SWFs
are managed out of Hong Kong, so their investments are not included in
data for the mainland. Portfolio investment from Hong Kong increased al-
most three-fold over the decade to 2015, and was almost five times the level
of reported investment from the mainland (IMF, 2020). Although portfolio
investment from the mainland increased from the middle of the decade, it
97
How China is Reshaping the Global Economy
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0
04
05
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Portfolio Investment Trade Credits Loans
was still only a third of the level of investment from Hong Kong at the end
of 2019 (IMF, 2020). However even the total sum invested by the People’s
Republic of China (PRC) and Hong Kong (after netting out bilateral flows to
avoid double counting) is fairly small, accounting for less than 3 per cent
of the global portfolio investment of over $66 trillion, according to the IMF
(2020).
Chinese finance is popularly perceived as going mainly to the developing
world, but this is certainly not the case with portfolio investment. Over half
of investment at the end of 2019 was in Hong Kong, and the Caribbean tax
havens with the remainder concentrated in developed countries. The most
important developed country destination was the USA, which accounted
for a quarter of the total. The other top destinations were the UK, Japan,
Luxemburg, Germany, France, and Australia (IMF, 2020). This pattern is also
reflected in the distribution of the overseas assets of China’s main sovereign
wealth fund, the China Investment Corporation, mainly in the USA and
other developed countries (CIC, 2020 p. 25).
98
The World’s Wallet?
Chinese assets held abroad other than direct and portfolio investment con-
sist mainly of bank lending and trade credits. As Figure 5.1 shows, both grew
faster than portfolio investment up to 2015, but since then trade credits
have levelled off as a result of the slowdown in international trade and bank
lending has slowed. At the end of 2019, outstanding trade credits stood at
$560 billion and loans at almost $700 billion.
China has used export credits extensively to secure foreign markets.3 Glob-
ally it has been estimated that China accounted for about a third of all official
trade-related finance in 2019. Its total official medium and long-term export
credit came to three times as much as that of any other country in that year
(EXIM, 2020).
Overseas lending by Chinese banks has also grown significantly in re-
cent years, particularly since the global financial crisis. According to the
Chinese Banking Regulatory Commission, while eleven Chinese banks had
assets abroad of $227 billion in 2006, by 2012, sixteen banks held total assets
of more than $1 trillion.4 More recently the total foreign assets of Chinese
banks have passed the $2 trillion mark. Chinese banks were responsible for
7 per cent of global cross-border loans, but were much more significant in
emerging markets where they were the major lenders with almost a quarter
of the total (Cerutti et al., 2020, Table 1). The two main policy banks and the
four largest commercial banks in China account for the bulk of foreign loans
(OECD, 2015, p. 15).
The Chinese policy banks, the CDB and the Exim Bank, play a key role
in Chinese lending abroad. It has been estimated that between them they
accounted for more than three-quarters of all direct cross-border lending
between 2000 and 2017 (Horn et al., 2019, p. 17). The largest of the pol-
icy banks is the CDB, which has full ministerial rank and comes under the
State Council. Its original role was primarily to fund major government
infrastructure and industrial projects within China such as the Three Gorges
Dam, the South-to-North Water Diversion Project, the West-East Natural Gas
Pipeline, and the Qinghai-Tibet Railway (Downs, 2011, p. 18). It also provides
loans to many local governments within China. It is able to provide fund-
ing on a much longer-term basis than the commercial banks because of its
quasi-sovereign nature. It does not, however, provide concessional loans.
3
In 2005–8, the total medium and long-term export credit agency financing as a share of
merchandise exports was 3.2 per cent in China compared to 1 per cent or less in Canada,
Germany, Japan, the UK, and the USA (Massa, 2011, Table 1).
4
These figures include those from Hong Kong, Macau, and Taiwan. Since most Chinese banks
do not break down their foreign assets by country, it is impossible to say what proportion of total
assets abroad these represent, although for one bank that does provide figures, they make up
60 per cent of loans (IIF, 2014).
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How China is Reshaping the Global Economy
From the outset, the CDB’s mandate has been to break through bottle-
necks in Chinese economic and social development. While initially these
were conceived in terms of financing infrastructure and large-scale indus-
trial projects within China, as the economy became increasingly dependent
on imports of key raw materials, a natural extension of its role was to help
to ensure access to foreign sources of energy and minerals.
Since the government’s adoption of the Go Global policy in the early
2000s, the bank has become involved in lending outside China in a signif-
icant way. Between 2005 and 2015, its foreign currency loans grew more
than twenty-fold from $16 billion to $328 billion (Kong and Gallagher, 2016,
Figure 5). It was estimated that at the end of 2015, the CDB accounted for
29 per cent of foreign lending by Chinese financial institutions (Kong and
Gallagher, 2016, p. 21). Nevertheless, domestic lending still represents most
of its business.5
Although it was decided to commercialize the CDB in 2008, this was put
on hold as a result of the global financial crisis and was reversed in 2015.
Its role as a key financier of the Go Global strategy was a factor used to jus-
tify retaining its status as a policy bank (Downs, 2011, p. 23). It is the only
Chinese bank apart from the Central Bank (the People’s Bank of China) to
enjoy full ministerial rank, which reflects the centrality of its role in China’s
economic development strategy (Downs, 2011, p. 6).
The Exim Bank was also set up in 1994, with a mandate to ‘facilitate the
export and import of Chinese mechanical and electronic products, complete
sets of equipment and new and high-tech products, assist Chinese compa-
nies with comparative advantages in their offshore project contracting and
outbound investment, and promote international cooperation and trade’
(China Exim Bank, 2015, p. 5). Like the CDB, it also comes under the State
Council.
The Exim Bank is now the largest export credit agency in the world. It
is, however, considerably smaller than the CDB, both in overall size and in
terms of its operations outside China. In 2013 its overseas lending came to
$96 billion compared to the CDB’s $261 billion (OECD, 2015, p. 15). It is the
only Chinese bank that provides concessional loans, making it the conduit
for a significant part of China’s ODA (see section 5.3), as well as providing
preferential export credits.
The four state-owned commercial banks have also played a growing role in
lending abroad and they have been particularly active in financing projects
as part of the BRI in recent years (Chin and Gallagher, 2019, pp. 259–61). The
most significant of the commercial banks in terms of the size of its overseas
5
In 2015 only 14 per cent of CDB loans were made outside mainland China (CDB,
2015, p. 9).
100
The World’s Wallet?
assets is the Bank of China (BOC), followed by the Industrial & Commer-
cial Bank of China (ICBC), and the China Construction Bank (CCB). The
Agricultural Bank of China (ABC) is the least internationalized. However for-
eign assets only account for 9 per cent of the commercial banks’ total assets
(Economist, 2020) and they are far less internationalized than the leading
developed country banks,6
Although the four banks have significant government ownership, they
are expected to operate on a commercial basis. They are also publicly listed
and have more diversified shareholdings than the policy banks do, which
increases the pressure on them to maximize short-term profits.
Chinese aid can be traced back to 1950, when it began providing material
assistance to its neighbours North Korea and North Vietnam. Since 1954
China’s external relations have been couched in terms of the Five Principles
of Peaceful Coexistence. These comprise respect for territorial integrity and
state sovereignty; mutual non-aggression; mutual non-interference in inter-
nal affairs; equality and mutual benefit; and peaceful coexistence. Despite all
the changes that have taken place in China over the past six decades, these
principles are still cited.
In the 1950s China was a net recipient of foreign aid but became a
net donor after the Soviet Union cut off its aid in 1960. In 1964, Chinese
Premier Zhou Enlai announced the Eight Principles for Economic Aid and
Technical Assistance to Other Countries in a speech during a tour of African
countries. These sought to distinguish Chinese aid from that given by the
Western powers. They again emphasize equality, mutual benefit, and respect
for the sovereignty of recipient countries. They also stress China’s support
for countries wishing to embark on the road to self-reliance and independent
economic development, and the need to transfer technology effectively.
China expanded its aid programme in the 1960s and 1970s, and aid to
Africa grew significantly. This period was characterized by a number of large-
scale Chinese projects, most notably the Tanzam Railway linking Zambia
and Tanzania, which was started in 1970 and completed in 1975. It also saw
China build a number of turnkey factories to produce textiles, refine sugar,
and so on, and to provide support for agricultural development.
By the mid-1970s, foreign assistance was becoming a significant burden
on the Chinese government’s budget. In the Fifth Five-Year Plan (1976–80),
6
BOC ranks 28th and ICBC 34th amongst global banks in terms of the Bank Internationaliza-
tion Index (Shenglin, 2019).
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How China is Reshaping the Global Economy
a ceiling was placed on aid spending, which led to a sharp reduction in aid
in the late 1970s and early 1980s.
The major changes that took place in China in the late 1970s led to a new
phase in Chinese aid. First, China reverted to being a net recipient of aid
as a result of significant assistance from Japan, following the signing of the
Treaty of Peace and Friendship between the two countries in 1978. Second,
although China continued its aid programme, it did so on a much-reduced
scale.7 Third, the nature of China’s aid programmes changed, with much
greater emphasis on mutual benefit through economic cooperation. The re-
forms in China led to a greater emphasis on economic efficiency and the
need to generate foreign exchange, and this was reflected in China’s aid pro-
gramme, with more attention given to economic benefits and opportunities
for earning foreign exchange.
Some of these changes were reflected in the Four Principles of Economic
and Technological Cooperation announced by Premier Zhao Ziyang during
a four-week visit to a number of African countries in early 1983. While re-
iterating several of the Eight Principles from two decades earlier, the Four
Principles introduced notions of complementarity between China and the
African economies and the importance of obtaining good economic returns.
The Four Principles do not mention aid, and were seen as a move away from
aid, towards a variety of other forms of economic cooperation (Brautigam,
2009, p. 53).
A further stage in China’s aid policy, described by Brautigam (2008,
p. 206) as the period of ‘gearing up for going global’, began in the mid-1990s.
In 1994 China launched its Grand Plan of Trade and Economic Cooperation,
which proposed that aid should be integrated with FDI, economic cooper-
ation projects, and trade. Central to this strategy was the introduction of
concessional loans by the newly created Exim Bank in 1995. The emphasis
on win-win cooperation, and trade and investment became more central to
Chinese policy. This combination of foreign aid, investment, and trade has
become known as ‘trinity development cooperation’.
Since the early 2000s, China has also played a more proactive role in mul-
tilateral institutions. This has involved efforts to increase its voice and alter
the rules and balance of influence within existing institutions.8 Its rapid eco-
nomic growth and increased foreign reserves have enabled China to increase
its share of votes in key institutions such as the IMF and the World Bank.9
7
In 1989–90 Chinese aid was only a fifth of the level attained in 1975–6 in US$ terms
(Kobayashi and Shimomura, 2013, p. 55).
8
This has been described as the system-altering phase of China’s involvement in international
institutions (Shambaugh, 2013, p. 136).
9
The US Congress refused to ratify IMF reforms which increase China’s share of votes in the
organization on several occasions. It eventually approved these changes in December 2015.
102
The World’s Wallet?
It also saw the incorporation of the Chinese Yuan into the basket of
currencies included in the IMF’s Special Drawing Rights in 2015.10
A recent development, which could mark a new phase in the evolution of
Chinese aid, is the creation of new multilateral institutions in which China
plays a leading role.11 In 2015 the AIIB was launched, with headquarters in
Beijing, to provide an alternative source of funds to those of the existing mul-
tilateral institutions, for infrastructure investment in the region. Although
the USA and Japan, the leading countries within the World Bank and Asian
Development Bank (ADB), respectively, have not joined the AIIB, a number
of European countries including the UK have become founding members.
In the same year, the member countries of the BRICS—Brazil, Russia,
India, China, and South Africa—launched the NDB, also known as the BRICS
Development Bank), with its headquarters in Shanghai, aiming to create a re-
serve currency pool of $100 billion and their own credit rating agency as an
alternative to the three US agencies, Moody’s, Standard & Poor, and Fitch
(Snell, 2015, p. 61). Like the AIIB, the NDB focuses on financing infrastruc-
ture in developing countries, and is expected to be particularly involved in
Africa.
The creation of the AIIB and the NDB signals a significant shift in China’s
strategy, from trying to influence existing multilateral institutions from
within to developing new institutions and norms which are more in line
with China’s own perspectives. It also led to a significant increase in total
Chinese aid and in the share of multilateral aid in the total in 2015 and
2016 (Kitano, 2018). It remains to be seen whether these new banks turn out
to complement existing institutions, or emerge as their rivals.
10
SDRs are a supplementary reserve asset created by the IMF in 1969, whose value depends on
a basket of currencies and which acts as a unit of account.
11
Huang and Wei (2015, quoted in Xu and Carey 2015a, p. 6) identify 2015 as the start of a
new phase in Chinese aid policy in which it becomes a proactive institutional and conceptual
innovator.
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How China is Reshaping the Global Economy
Chinese aid and that of other countries difficult.12 This is further complicated
by the fact that Chinese figures on aid are provided by a number of different
government ministries and agencies, rather than a single central source.
Estimates of the scale of Chinese aid vary wildly. One study for the Rand
Corporation claimed that in 2011, China pledged a total of $189 billion in
aid to developing countries (Wolf et al., 2013), whereas the OECD reports
that Chinese aid in that year came to less than $2.5 billion (OECD, 2013a,
Table IV.1). These contrasting figures have been arrived at in two very dif-
ferent ways. The Rand figure is based on media reports of financial pledges
made by China, and it includes not only aid but also government-backed
investments, which the DAC defines as Other Official Finance (OOF) rather
than ODA. It also refers to pledges rather than disbursements, so that this is
finance which may (or may not) be forthcoming at some point.
The OECD figure comes from the Fiscal Yearbook of China’s MOF, which
reports ‘ODA-like flows’. This figure does not include concessional loans or
multilateral aid and, therefore, underestimates the level of Chinese ODA
(Kitano and Harada, 2014). Taking these additional elements into account,
Kitano and Harada estimate that Chinese aid, calculated on a basis that is
comparable to OECD data for DAC lenders, came to $4.7 billion in 2011.13
Their figure for gross disbursements of aid between 2010 and 2012, $14.48
billion, is very close to the total of $14.41 billion reported for the same period
in the Chinese Government’s 2014 White Paper on foreign aid.
All of the various estimates of Chinese aid agree that it has grown signifi-
cantly since the early 2000s. China has risen from sixteenth or seventeenth
place in terms of net foreign aid in the early 2000s to seventh, behind the
USA, the UK, Germany, France, Japan, and Turkey in 2017 and 2018 (Kitano,
2019, Figure 6). It still has some way to go to catch up with the five largest
developed country donors in terms of the amount of foreign aid that it gives.
It also provides less than 0.1 per cent of Gross National Income in aid, rather
less than the 0.3 per cent average for DAC countries and the 0.7 per cent
international target (Snell, 2015, p. 21). Given China’s much lower level of
per capita income compared to the OECD countries, this is not surprising.
These figures also give a more realistic picture of the significance of Chi-
nese aid compared to the other types of capital flows that have been discussed
in this chapter. Between 2001 and 2018, the cumulative amount of foreign
aid (estimated on a basis similar to that used by the DAC) was about $65
billion. This compares to a total value of portfolio investment of almost
$500 billion and foreign loans outstanding of over $700 billion at the end
12
See Brautigam, 2011a and Grimm et al., 2011, Table 1, for summaries of the differences
between the Chinese and DAC definitions of aid.
13
Kitano (2016) provides revised estimates for Chinese aid which give a figure of $4.8 billion
in 2011, but lower figures for 2012 and 2013 than Kitano and Harada (2014).
104
The World’s Wallet?
of 2018 (Figure 5.1). Since 2014 the annual net disbursements of Chinese
aid have been less than disbursements of preferential buyer’s credit (Kitano,
2019, Table 1)
14
As noted earlier, China’s concessional loans are channelled through the Exim Bank, which
is responsible for the assessment of projects and the allocation and recovery of loans.
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How China is Reshaping the Global Economy
The role of the Ministry of Foreign Affairs (MOFA) in relation to aid policy
is to advise MOFCOM (Xue, 2014, p. 31). The Chinese embassy in recipient
countries may play a role in proposing projects and levels of aid to the coun-
try (Lancaster, 2007, p. 4). However, although Chinese embassies come under
the MOFA, the Offices of Economic and Commercial Affairs at the embassies
are often in a separate location and report directly to MOFCOM, rather than
to the ambassador or the MOFA (Corkin, 2011, p. 67; Sun, Y., 2014, p. 22).
Some MOFA officials and scholars have argued that responsibility for China’s
aid programme should be transferred to MOFA because MOFCOM’s focus on
economic gains can have a negative impact on China’s strategic and diplo-
matic interests, but so far the State Council has sided with MOFCOM on the
issue (Zhang and Smith, 2017, p. 2336).
In total there are more than thirty agencies involved in aid in China, and
this has led some commentators to conclude that Chinese aid spending is
disorganized and fragmented, lacking effective coordination (Chaponnière,
2009, p. 61; Lancaster, 2007, p. 5; Watanabe, 2013, p. 76). To deal with
this problem, the government has taken steps to increase the level of co-
ordination between different agencies, establishing an interagency liaison
mechanism for foreign aid in 2008, upgraded to an interagency coordination
mechanism in 2011 (PRC, 2011).
In 2018 the government created the China International Development
Cooperation Agency (CIDCA) ‘to further the effectiveness of aid as a key
foreign policy instrument, to improve the strategic planning and overall co-
ordination of aid, to centralize aid management, to reform modes of aid
delivery, and to better serve China’s overall diplomacy and construction of
the BRI’ (official press release quoted in Rudyak, 2019, p. 4). CIDCA replaced
MOFCOM as the lead coordinating body for Chinese aid and absorbed the
staff of MOCOM’s Department of Foreign Assistance. It also took over the
Ministry of Foreign Affairs role in aligning Chinese aid with the govern-
ment’s overall foreign policy objectives. It is a relatively small agency with
only a hundred staff and a limited budget mainly for administrative pur-
poses, while MOFCOM is formally allocated the majority of the aid budget
and retains a major role in project planning and implementation (Lynch
et al., 2020, pp. 8–9).
The debate over whether China’s economic expansion beyond its borders
is primarily a result of state strategy or commercial interests, discussed in
Chapter 4, also comes up in relation to financial flows. The fact that all of
the key actors discussed in this chapter are either government ministries or
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The World’s Wallet?
centrally owned state enterprises, and that finance is a strategic sector, makes
it even more likely that strategic considerations play the dominant role in
finance than in any other sector. However, it would be an oversimplifica-
tion to explain financial flows in terms of a single strategic objective of the
Chinese state. The variety of actors involved, the different interests that they
represent, and the pressures to which they are subject require a more nuanced
analysis.
In the case of SWFs, the primary driver for the creation of CIC and SIC
and the decision to allow the NSSF to invest abroad in the mid-2000s was the
need to find alternative uses for China’s growing foreign exchange reserves
which would give better returns than holding US Treasury Bills. In this sense
the SWFs clearly respond to a strategic economic objective of the Chinese
government.
The official Chinese position is that SWF investments are purely commer-
cial. As Lou Jiwei, the then head of CIC, stated in 2009, ‘Our investment is
to make money. I don’t care how many tons of oil we can ship home, what
I do care about is the stock price’ (quoted in Murphy, 2012, p. 37). This is
reinforced by the first two basic principles, which, CIC claims, underlie its
investment strategy:
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How China is Reshaping the Global Economy
relatively low proportion of the shares of the companies in which they in-
vest so that they do not give the SWF effective control. This is consistent
with the main objective of SWFs, which is to secure financial returns from a
diversified portfolio.
A much stronger case can be made for the strategic role played by the
policy banks, since they are not constrained to generate financial returns
to the same extent. The rationale for a policy bank is that it should play a
strategic role. As far as their lending abroad is concerned, the CDB and Exim
Bank have been involved in the acquisition of resources, promoting Chinese
exports and supporting the Go Global policy.
One frequently cited indication of the importance of strategic economic
motives in bank lending is the resource-backed loans, which both CDB
and Exim Bank have provided to a number of countries, including Angola,
the Democratic Republic of the Congo, Ecuador, Russia, Turkmenistan, and
Venezuela.15 These are loans to a foreign government or SOEs which are
repaid through sales of a resource, mainly oil and gas. The oil and gas are
sold to a Chinese SOE, with the payment by the SOE deposited in an ac-
count with the CDB or Exim Bank. The loans may be used for projects
which are not related to the resource extraction, such as roads or power
stations.
Although such deals are seen as evidence that policy-bank lending re-
sponds to the strategic interests of the Chinese state, they can also be useful
for the banks themselves, for Chinese oil and mining companies, and for Chi-
nese contractors.16 From the point of view of the government, they are seen
as a way of securing supplies of key resources, particularly oil and gas. They
also help to diversify the use of the country’s large foreign exchange reserves.
For the policy banks, these loans are a source of profit and international ex-
pansion that helps them to diversify their assets. The tying of repayments to
resource exports is also a means of reducing the risk of loan defaulting, par-
ticularly in economically or politically unstable countries. They also dovetail
with the interests of Chinese oil and mining companies in obtaining access
to foreign natural resources in order to expand internationally and increase
their profits. Finally, since the loans are usually tied to the use of Chinese
contractors to carry out the funded projects, they expand the market for
Chinese engineering and construction companies. Downs (2011, p. 58) de-
scribes the role of the CDB in energy-backed loans as ‘the bridge between the
strategic objectives of the Chinese government and the commercial activities
of Chinese firms’.
15
These are sometimes referred to as Resource for Infrastructure (R4I) swaps.
16
What follows is based on Downs (2011) analysis of CDB’s energy deals.
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The World’s Wallet?
17
Although it is not always the case that the resources are exported to China: they are
sometimes sold on the international market.
18
In some instances they have been linked to Chinese exports of consumer goods. For
example, part of a CDB loan to Venezuela was used to import domestic appliances from Haier.
19
Although there was no formal link between the Exim Bank’s loan to Angola in 2004 and the
creation of a joint venture between Sinopec and the Angolan state oil company Sonangol, it has
been suggested that the loan did help Sinopec to invest in the country (see Chapter 6, Box 1).
20
The concept of soft power, developed by Joseph S. Nye, refers to the ‘ability to shape pref-
erences of others’ and ‘to get others to want the outcomes you want’ (Nye, 2004, quoted in
Shambaugh, 2013, p.209). Soft power is contrasted with hard power, which involves coercion or
the threat of force, and reflects the capacity to attract others.
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OECD countries for a number of years now, it receives relatively little empha-
sis in Chinese statements on aid. China’s 2011 White Paper on aid does not
specifically mention poverty reduction, referring rather to economic growth
and progress (PRC, 2011, Preface). In the 2014 White Paper, there is a refer-
ence to reducing poverty and promoting the achievement of the Millennium
Development Goals, which include poverty reduction. However, the empha-
sis in Chinese statements on aid continues to be on economic development
rather than poverty reduction (Zhang et al., 2015). This is consistent with
the Eight Principles view that aid should be not ‘a kind of unilateral alms
but something mutual’.
The stress on ‘mutual benefit’ in the Chinese discourse on aid means that
the economic advantages that China derives from its aid programmes are
clearly articulated. As two Chinese scholars point out, ‘by helping recipient
countries build some economic development-related projects, China expects
to reap trade, investment and contract opportunities overseas, especially
for Chinese enterprises going abroad’ (Luo and Zhang, 2014). Aid projects
carried out by Chinese construction companies, for example, have enabled
these companies to gain a foothold in recipient markets, and they have subse-
quently stayed on and won commercial contracts (Brautigam, 2008, p. 206).
The fact that a significant proportion of aid is tied to the purchase of Chinese
goods and services ensures that Chinese firms benefit from Chinese aid.21
However, there is a tendency on the part of some authors to exaggerate the
extent to which Chinese aid is driven by economic interests, particularly in
relation to access to oil, gas, and minerals, and the role of loans for resource
deals in developing countries. This arises from the confusion between Chi-
nese aid and the other forms of official finance discussed earlier. Studies such
as Lum et al. (2009) and Wolf et al. (2013), which show the bulk of flows go-
ing to natural resource extraction and infrastructure, include a wider array of
projects than is normally included in the definition of aid. Most of the loans
involved in these deals are examples of credit for investment or trade and are
not aid according to OECD DAC criteria (Brautigam, 2010, p. 18; Fuchs and
Rudyak, 2019, p. 401).
Whereas strategic economic considerations have played an important role
in bank loans and export credits, Chinese aid has been influenced more by
strategic diplomatic factors. China has consistently used its aid programmes
to obtain diplomatic support from the recipients. In the 1960s, obtaining
admission to the United Nations, and securing the Chinese seat on the
21
There are no figures on the proportion of Chinese aid that is tied. It should be noted that
despite the recommendations of the DAC on untying aid, several OECD countries continue to tie
a significant proportion of their bilateral aid. In 2015 over 40 per cent of US aid and 25 per cent
of Japanese aid was tied, although in the case of the UK, all aid was untied (OECD/DAC, 2017,
Table 6).
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The World’s Wallet?
22
This truce ended following the victory of the more nationalist Democratic Progressive Party
in the 2016 presidential elections in Taiwan.
23
The term ‘Beijing Consensus’ was popularized by Joshua Cooper Ramo in his 2004 book of
that name.
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How China is Reshaping the Global Economy
5.5 Conclusion
Despite the rapid growth of China’s foreign exchange reserves and the grow-
ing international operations of its financial institutions, the significance
of China in global financial markets should not be exaggerated. Although
Chinese SWFs are amongst the largest in the world, their investments are
dwarfed by those of other international investors. Even when investment
from Hong Kong is included, China’s share of global portfolio investment
remains quite limited. Despite the growth of its foreign aid, it is still only a
medium-sized donor some way behind the USA, the UK, and Japan. Where
China does play a significant global role is in providing export credits, with
the Exim Bank the world’s largest lender. It is also a significant provider
of OOF to developing countries. This partly reflects the fact that because
Chinese financial institutions are SOEs, most of their lending can be classified
as official flows. However, China’s share of total financial flows (including
private flows) is relatively low.
The significance of China’s growing role in global finance is not due so
much to the scale of its involvement as to the extent to which its financial
flows are under the control of the state. Since the bulk of these flows come
from the SWFs, the policy banks and the state-owned commercial banks,
the state can exercise control over their direction and use. Different types
of finance are used for different purposes. Portfolio investment by SWFs is a
means of utilizing China’s foreign exchange reserves more effectively. Bank
lending has been used to promote Chinese exports, acquire natural resources,
and support its Go Global policy. Aid in the conventional sense has con-
tributed to the growth of China’s soft power in the Global South, as well as
creating business opportunities for Chinese companies.
Although China is not, in overall terms, a dominant feature of the global
financial landscape, its emergence has had some important implications.
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The World’s Wallet?
113
Part II
China and Sub-Saharan Africa
6
6.1 Introduction
1
See Strauss (2009) for a discussion of the rhetoric that surrounded the Tanzam Railway.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0007
How China is Reshaping the Global Economy
late 1990s, following Jiang Zemin’s tour of six African countries in 1996, the
region once again began to become a focus of China’s attention.
In 2000 the first Forum on China-Africa Cooperation (FOCAC) was held
in Beijing, and it has been repeated every three years since then, the venue
alternating between China and Africa. Although the political rhetoric sur-
rounding these meetings remains largely unchanged from the Maoist era, the
content has shifted to emphasize the expansion of economic relations, stress-
ing the growth of bilateral trade, the encouragement of Chinese investment,
and the setting up of Special Economic Zones.
China’s growing economic presence in SSA over the past decade has at-
tracted a great deal of attention, much of it critical.2 Two narratives dominate
Western media accounts and the political debate over the drivers of China’s
involvement in Africa. The first sees China’s growing role in SSA as part
of a neo-colonial scramble for African resources, particularly oil and min-
erals. The second emphasizes China’s political ambitions in SSA and sees it
challenging Western influence in the region.3
Acquiring resources, particularly oil and minerals, plays an important role
in China’s economic involvement in SSA, but it is not the sole explanation
of its relations with the region, which are far more varied than this might
suggest. This chapter begins by describing the growth of different forms of
economic relations between China and SSA, looking at trade, foreign direct
investment (FDI), project contracts, loans, and aid. It then considers the
main actors involved on both the Chinese and the African sides. Chinese
involvement is then analysed in terms of the strategic economic and polit-
ical drivers, as well as the commercial factors which account for the close
economic ties both from the Chinese and the African sides.
China’s economic relations with SSA have taken a number of forms, which
have grown substantially since the start of the millennium. This section
documents the growth of bilateral trade, foreign investment and projects
undertaken by Chinese firms in the region, and loans and aid provided by
China to SSA.
2
See Mawdsley (2008) for an analysis of the coverage of Chinese involvement in Africa in the
British press.
3
These views have been criticized by a number of commentators, such as Brautigam (2009);
Moyo (2012a); Yan and Sautman, (2013); Sautman and Yan, (2014).
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China’s Economic Expansion in Sub-Saharan Africa
120
100
80
60
40
20
0
–20
–40
–60
96
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Imports Exports Trade Balance
6.2.1 Trade
Trade is at the heart of the relationship between China and SSA. As China
became more integrated with the global economy its trade with Africa grew
rapidly. Until the 1990s trade relations between China and SSA were limited.
Figure 6.1 shows the growth of bilateral trade between China and SSA since
the mid-1990s (based on Chinese-reported data). In the late 1990s, total trade
between China and SSA was less than US$5 billion a year. This changed dra-
matically in the new millennium so that by 2014, total trade with SSA had
reached US$190 billion (UNCTADstat). Although Chinese imports from SSA
dropped significantly in 2015 and 2016 because of falling commodity prices
and slower growth in China, and exports to the region followed suit, they
began to rise again towards the end of the decade. Between 1999 and 2019,
imports to China from SSA increased more than seventy-fold, while exports
from China grew fifty-fold.
As Figure 6.1 shows China ran a trade deficit with SSA for most of the
period.4 The slump in the value of imports from SSA in 2015 led to China’s
trade with the region temporarily moving into surplus but this was reversed
from 2017.
4
The overall trade deficit that China ran with SSA between 2000 and 2014 hides considerable
differences between individual African countries. China had a trade surplus with two-thirds of
the countries in the region, and its overall deficit with the region was mainly accounted for by
Angola and South Africa.
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How China is Reshaping the Global Economy
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
China USA EU(28) Japan
One of the criticisms levelled at China’s trade with SSA is its ‘colonial’
structure. As Figure 6.2 shows, over 60 per cent of Chinese imports from SSA
between 2017 and 2019 were primary products (PPs). However, this is not
solely a feature of trade between China and SSA: PPs accounted for an even
higher share of Japanese and European imports from SSA. When resource-
based manufactures (RBMs) are included, over 95 per cent of China’s imports
from SSA were either PPs or RBMs.5
Chinese imports from SSA are not only overwhelmingly resource based
but also concentrated in a small number of products, of which the most sig-
nificant are fuels and minerals. In recent years, oil, minerals, and metals have
accounted for around 85 per cent of China’s imports from SSA.6 The top-six
products that China imported in 2017–19 were petroleum, gold, ores and
concentrates of base metals, copper, iron ore and concentrates, and precious
and semi-precious stones. Between them, these six products accounted for
three-quarters of Chinese imports from the region.
Over time it might be expected that the range of products exported from
Africa would diversify as growing trade links lead to new products finding
markets in China. Indeed China provides duty-free access to a growing range
5
This rises to 99 per cent if imports from South Africa are excluded, the same proportion as
for Japan and slightly higher than for the USA and EU.
6
Data in this and the next paragraph are all based on UNCTADstat.
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China’s Economic Expansion in Sub-Saharan Africa
7
Estimated from UN COMTRADE data at the 6-digit level of the Harmonized System classifi-
cation.
8
Own calculation from UN Comtrade data on trade according to the Broad Economic Category
(BEC) classification.
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How China is Reshaping the Global Economy
100,000
80,000
60,000
40,000
20,000
0
03
04
05
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07
08
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20
20
20
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20
20
20
20
20
20
Figure 6.3. Chinese outward foreign direct investment (OFDI) stocks and flows in
SSA, 2003–19 (US$ million)
Source: MOFCOM, 2020, Statistical Bulletin of China’s Outward Foreign Direct Investment; American
Enterprise Institute/Heritage Foundation, China Global Investment Tracker.
9
A study of Chinese investment in Africa by the World Bank was able to obtain information
from investment promotion agencies in only six countries (Shen, 2013).
10
The total amount of investment in SSA reported in the China Global Investment Tracker is
more than double the amount of Chinese OFDI reported by MOFCOM for the period 2005–19
($89 billion as compared to $38 billion).
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China’s Economic Expansion in Sub-Saharan Africa
Despite the weaknesses of the data, they give some idea of the rapid
growth of Chinese FDI in SSA. According to MOFCOM, the stock of foreign
investment increased almost ninety-fold between 2003 and 2019. The
American Enterprise Institute (AEI)/Heritage Foundation data also show a
significant increase in Chinese FDI flows in recent years.
How significant is SSA as a destination for Chinese FDI? According to the
official MOFCOM figures, SSA has accounted for less than 2 per cent of the
global stock of Chinese outward investment in recent years. If Hong Kong
is excluded from the total, SSA’s share of Chinese Outward Foreign Direct
Investment (OFDI) increases to over 7 per cent in 2019 (own calculation from
MOFCOM data).11
How significant is China as a source of inward investment in Sub-Saharan
Africa? In 2018 China was the fifth-most important investor in Africa as a
whole (UNCTAD, 2020, p. 28), and in 2019 it accounted for over 6 per cent of
the total stock of FDI in Sub-Saharan Africa (Table A6.1). In 2018–2019 China
was responsible for almost 12 per cent of new FDI inflows to the region.12
Remembering that the official figures probably underestimate the true extent
of Chinese investment, it is very likely that in practice China has accounted
for an even higher share of all FDI in SSA in recent years. China was respon-
sible for 15 per cent of greenfield investment projects announced for Africa
as a whole in 2018 and 2019 (UNCTAD, 2020, p. 29, Table D).
China has invested in forty-seven out of the forty-nine SSA countries,
but its presence is not evenly spread across the region. Not surprisingly,
South Africa, the largest and most developed economy in the region, is the
most important destination for Chinese FDI in SSA followed by, the Demo-
cratic Republic of the Congo (DRC), Angola, Zambia, Ethiopia and Nigeria,.
Although, overall, the Chinese share of the foreign investment stock in SSA
remains relatively low, in Zimbabwe, DRC, and Mauritius, it now accounts
for more than a fifth of total FDI (Table A6.1).
There is a general perception that the extractive sector is the most impor-
tant target for Chinese FDI in SSA, although the figures vary considerably
between different sources. According to the China Global Investment Tracker
data almost two-thirds of Chinese investment in SSA between 2005 and June
2019 was in oil, gas, and metals.13 Official Chinese sources give a lower
figure with mining (which includes oil and gas extraction) accounting for
22.7 per cent of Chinese OFDI in Africa as a whole at the end of 2018.
11
The China Global Investment Tracker database, which does not include investment in Hong
Kong, comes to a very similar figure with just over 7 per cent of total Chinese OFDI between 2005
and 2019 going to SSA .
12
Own calculation for Sub-Saharan Africa from UNCTAD and MOFCOM data.
13
Although metals may include some downstream activity in manufacturing, the major part
involves mining.
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How China is Reshaping the Global Economy
This makes it the second most important sector after construction (32 per
cent), but ahead of manufacturing (13 per cent) and finance (11 per cent)
(China Africa Research Initiative based on MOFCOM data). The official
figures probably underestimate the significance of the extractive industries,
although there is evidence that Chinese OFDI in the region is diversifying
into other sectors.
14
This was down from 130,000 in 2015.
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China’s Economic Expansion in Sub-Saharan Africa
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
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20
CGIT NBS
and oil account for 8 per cent of the total value of contracts.15 Metals, which
make up such a significant share of FDI projects, account for 2 per cent of
the total, so that in all extractive industries only make up around a tenth of
the value of contracts announced between 2005 and 2020. The most impor-
tant sector in terms of Chinese contracts in the region is transport, which
accounts for 40 per cent of the value of contracts announced between 2005
and mid-2020 (Figure 6.5). Rail projects are the most important type, ac-
counting for 40 per cent of the value of transport projects. Energy, which is
the second sector overall, is mainly hydropower, which accounts for over half
of all energy contracts and is significant because this supplies local energy
needs rather than involving resource exports to China. Finally, construction
projects account for 11 per cent of the total.
15
It is possible that some of the energy projects where the subsector is not named could be in
extractives.
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How China is Reshaping the Global Economy
Oil
Coal 3%
2%
Gas
3%
Transport
40%
Hydro
17%
Metals
2%
Technology
3%
Agriculture Construction
Utilities
2% 11%
4%
Figure 6.5. Sectoral distribution of the value of Chinese project contracts in SSA,
2005–20
Source: American Enterprise Institute/Heritage Foundation, China Global Investment Tracker.
loans between 2010 and 2012, and US$20 billion between 2013 and 2015.
The FOCAC meeting in Johannesburg in 2015 promised US$60 billion over
the next three years, a pledge repeated at the 2018 meeting in Beijing.
However, beyond these broad-brush announcements it is difficult to get
a clear picture of the amount of Chinese financial flows to Africa. The Chi-
nese government does not publish data on official financial flows on either
a country or a regional basis, and neither does the Exim Bank or the China
Development Bank, which are the main providers of Chinese finance to SSA.
As a result estimates of Chinese loans and aid to the region rely on the efforts
of researchers to collate information from the bottom up on Chinese-funded
projects.
The most comprehensive source of recent data on Chinese lending to
Africa are those collected by the China Africa Research Initiative (CARI).16
Such estimates face a number of problems. They are often based on an-
nouncements which pledge future finance rather than actual financial flows.
They may, therefore, overestimate actual flows, since some pledges are never
fulfilled. Even where loans are made and projects carried out, the timing
of the flows will clearly lag behind the announcements so that the annual
figures will differ from the financial flows that take place in a particular year.
16
Another source used in several studies is provided by AidData but unfortunately at the time
of writing this only went up to 2014.
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China’s Economic Expansion in Sub-Saharan Africa
17
A study by the Jubilee Debt Campaign (2018) calculates that African countries owed between
$72 billion and $100 billion to China in 2016. This is between the World Bank figure of $55 billion
and the Horn et al. (2019) figure of $101 billion in the same year, but includes North Africa as
well as SSA. Brautigam et al. (2020, Table 1) give a figure of $80 billion in 2018.
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How China is Reshaping the Global Economy
120000
100000
80000
60000
40000
20000
0
00
02
04
06
08
10
12
14
16
18
20
20
20
20
20
20
20
20
20
20
SAIS-CARI (annual loan commitments)
HRT (outstanding debt)
World Bank (outstanding debt)
Figure 6.6. Chinese official financial flows to SSA, 2000–19 (US$ Million)
Sources: CARI Loans Database; Horn et. al. (2019); World Bank International Debt Statistics
for the highest proportion of total debt (own calculation from World Bank,
International Debt Statistics).
Chinese loans to SSA are concentrated in the same two sectors, trans-
port and energy, in which Chinese contractors operate. They accounted for
55 per cent of total lending between 2000 and 2018, according to the China
Africa Research Initiative Database, This is consistent with the Chinese gov-
ernment’s view that ‘Backward infrastructure is the bottleneck that hinders
the development of many African countries’ (PRC, 2012, Ch. III). Contrary
to the popular view, a relatively small proportion of Chinese loans have gone
directly to mining or oil and gas projects in SSA.18
One characteristic of Chinese finance in SSA has been the extensive use of
commodity-backed loans also known as resources-for-infrastructure swaps,
18
Industry, mining, and construction accounted for 6 per cent of Chinese loans to SSA between
2000 and 2012, according to AidData, whereas CARI estimate that 12.5 per cent of Chinese
lending between 2000 and 2018 went to mining (CARI Database).
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China’s Economic Expansion in Sub-Saharan Africa
19
Brautigan et al. (2020, p.6) give a lower estimate of 25 per cent. They point out that Angola
accounts for 75 per cent of commodity-backed loans, so that in the rest of SSA, the share is lower.
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How China is Reshaping the Global Economy
procurement must be sourced in China. When the projects are completed, the Chi-
nese companies present their invoices to the Angolan Ministry of Finance and these
are paid directly by the China Exim Bank, drawing down on the loan to the Angolan
government.
The terms of the loans by the Exim Bank involved an interest rate of 1.5 per cent
above Libor. This was somewhat more favourable than commercial loans, but not
as concessional as public loans from South Korea or India. The loans were to be re-
paid over periods of fifteen to eighteen years, with an initial grace period of three to
five years, which was considerably better than commercial loans with a repayment
period of four or five years.
In 2004, the Chinese state-owned oil company Sinopec formed a joint venture with
Angola’s state oil company Sonangol called Sinope Sonangol International (SSI), with
Sinopec the majority (55 per cent) shareholder. At the time Shell had been negotiat-
ing to sell its 50 per cent stake in oil Block 18 to the Indian company ONGC Videsh;
however, Sonangol blocked the deal and the concession was awarded to SSI instead.
In 2004/5 SSI also acquired Block 3/80 when Songanol did not renew the concession
previously held by Total. Although there was no explicit link between the Exim Bank
loan and the entry of Sinopec into the Angolan oil sector, the timing suggests that this
may have been a factor.
The Sicomines deal, originally signed in 2007, is one of the largest and most con-
troversial Chinese commodity-backed loans in SSA. It followed the 2006 elections,
which marked the end of the transition in the DRC following the civil wars of 1996–7
and 1998–2003. It involved a joint venture between the DRC state mining company
Gécamines (32 per cent share) and a Chinese consortium (68 per cent) formed of
two Chinese SOEs, China Railway Engineering Corporation (CREC) and Sinohydro.
In return for the mining concessions for Mashamba West and Dikuluwe, the Chi-
nese agreed to invest $3.2 billion in the mining operation and a further $6 billion
in turnkey transport and social infrastructure projects, such as schools and hospitals,
to be funded by China Exim Bank. These infrastructure projects were unrelated to the
mining operations, but the loan would be repaid from the profits made by Sicomines.
The agreement was initiated by CREC, a large construction SOE which was trying to
diversify into resource extraction and had been investigating opportunities in Latin
America and Zambia without success before the discussions with the DRC started.
Originally, CREC had been interested in a standard mining project, but during the
negotiations the Congolese, influenced by the experience of its Angolan neighbour,
suggested that the agreement included an infrastructure component. In his election
campaign, President Kabila had pledged to undertake a major programme of public
works (les Cinq Chantiers) but was finding it difficult to obtain funding for large in-
frastructure projects from traditional donors. Although the Chinese government had
not initiated the project, the Exim Bank was prepared to fund the infrastructure com-
ponent, and the Chinese partners in the joint venture were designated the principal
contractors for the various infrastructure projects. Only 12 per cent of the work had to
be subcontracted to local Congolese companies.
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China’s Economic Expansion in Sub-Saharan Africa
Sicomines was exempt from Congolese taxation while the profits were being used
to pay off the Exim Bank loan and interest, but would then be subject to the normal
terms of the DRC Mining Code. However, objections by the IMF to the size of the agree-
ment because of the effect that it would have on the sustainability of the DRC’s debt
and the prospects for receiving debt relief led to renegotiation, which reduced the in-
frastructure component to $3 billion and removed the government guarantee for the
commercial investment in mining.
In 2012 the Exim Bank pulled out of the funding arrangement, having provided
$1 billion worth of loans to Sicomines, because of disagreement over certain key
points. New negotiations began with CDB, the Bank of China, and the Exim Bank,
but after a two-year hiatus, the Exim Bank agreed to renew its financial support.
Infrastructure projects resumed, and mining production began in late 2015.
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20
This figure comes from Sun et al. (2017, p. 27) and was arrived at by extrapolating from
research carried out in eight SSA countries. The official MOFCOM database only includes
around 2000 firms that have invested in Africa (Dollar, 2016, p. 41), but this is likely to be an
underestimate.
21
The information on the most important Chinese companies investing in Africa in this
paragraph is based on the AEI/Heritage Foundation, China Global investment Tracker database.
132
China’s Economic Expansion in Sub-Saharan Africa
Although the activities of SOEs in SSA has attracted most attention, the
vast majority of Chinese firms, possibly as much as 90 per cent of the to-
tal, are private. A recent survey found that the share of private firms in the
total number of Chinese companies ranged from 75 per cent in Angola to
95 per cent in Nigeria (Sun et al., 2017, Exhibit 6). While private firms are
smaller than SOEs so that their share of investment does not match their
numbers, they are becoming increasingly significant players in SSA (Gu,
2011; Shen, 2013). Unlike investment by SOEs, which tend to be concen-
trated in extractive industries and construction, Chinese private investment
in the region is dominated by manufacturing and service industries (Shen,
2013, Figure 2).
Contracted projects involve a variety of construction and engineering
companies. While the first Chinese construction companies in Africa were
mainly large SOEs, more recently a variety of private contractors have
emerged, including some set up by Chinese employees who stayed in Africa
after working for such large SOEs (Wang, 2007, p. 19). The leading Chinese
contractors in SSA are still central SOEs such as China Railway Construction,
China Communication Construction, Sinomach, and Sinohydro.22 Some
provincially owned SOEs such as Shenzhen Energy have also won significant
contracts in the region, as have the private telecommunications companies
Huawei and ZTE.
The most important source of finance from China to SSA has been the
Exim Bank. While it does not provide a regional breakdown of its loans, esti-
mates suggest that a third of its global lending has gone to Africa (Brautigam
et.al., 2020, p. 4). The bank lent $86 billion to Africa between 2000 and
2019, representing more than half of Chinese lending to the region over that
period (CARI Database). The Exim Bank has provided funding for a num-
ber of major infrastructure projects, including the Ethio-Djibouti Railway,
the Nairobi-Mombasa Railway in Kenya, Bagamayo port and industrial zone
in Tanzania, and a terminal for the Jomo Kenyatta International Airport in
Kenya (Lee et al., 2014).
The second most important Chinese lender to Africa is China Develop-
ment Bank (CDB), which does not provide concessional loans. In 2006 the
China-Africa Development Fund (CADF) was set up under the auspices of the
CDB to promote economic cooperation between China and Africa by invest-
ing directly in Chinese firms that operate in Africa or plan to invest there.
CDB lending to Africa between 2000 and 2019 came to $37 billion, a quarter
of all Chinese loans in that period (CARI Database).
Some of the Chinese state-owned commercial banks are also active in
Africa, particularly the China Construction Bank, which has operated there
22
Based on information from AEI/Heritage Foundation.
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How China is Reshaping the Global Economy
23
This has been widely discussed in relation to the oil industry. Some authors regard the Chi-
nese state-owned oil companies as instruments of the central government and their activities in
Africa as, by definition, a reflection of the state’s strategic economic interests (Soares de Oliveira,
2008). Others emphasize the considerable autonomy enjoyed by SOEs, arguing that their ac-
tivities are better explained by their own commercial interests (Downs, 2007). Between these
extremes are those who argue that there is considerable overlap between strategic economic and
commercial interests, while recognizing that on occasions, the two can conflict (Taylor and Xiao,
2009; Jiang, 2009).
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China’s Economic Expansion in Sub-Saharan Africa
24
This section does not try to provide an overall analysis of Chinese foreign policy towards SSA,
but rather it analyses the role of political factors in understanding China’s economic involvement
in the region. The distinction between economic and political drivers is not necessarily clear-
cut. The economic objectives discussed later could be seen as serving political ends in terms of
ensuring continued economic growth in China that is a source of legitimacy to the Communist
Party. See Corkin (2011, pp. 75–7) for a discussion of the difficulties of separating economics and
politics when discussing China and Africa.
25
These claims are discussed in Chapter 8.
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How China is Reshaping the Global Economy
The claim that China is trying to export its own model of development
to SSA is contrary both to China’s declared policy of respecting national
sovereignty and not imposing conditionality on other countries, and its view
of development, which stresses the need for countries to find their own path
rather than imitating or following other countries. Chinese leaders since
Deng Xiaoping in the 1980s have emphasized the need for African countries
to find their own development path rather than copying China.26
This does not mean that China lacks political objectives in SSA. Nor does
it mean that it does not use its economic strength to achieve those objec-
tives. One area where political factors have played a key role in determining
economic engagement is in relation to Taiwan. Competition with Taiwan
under its One China policy was a consistent feature of Chinese foreign pol-
icy before 2008. Both China and Taiwan used economic incentives to win
over African governments. This led to an increasing number of countries in
the region recognizing Beijing, so that when Malawi switched in 2007, re-
ceiving a US$6 billion financial package from China (Wu and Wei, 2014,
pp. 796–7), only four SSA countries still had relations with Taiwan. When
competition for recognition started again after the end of President Ma’s term
in office in Taiwan in 2016, The Gambia, São Tomé and Principe, and Burk-
ina Faso switched their recognition from Taipei to Beijing,27 leaving Taiwan
still having diplomatic relations with only one SSA country, Eswanti (pre-
viously known as Swaziland). Not surprisingly, countries which recognized
Taiwan got very little in terms of FDI, projects, loans, and aid from the Peo-
ple’s Republic. However, with only Eswanti still recognizing Taiwan, this has
become a less important factor in the PRC’s relations with the region.
Africa remains important to China because of the number of votes that the
region has within the United Nations.28 For example, it has sought the sup-
port of African countries in votes at the UN Human Rights Council, which
are critical of its human rights record (leading African specialist He Wenping,
quoted in Breslin, 2013, p. 1276). China also looked to its relations with
Africa in the aftermath of the repression of the protests in Tiananmen Square
in 1989, when it feared isolation by the West. Again in the run-up to the Bei-
jing Olympics in 2008, when the issue of Tibet came to the fore, China was
able to look for support from some African governments. China has also
sought support from African governments in other international fora. At
26
See Deng Xiaoping’s comments to Robert Mugabe in 1985 and to President Chissano of
Mozambique in 1988, quoted in (Li, 2014, p. 95).
27
The Gambia broke off diplomatic relations with Taiwan in 2013, but Beijing did not establish
relations with it until 2016, after the defeat of the Kuomintang in Taiwan’s presidential elections.
28
In 2014 the fifty-four African states accounted for over a quarter of the members of the UN
(Sun, 2014, p. 4).
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China’s Economic Expansion in Sub-Saharan Africa
the first FOCAC meeting in Beijing in 2000, the Chinese Minister of For-
eign Trade and Economic Cooperation Shi Guangsheng thanked the African
countries for their support for China’s accession to the WTO.29
China also seeks to use its economic involvement in Africa to promote its
image internationally. This is a projection of its soft power presenting China
as a different kind of global power from the USA and Europe that is itself
part of the Global South. It emphasizes its common experience with other
developing countries and bases its relations with SSA on ‘sincerity, friend-
ship, and equality’; recognizes the sovereignty of African states; and does
not seek to impose political or economic conditionality (PRC, 2006). This
involves elements of continuity in the rhetoric of official statements since
the involvement of China in Africa in the Maoist period, which emphasized
a common history of exploitation by imperialism and the struggle for devel-
opment, appealing to domestic audiences (Strauss, 2009). Although China
does not seek to impose its own model on SSA countries, admiration for the
Chinese Model in Africa is seen as an important aspect of China’s soft power,
and it provides legitimacy for the Chinese Communist Party at home (Sun,
2014, p. 12).
29
Speech to FOCAC on 11 October 2000, quoted in Cooke (2009, p. 32).
137
How China is Reshaping the Global Economy
30
Own calculations from International Trade Centre, Trade Map data.
31
This compared to an increase of only 12 per cent in the rest of the world over the same
period (Downs, 2007, p. 45).
32
All the data in this and the next paragraph come from UNCTADstat.
138
China’s Economic Expansion in Sub-Saharan Africa
The second strategy that China has used to increase the security of its sup-
ply has been to encourage oil and mining SOEs to acquire natural resources
abroad. This has been used extensively in the oil industry. SSA oil exporters
were more open to foreign investment in exploration and production than
other countries where resource nationalism has restricted investment oppor-
tunities for foreign firms. The region, therefore, became an important target
of Chinese investment. In 2013 the International Energy Agency estimated
that over a quarter of the oil produced abroad by Chinese companies came
from Africa, more than from the Middle East (Jiang and Ding, 2014, Figure 5).
Chinese companies have invested even more in mining and metals in
SSA than in the energy sector, and the government has provided support for
such expansion. Over a quarter of the mining output of Chinese companies
outside of China came from Africa in 2018 The share of African mining pro-
duction controlled by Chinese companies increased from negligible levels in
the late 1990s and early 2000s to 6.4 per cent in 2018 (Ericsson et al., 2020,
Table 4). Much higher levels were attained in individual minerals: 82 per cent
in bauxite, 41 per cent in cobalt and 28 per cent in copper (Ericsson et al.,
2020, Table 5).
Although ownership by Chinese SOEs does not necessarily guarantee
China’s resource security, as pointed out in Chapter 3, it seems likely
that oil and mining investments in SSA have contributed to this end.33
It was certainly an important objective for the Chinese government when
encouraging their expansion in the region.
The third strategy for increasing resource security is long-term contracts
with suppliers. Here the role played by commodity-backed loans is signifi-
cant.34 These involve a commitment by the borrowing government or SOE
to supply oil or another commodity over a number of years in order to repay
the loan. As long as the borrower does not renege on the loan, this ensures
a long-term secure supply.
The lack of transparency in many of these commodity-backed loans means
that it is difficult to know what contribution they make to the overall supply
of oil or minerals. Estimates of the amount of oil that Angola supplies in
return for its loans from China vary from 10,000 to 140,000 barrels a day
(Corkin, 2013, pp. 83–4). With China importing around 700,000 barrels a
day from Angola in 2009, even the higher estimate implies that only a fifth
33
Downs (2007) claims that a significant proportion of the oil produced by Chinese compa-
nies in Sudan was exported to China. It also seems likely that where mines in SSA were owned
by Chinese manufacturers downstream (such as the steel companies that invested in iron ore
mining), the bulk of their output would be exported to supply their plants in China.
34
Corkin (2013, pp. 150–1) argues that in Angola, commodity-backed loans have been a more
effective way of obtaining a secure supply of oil for the Chinese market than the acquisition of
stakes in Angolan oil fields by Chinese oil companies.
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How China is Reshaping the Global Economy
35
In the Angolan case, Corkin (2013, p. 150) argues that the Exim Bank was more successful
in facilitating the market entry of Chinese construction companies than it was in obtaining an
equity stake for Chinese oil companies in Angolan oilfields.
36
In some cases the initiative for the loan has come from a Chinese company which ap-
proaches the foreign government with a suggestion that it requests funding from the Chinese
government for a project. In these cases it is likely that commercial rather than strategic economic
interests are the motivating factor.
140
China’s Economic Expansion in Sub-Saharan Africa
government also supports Chinese firms investing in SSA in other ways, for
example providing equity through the CADF.
Another initiative aimed at promoting Chinese trade and investment in
SSA is the creation of Special Economic Zones. The Chinese government an-
nounced in 2006 that it would support the establishment of as many as fifty
overseas ‘economic and trade cooperation zones’ (Brautigam et al., 2010;
Brautigam and Tang, 2011). These Zones, which are set up by a Chinese
company with Chinese government support were explicitly designed to fa-
cilitate the internationalization of Chinese firms (Pairault, 2019). So far five
such zones have been set up in SSA, two in Nigeria and one each in Ethiopia,
Mauritius, and Zambia. Unlike the SEZs that were created in China as a means
of promoting exports, the evidence so far suggests that those being set up in
SSA are mainly intended to supply the domestic and possibly the regional
market rather than being a platform for exports to the global market.37
37
The Eastern Industrial Zone in Ethiopia is an exception, with significant exports of shoes to
the USA and EU.
141
How China is Reshaping the Global Economy
does facilitate exports by providing credit to suppliers and buyers, the main
factor driving exports is demand in Africa. As would be expected, Chinese
exports to SSA tend to be concentrated in the larger markets.
While the Chinese government has encouraged oil and mining SOEs to
invest in SSA, the companies have also had strong commercial reasons for
doing so. In fact the earliest investments by Chinese extractive SOEs in
SSA in the 1990s occurred before energy and resource security became a
major concern in China and before the adoption of the Go Global policy.
CNPC’s involvement in Sudan began in 1995 (Meidan, 2016), while the
China Non-Ferrous Metals Mining Group (CNMC) acquired copper mines
in Zambia in 1998.
The importance of commercial factors is particularly evident in the case
of mining, where the structure of ownership is much more diverse than in
oil. Whereas the Chinese oil industry is controlled by the three SOEs that
come under the central government, the mining industry is characterized
by a more diverse structure with provincial and local SOEs and some private
companies also playing a part (Shankleman, 2009, p. 23). Chinese mining
SOEs and companies from other sectors such as steel and construction have
invested in mines overseas to increase their reserves, secure vital inputs, or
diversify their activities.38 There is also a significant number of small-scale
Chinese miners operating in SSA. In Ghana a first wave of gold miners from
China arrived in the 1990s, and a large second influx occurred around 2010
when gold prices soared. By 2013 it was estimated that there were more than
10,000 Chinese miners in Ghana (Yang Jiao, 2013). A large number of small-
scale Chinese firms were also involved in mining in Katanga province in the
DRC in the late 2000s ( Jansson et al., 2009, pp. 36–8).
While SOEs’ investment in SSA is the result of both the strategic objectives
of the Chinese state and the commercial objectives of the SOEs themselves,
the growing number of private Chinese companies operating in SSA is com-
mercially driven. Many of these firms are highly profitable, with a third
reporting profit margins of over 20 per cent in a recent survey (Sun et al.,
2017, Exhibit 8). Several surveys have highlighted the importance of com-
mercial considerations such as access to the local market, taking advantage
of African trade agreements, low production costs, and the local availabil-
ity of raw materials in private Chinese firms’ investment decisions. They
also point to the intense competition and demand saturation in the Chinese
market and the opportunity to transfer domestic excess capacity abroad as
contributing factors (Gu, 2011; Shen, 2013). A very common pattern is for
38
As mentioned above, CREC’s interest in investing in Sicomines in the DRC was part of a
strategy of diversifying from construction into mining.
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China’s Economic Expansion in Sub-Saharan Africa
39
Gu (2011) gives the example of the Yuemei Group, which set up a trading office in Nigeria in
2000, followed by a factory in 2004, in order to overcome import restrictions and take advantage
of preferential access to the European market.
40
In the DRC only one of the small and medium Chinese firms interviewed had received any
support from the Chinese government (Jansson et al., 2009, p. 45).
41
These include schools and hospitals, as well as prestige projects, such as sports stadiums and
government buildings.
42
The share of Chinese firms in World Bank-financed civil works contracts in Africa increased
significantly from the mid-1990s to reach 42 per cent of the total value in 2013 (Zhang and
Gutman, 2015, p. 11).
43
This refers to oil produced by the SOEs themselves.
143
How China is Reshaping the Global Economy
of Chinese companies is another issue that has led to conflict with local pop-
ulations and has tarnished the image of China in the region (see Chapter 8).
In these cases the commercial interests of Chinese companies have harmed
the government’s efforts to increase its soft power in the region.
Focussing solely on Chinese actors and their strategic and commercial in-
terests in SSA, as in section 6.4, runs the risk of ignoring African agency in
the development of Sino-African relations. Several authors have recently crit-
icized such an approach and emphasized the role of African elites (Corkin,
2013; Mohan and Lampert, 2013). By identifying both political elites and the
economic actors involved on the African side, it is possible to obtain a fuller
picture of the factors that have contributed to the growing relationship.
Despite the frequent media criticism of China’s ‘colonial’ role in Africa,44
there is obviously a key difference between China today and the British and
French colonialism of the past, in that China does not have direct politi-
cal control over African countries. As a result, local politics must play a part
in the development of economic relations between China and SSA which
cannot be seen solely in terms of Chinese interests. There is now growing
recognition of the role of African political elites in the relationship, and
some authors go further, arguing for a broader conception of African agency
beyond the level of state elites (Mohan and Lampert, 2013).
The same distinction between strategic political, strategic economic, and
commercial aspects made in discussing Chinese interests can equally be ap-
plied to analysing African interests. From a strategic political viewpoint, the
Chinese policy of non-interference in the internal affairs of African countries
and not imposing any political conditionality on borrowing countries makes
engagement with China attractive. This has been a major Western criticism
of China’s involvement in the region, on the grounds that it provides sup-
port for authoritarian regimes, but even for countries which are relatively
democratic, China’s ‘no-strings-attached’ approach is attractive.
The increased competition for Western powers that China’s entry into
the region creates has also offered an opportunity for African governments
to increase their bargaining power. The example of Angola provides an
illustration of this. The Angolan government broke off negotiations with the
International Monetary Fund (IMF) when it obtained a China Exim Bank
44
‘China Is Africa’s New Colonial Overlord, Says Famed Primate Researcher Jane Goodall’
(Caulderwood, 2014) and ‘Is China the World’s New Colonial Power?’ (Larmer, 2017) are typical
headlines.
144
China’s Economic Expansion in Sub-Saharan Africa
loan in 2004. Subsequently Angola was able to obtain finance from other
countries including Spain, Canada, Germany, Portugal, and Brazil, which
feared that their companies would lose out to Chinese competitors in Angola
(Corkin, 2013, p. 144).
Chinese loans and aid can also serve to legitimize and generate politi-
cal support for ruling elites in SSA. Both infrastructure and prestige projects
such as government buildings and sports stadiums serve a useful purpose. In
Angola the majority of the stadiums built for the African basketball cham-
pionships in 2007 and the African Cup of Nations in 2010 were built by
Chinese companies (Corkin, 2013, p. 154). As Brautigam (2009, p. 373) notes,
‘What the Angolan government got was the political benefit of a very rapid,
very visible improvements in infrastructure’ in the run-up to the country’s
elections as a result of Chinese loans.
In strategic economic terms, African economies face a chronic shortage
of infrastructure in power, transport, and communications. The World Bank
estimated in 2010 that the annual amount of external financial resources
required to meet the infrastructure gap in Africa was $31 billion.45 African
states have neither the government revenue nor the foreign exchange nec-
essary to finance major infrastructure projects on this scale. Western lenders
and investors have not been interested in funding such projects. The World
Bank and other Western donors, who in an earlier era provided loans for in-
frastructure, have since the 1980s concentrated much more on programme
(as opposed to project) lending and targeted social sectors such as health and
education rather than infrastructure. The EU and its member countries only
allocated $1 billion for infrastructure investment in SSA in 2009 (Konijn,
2014, p. 15).
In this context, African governments have been very keen to take ad-
vantage of China’s willingness to finance large infrastructure projects in
the region. This suggests an alternative interpretation of the growth of
commodity-backed loans to the view that they are a result solely of China’s
efforts to secure supplies of energy and raw materials. African governments
have been able to use their resources to obtain infrastructure and funding for
other projects from China with repayments in commodities at a future date.
The use of oil or minerals to repay these loans is a consequence of the need
to provide a guarantee of repayments to foreign lenders.46
As the examples of Angola and the DRC illustrate (see Boxes 6.1 and 6.2),
the governments of both countries, which had large parts of their infrastruc-
ture destroyed by civil war, were looking for international financial support
45
Quoted in Konijn (2014, p.15).
46
Deborah Brautigam is quoted by the Economist Intelligence Unit (EIU)/Mayer Brown
(2014, p. 10), saying that commodity-backed loans are a result of African governments using
commodities to secure finance rather than China using loans to secure resources.
145
How China is Reshaping the Global Economy
47
Mohan and Lampert (2013, pp. 100–1), quoting local manufacturers whom they interviewed
in Ghana and Nigeria.
48
See, for example, Atta-Ankomah’s (2014) study of the use of Chinese machinery in the
Kenyan furniture industry.
49
Mohan and Lampert (2013, pp. 101–2).
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China’s Economic Expansion in Sub-Saharan Africa
reputation for completing projects on time and within budget.50 They are
also willing to respond to host government needs and to start projects with
minimal delays and bureaucratic procedures. Although the tying of loans
means that African governments have little choice but to use Chinese com-
panies and goods when projects are funded by the Chinese government, the
fact that Chinese firms win a significant number of construction projects
financed from other sources shows that cost and performance are also impor-
tant factors in the growing involvement of Chinese construction companies
in the region.51 What this illustrates is that Chinese firms have certain com-
petitive advantages, for example, low-cost technology and skilled labour,
which African businesses and governments are keen to take advantage of
for commercial reasons.
More generally, it is a mistake to ignore the role of African agency in
explaining Africa’s growing engagement with China. Although Chinese in-
terests are the most significant factor in its growing economic presence in
Africa, it is unlikely that this growth would have been so rapid had it not
been for complementary interests on the African side. This is partly illus-
trated by cases where there has been resistance to China’s presence in the
region: in Nigeria, for example, the expansion of Chinese oil companies in
the Niger Delta has met with opposition (Obi, 2008). In many SSA countries
local manufacturers have complained that they are being undermined by
cheap Chinese imports, and, in South Africa, this led to the imposition of
quotas on textile imports from China in 2007 in an attempt to protect the
domestic industry (Morris and Einhorn, 2008). There are also cases where
Chinese citizens have been expelled by African governments as occurred
in Ghana in 2013, when a number of Chinese miners who were operating
illegally in the country were deported.
These examples show that China’s growing presence in SSA has re-
quired at least the acquiescence of African actors for it to have grown so
rapidly. In many cases it has been actively promoted or encouraged by
African actors to advance their own strategic and commercial interests.
African agency and local conditions are also important in understanding
the differential impact of China on host economies, which is discussed in
Chapters 7 and 8.
50
It has been reported that Chinese construction project tenders in Africa are 40 per cent lower
than alternative bids (Sun et al., 2017, p. 30).
51
One estimate is that 49 per cent of all Chinese contracts in Africa are won through compet-
itive international bidding, as opposed to the 40 per cent that involves closed bidding between
Chinese companies (Konijn, 2014, p. 13).
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How China is Reshaping the Global Economy
The previous two sections have examined the motivations of Chinese and
African actors that have led to the growing economic presence of China
on the continent. How important have the different factors discussed there
been in explaining the pattern of Chinese involvement through trade, FDI,
loans, and contracts? Although there have been a number of econometric
studies which have looked at individual aspects of Sino-African economic re-
lations, there have been no comprehensive studies which look at the range
of relations.52
52
Previous studies include on trade, Grauwe et al. (2012); Johnston et al. (2015); Hu and
van Marrewijk (2013); Landry (2019); on FDI, Biggeri and Sanfilippo (2009); Sanfilippo (2010);
Cheung et al. (2012, 2013); Drogendijk and Blomkvist (2013); Kolstad and Wiig (2011); Ross
(2015); Landry (2019); Chen et al., 2018; Shan et al., (2018); on Chinese economic coopera-
tion projects, Biggeri and Sanfilippo (2009); Sanfilippo (2010); Berthélemy (2011); Cheung et al.
(2014); Feng et al. (2015); and on Chinese loans and aid, Dreher et al. (2018); Landry (2018).
53
Other variables used in such models, such as the existence of a common language, are
irrelevant in the case of Sino-African economic relations.
148
China’s Economic Expansion in Sub-Saharan Africa
Where:
Y Indicator of economic relation with China in constant US$
China GDP China’s GDP in constant US$
SSAGDP Sub-Saharan African countries’ GDP in constant US$
OPEN Trade/GDP Ratio
DIST Distance to China in thousands of miles
LANDL 1 for landlocked countries
MIN Share of ores and minerals in total exports
FUEL Share of fuels in total exports
TAI 1 for countries which recognize Taiwan
UN Share of country’s votes that coincide with China
149
How China is Reshaping the Global Economy
54
This may reflect the fact that Chinese exports to landlocked African countries are recorded
as exports to the countries through which they transit rather than their ultimate destination.
150
China’s Economic Expansion in Sub-Saharan Africa
55
An increase of 10 percentage points in the share of fuels in the total exports of a SSA country
is associated with an increase of more than 30 per cent in the value of Chinese contracts.
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How China is Reshaping the Global Economy
SSA. As was pointed out earlier, there are no official statistics on the geograph-
ical distribution of Chinese loans and aid, so that estimates rely on unofficial
figures collected from a variety of sources, which affects the reliability of the
data.
Table 6.1, Column 6, reports results based on a new database on Chinese
loans to Africa developed by the CARI at Johns Hopkins University that cov-
ers the period from 2002 to 2015. The only factors that are significant are
Chinese and SSA GDP and the openness of the SSA economy. Other factors
which one might expect to have a significant impact, such as being an oil
exporter or having diplomatic relations with Taiwan, are not statistically sig-
nificant. There is however evidence from another study, based on AidData
estimates of Chinese loans, that China does provide less finance to African
countries that recognize Taiwan (Dreher et al., 2018, Table 1).
6.7 Conclusion
56
This may be because loans include both ODA and Other Official Finance. Dreher et al.
(2018) found that, when these are treated separately, ODA is driven primarily by foreign policy
considerations, while less concessional flows are better explained by economic factors.
152
China’s Economic Expansion in Sub-Saharan Africa
153
Appendix to Chapter 6
Notes
*—2017 from Horn et al. (2019)
Sources:
Cols. 1 and 2: UNCTADStat
Col. 3: UNCTADStat for total inward FDI and MOFCOM (2020) for Chinese OFDI.
Col. 4: NBS database for value of Chinese projects and UNCTADStat for population.
Col. 5: World Bank International Debt statistics for debt and UNCTADStat for GDP.
7
7.1 Introduction
The effects of China’s increasing role in Sub-Saharan Africa (SSA) have been
a topic of intense debate. This chapter considers the economic impacts,
whereas in Chapter 8, the controversies over its social, political, and environ-
mental effects are discussed. Official Chinese statements consistently refer to
the relationship as ‘win-win’, emphasizing the mutual benefits for Africa and
China. Public opinion polls in a number of SSA countries have shown that
a majority of those surveyed has a positive view of the economic impact of
China, particularly in terms of the infrastructure that has been built and the
availability of cheap Chinese products (Lekorwe et al., 2016, Figure 15). On
the other hand, some Western and African critics see the relationship as a
neo-colonial one, in which China exploits African resources and dumps its
products with no regard for African interests.
Such broad generalizations pay little regard to the different forms of
Chinese economic involvement in SSA and the variety of actors involved
(described in Chapter 6). They also fail to take into account the variety of
impacts that China has on SSA. There are direct impacts involving the bilat-
eral relations between China and SSA, and indirect ones arising from China’s
effects on global markets and prices. A further important distinction that has
been made in the literature is between complementary (positive) and com-
petitive (negative) economic impacts (Introduction, Table 0.1).1 These effects
can differ between countries, between sectors and groups within countries,
and over time.
1
The distinctions between direct and indirect impacts and complementary and competitive
effects has been extensively used in the ‘Asian Drivers’ literature on the impact of China on
SSA. See Jenkins and Edwards (2006); Schmitz (2006); Kaplinsky, McCormick, and Morris (2007);
Kaplinsky and Messner (2008).
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0008
How China is Reshaping the Global Economy
The chapter focusses on three key issues that are at the centre of the de-
bate over China’s economic impact on SSA. The first is the impact of China
on the region’s exports and the way in which export expansion has con-
tributed to or impeded growth. The second concerns the contribution that
China is making to reducing SSA’s massive deficit in terms of transport,
power, and communications infrastructure, which is widely regarded as hav-
ing held back economic growth. Finally, after a period when the emphasis
on industrialization diminished with the dominance of neoliberal ideologies
and the Washington Consensus, the importance of the manufacturing sector
in economic development is now being recognized once more. SSA’s indus-
trial sector is relatively small and underdeveloped, so China’s impact on the
sector may prove critical.
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China’s Economic Impacts on Sub-Saharan Africa
the two countries. In South Africa, Chinese foreign direct investment (FDI)
in mining has been limited and mainly involved participation in joint ven-
tures in existing mines. Chinese investors have played more of a role in
Zambia, where Non-Ferrous Company Africa (NFCA), a subsidiary of China
Non-Ferrous Metal Mining Company acquired the Chambishi copper mine
in 1998, when it was privatized by the Zambian government.2 NFCA invested
US$150 million in rehabilitating the mine and bringing it back into pro-
duction, but it remains a relatively small player, producing between 5 and
10 per cent of total Zambian copper output (Bastholm and Kragelund, 2009,
p. 128).3
China has played a much more central role in the development of the
mining industry in the DRC and Mauritania. The early development of
mineral exports from the DRC to China was the result of Chinese traders
who entered the country during the late 1990s and early 2000s to buy
ores from artisan miners. After 2006 many larger private Chinese compa-
nies became involved in the industry, and some degree of local processing
developed following a ban on exports of raw ore imposed by the local gov-
ernment in 2007 (Shelton and Kabemba, 2012, pp. 65–70). The Sicomines
agreement (see Box 6.2) has given further impetus to the mining industry.
Given the conflicts and political instability in the country during the pe-
riod, which limited Western involvement, China played an important role
in the growth of DRC exports. China also made an important contribution to
the growth of exports from Mauritania through the construction of a deep-
water port at Nouakchott in the 1980s, and a further loan for the expansion
of its capacity in 2006 (Mauritanian Embassy, n.d.). More recently China
has also been involved in building a new iron ore terminal at the port of
Nouadhibou.4
The most obvious example of a country where China has played a key role
in the growth of exports is Sudan, which has been subject to US sanctions
since 1997, and came to depend heavily on the Chinese market and invest-
ment by Chinese companies (Large, 2008). China played a more limited role
in the development of the Angolan oil industry, and the fact that Angola
has been a member of the Organization of the Petroleum Exporting Coun-
tries (OPEC) since 2007 and, thus, in theory, subject to production quotas,
2
See Bastholm and Kragelund (2009); Haglund (2009); and Li (2010) for accounts of Chinese
investment in Zambian mining.
3
In 2018 Chinese companies were estimated to account for less than 12 per cent of the total
value of minerals and metals produced in Zambia (Ericsson et al., 2020, p. 170).
4
China is also directly involved in mining through Minmetals, which has a minority share-
holding in the Tazadit iron ore mine, which is majority owned by the Mauritanian state-owned
company SNIM (USGS, 2013).
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How China is Reshaping the Global Economy
may have limited the extent to which its exports to China represent a net
increase in the quantity of oil exported.5
5
There is relatively little information on China’s role in the development of the oil industry
in the Republic of Congo, but the operations of Sinopec there were the result of its acquisition
of Addax Petroleum in 2009, which suggests that it was not a major factor in the growth of local
production.
6
The terms of trade of thirty-six out of the forty-seven SSA countries improved between 2002
and 2011.
7
In addition to the three countries already mentioned, the other major oil-exporting countries
in SSA are Cameroon, Chad, Equatorial Guinea, Gabon, and Nigeria.
158
China’s Economic Impacts on Sub-Saharan Africa
8
Zafar (2007) reaches broadly similar conclusions regarding the likely impact of China on the
terms of trade of different SSA countries.
9
Since the negative relationship between natural resource dependence and growth was
pointed out by Sachs and Warner (1995), there has been extensive debate over the empirical evi-
dence with results varying according to the time period covered, the measure of natural resources,
and the econometric methods used (van der Ploeg, 2011; Saad-Filho and Weeks, 2013).
10
The ‘political-resource curse’ is discussed in Chapter 8.
159
How China is Reshaping the Global Economy
(Corden and Neary, 1982; Corden, 1984). This impact was generalized to sit-
uations where the discovery of new resources or a windfall because of a major
increase in the price of a commodity leads to a number of negative side ef-
fects. These include the appreciation of a country’s real exchange rate and an
increase in government spending, which raise the price of non-traded goods
(such as housing and services) relative to traded goods. As a result, resources
shift out of non-booming tradable sectors, such as agriculture and particu-
larly manufacturing, to non-traded goods and services and the export sector
(Frankel, 2012, p. 12).
Critics of China’s involvement in resource extraction in SSA have argued
that it has given rise to Dutch Disease (Zafar, 2007; Sindzingre, 2011). This
could have occurred in one of two situations: where China makes a signif-
icant contribution to the development of new sources of raw materials or
where Chinese demand has a major impact on global commodity prices.
The first of these involves direct trade and an investment/lending relation-
ship between China and the country concerned. The second, indirect effect,
applies to all countries which export minerals and metals, and possibly oil
and timber. Not surprisingly, these are the same countries where China had
positive short-term and medium-term effects on exports.
One indicator of the potential existence of Dutch Disease is the apprecia-
tion of a country’s real effective exchange rate (REER). Of the SSA countries
which export minerals and metals, only Zambia and South Africa had a sig-
nificant appreciation of their REER between 2001 and 2011.11 All of the oil
exporters in the region saw their currencies appreciate over the period, but
China’s contribution to the global oil price rise was less significant than in
the case of minerals. As indicated previously, China did make a major contri-
bution to the development of the oil industry in Sudan and so could have had
Dutch Disease effects there, but elsewhere the appreciation of the exchange
rate was mainly a result of global conditions.
The likelihood that trade with China leads to Dutch Disease effects is also
reduced by the extensive use of resources-for-infrastructure (R4I) deals in
SSA. Because increased foreign exchange earnings are used to repay loans
made by the Chinese policy banks to finance infrastructure built by Chinese
companies, the impact on expenditure within the host economy is relatively
limited. This is, therefore, a useful mechanism for avoiding currency appreci-
ation in the short term, and replacing the exported natural capital with new
forms of created capital that will increase productivity in other sectors of the
economy.
11
Of the others, Mozambique had a slight appreciation; Liberia and Mauritania slight depreci-
ations; and DRC and Guinea significant depreciations of their REER. Based on data extracted
from http://bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-
new-database/ (accessed 30 May 2018).
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China’s Economic Impacts on Sub-Saharan Africa
12
This reflects differences in supply and demand conditions for primary products and man-
ufactures in the short run. Primary commodities tend to have lower price elasticities of supply
and demand. In other words, because many primary products have few close substitutes and are
often essential, large price changes are required to bring about a reduction in demand. At the
same time, it is difficult to increase production in the short term because of the long gestation
periods and high investment costs involved in bringing additional output on stream.
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How China is Reshaping the Global Economy
In the 1950s and 1960s, infrastructure, such as roads, railways, and power
plants was seen as critical to development, and much of the West’s aid was
used to support infrastructure projects.13 As late as the mid-1970s, projects
accounted for over half of Organization for Economic Co-operation and
Development (OECD) aid, and two-thirds of this was spent on infrastruc-
ture (Mosley and Eeckhout, 2000, p. 103). From the 1970s onwards, there
was a shift away from such activities to give more emphasis to programme
as opposed to project lending, and to sectors such as health and educa-
tion, rather than hard infrastructure (Mosley and Eeckhout, 2000). This trend
was given a further push by structural adjustment policies in the 1980s and
the emphasis of the Washington Consensus on economic liberalization and
macroeconomic stability.14
The infrastructure deficit in SSA has led to inadequate supplies of elec-
tricity, causing power outages, high transport costs, and logistical and
health problems (Arewa, 2016). These in turn tend to reduce productiv-
ity and slow economic growth.15 It has been estimated that SSA needs
to spend almost $75 billion a year on infrastructure development in-
cluding over $40 billion on improving power supplies (NEPAD, 2015,
Table 4).
How can SSA countries finance these infrastructure investments? Gov-
ernment investment in SSA has been cut back and it has proved difficult
to attract adequate levels of private investment, apart from in telecom-
munications. Western donors continue to prioritize other types of aid
expenditure. In contrast, in its 2013 report on China-Africa Economic
and Trade Cooperation, the State Council of the People’s Republic of
China (PRC) highlights the importance of infrastructure: ‘Infrastructure
construction is a starting point for improving the investment environ-
ment and people’s livelihoods in Africa, and is of great importance for
poverty reduction and development on the continent’ (PRC, State Council,
2013, Ch. IV).
China has the financial capacity to fund significant infrastructure invest-
ment in the region, and Chinese companies have accumulated considerable
experience in building roads, railways, dams, and power plants. Thus China
is well placed to make a contribution to reducing the infrastructure gap
13
Between 1946 and 1961, 75 per cent of World Bank loans was used for transport and
electricity projects (Brautigam, 2009, p. 133).
14
Recently there is renewed recognition of the importance of investment in infrastructure,
reflected in statements by the International Monetary Fund (IMF), the World Bank, and the G-20
(Gutman et al., 2015, p. 9).
15
The World Bank estimated that increasing the power supply in Africa could increase GDP
by 2 per cent and business productivity by 40 per cent (cited in Schiere and Rugamba, 2011,
p. 13).
162
China’s Economic Impacts on Sub-Saharan Africa
in SSA. It also has a reputation for agreeing and carrying out infrastruc-
ture projects quickly, in contrast to other lenders which take much longer.
As the Senegalese President Albert Wade pointed out in an article in the
Financial Times, ‘China has helped African nations build infrastructure in
record time’ (cited in Brautigam, 2009, p. 133).16 The development of infras-
tructure is, therefore, an area in which China has a potentially significant
role.
Chinese involvement in infrastructure has taken a number of forms. There
is some Chinese FDI in telecommunications through companies such as
Huawei and ZTE; however, it is more common for firms to be involved in
the provision of infrastructure through engineering contracts. China Rail-
way Construction, China Communications Construction, Sinomach, and
Sinohydro are amongst the leading Chinese companies involved in infras-
tructure projects in SSA.17 China also provides significant amounts of finance
for infrastructure projects, mainly through the Exim Bank and the China
Development Bank.
There are various estimates of the level of China’s involvement in infras-
tructure in SSA. The World Bank calculated that its financing commitment
to infrastructure projects increased from less than US$500 million in 2001 to
US$4.5 billion in 2007 (Foster et al., 2008, Table 2). According to the Infras-
tructure Consortium for Africa this rose to US$13.4 billion for both 2012 and
2013 (cited in Gutman et al., 2015, p. 28). In 2018 China committed more
than US$25 billion, accounting for around two-fifths of all external finance
for infrastructure projects in Africa, making it the most significant source of
finance in the region by some distance.18
As noted earlier, the sectors with the greatest infrastructure requirements
in SSA are power and transport. Over half of China’s loans to Africa between
2000 and 2018 went to these two sectors (see section 6.2.4). Not surpris-
ingly, Chinese projects also concentrated in these sectors. Between 2005 and
2020, 40 per cent of the value of such contracts was transport related, and a
sixth involved hydroelectric projects (see Figure 6.5). OECD donors, on the
other hand, have devoted significant resources to neither hydropower nor
rail development in recent years.
16
While this is a widely shared perception, there can be long delays in Chinese projects. It
took a decade from the first discussions about the Bui Dam with Sinohydro until construction
began (Hwang et al., 2015, p. 4).
17
Data from AEI/Heritage Foundation.
18
According to Infrastructure Consortium for Africa (ICA) figures, the total funding for African
infrastructure from development financial institutions (both bilateral and multilateral) came
to $51 billion in 2018, with a further $12 billion provided by the private sector (ICA, 2018,
Table 2.1).
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How China is Reshaping the Global Economy
19
The share of Chinese firms in World Bank-funded civil works in Africa has increased from
around 10 per cent in the late 1990s to 42 per cent in 2013 (Zhang and Gutman, 2015, Figure 7).
20
There is often a lack of transparency concerning the terms of these deals, which makes
comparison difficult.
164
China’s Economic Impacts on Sub-Saharan Africa
serves the interests of the local elite, by ensuring a stream of new contracts
from which they can benefit (Corkin, 2013, p. 122).
Another criticism of Chinese infrastructure projects in SSA is that they are
not focussed on meeting the needs of African development but rather are
designed to promote China’s strategic political and economic interests by
increasing its soft power and ensuring access to oil and mineral resources.
Broadly speaking, China is involved in three different types of infrastructure
projects in SSA. Some are intended to fill gaps in terms of power generation
or remove transport bottlenecks, and can contribute to the overall economic
development of the host country. Others may be specifically tied to the
extraction of natural resources, for example, building oil pipelines or rail
links from a mine to a port, and are primarily intended to support exports
to China. These too can have economic benefits that are more general in
some circumstances. Finally, there are prestige projects, such as government
buildings or sports stadiums, which are undertaken primarily for politi-
cal reasons, and do not contribute to increased productivity or improved
economic performance.
If Chinese projects fell predominantly in the second and third categories,
a degree of scepticism regarding their contribution to development would
be justified. Although there are numbers of Chinese prestige construction
projects, such as the African Union building in Addis Ababa, the Foreign
Ministry building in Mozambique, and several sports stadiums, such as those
built for the African Cup of Nations in Angola, Gabon, and Equatorial
Guinea, these are not considered infrastructure in the sense used here, and
do not account for a major share of Chinese loans.
A more serious criticism is that roads, railways, and ports built by the Chi-
nese in SSA are primarily built for the purpose of extracting resources from
the continent, and replicate the kind of infrastructure that was built dur-
ing the colonial period (Kerby, Moradi, and Jedwab, 2014). It may be hard
to distinguish between projects primarily intended to facilitate resource ex-
ports to China and those which contribute to economic development more
generally. In some cases projects such as port development, which are pri-
marily motivated by resource extraction, can also have wider development
impacts. It is also not always clear in the case of electricity projects whether
they provide energy to specific mines or to the host country’s national grid. A
recent study of 141 Chinese infrastructure projects in Africa concluded that
only 7 were wholly linked to resource extraction, and a further 4 were par-
tially linked. More than 90 per cent of the projects on which information
was available did not involve resource extraction (NEPAD, 2015, Table 28).
Some major Chinese infrastructure projects are clearly related to mining
development, such as the rail link between the phosphate-rich Bofal and
165
How China is Reshaping the Global Economy
21
Scholvin and Strüver (2013, p. 189), in a study of China’s role in transport infrastructure
projects in the South African Development Community (SADC), also conclude that although
some projects are linked to resource exports, they tie in well with the SADC countries’ priorities.
166
China’s Economic Impacts on Sub-Saharan Africa
167
How China is Reshaping the Global Economy
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Ethiopia Kenya Senegal
South Africa Tanzania
South Africa (Ademola et al., 2009, p. 498), but the evidence base for this
claim is sketchy.
Part of the problem is the absence of reliable statistics for most SSA coun-
tries that would make it possible to estimate the level of Chinese import
penetration in the domestic market. Relatively few African countries have
up-to-date information on domestic industrial production or consumption
of manufactured goods. Where they do exist, figures on local production
only include the formal sector and, therefore, underestimate the actual level.
At the same time, where Chinese goods enter the country through infor-
mal or illegal channels, the level of imports is also underestimated. There
is no way of knowing for certain whether the overall effect of these omis-
sions is to reduce or increase the true level of Chinese manufactures’ import
penetration.
Figure 7.1 shows the share of Chinese imports in the apparent con-
sumption of manufactured goods in five SSA countries since the start of
the millennium.22 In all five cases, China’s share of the domestic market
increased significantly over the period.
This does not necessarily mean that domestic manufacturers have been
negatively affected. Imports from China may be replacing imports from other
22
Apparent consumption is calculated as domestic output and imports minus exports of
manufactured goods.
168
China’s Economic Impacts on Sub-Saharan Africa
169
How China is Reshaping the Global Economy
they would have grown so significantly. There is also some evidence of Chinese in-
vestors setting up factories in SSA, although many of these may have been from Taiwan
rather than the PRC. On the other hand, SSA exports clearly competed with production
in China for a share of the US market. The way in which these trends played out de-
pended largely on the measures adopted globally through the ATC and by the USA. It is
clear that a level playing field, in terms of access to developed-country markets, would
have made it extremely difficult if not impossible for SSA to develop an export-oriented
garment industry in competition with China.
Apart from the specific case of textiles and garments, there is also some
evidence of Chinese competition having a negative impact on exports of
manufactures from South Africa, which is the country with the strongest
industrial economy in the region (Edwards and Jenkins, 2014; Jenkins and
Edwards, 2015). There is also evidence that Chinese competition is having
a negative effect on intraregional trade in SSA (Giovannetti and Sanfilippo,
2009; Pigato and Gourdon, 2014).
23
In Nigeria there are examples of machines costing anywhere between a quarter and a
twentieth of the price of European machines (Chen et al., 2016, p. 13). In Kenya, Chinese wood-
working machines used in the furniture industry cost around a tenth of the price of a machine
imported from England (Atta-Ankomah, 2014, p. 153).
170
China’s Economic Impacts on Sub-Saharan Africa
utilized. This has the added advantage of reducing the barriers to entry faced
by local small and medium enterprises starting production. To date the evi-
dence supporting these claims remains limited, but there are examples that
point in that direction (Hanlin and Kaplinsky, 2016).
A case in point is the furniture industry in Kenya, where Atta-Ankomah
(2014, Chapter 6) found that imported Chinese planers, saw benches and
lathes cost a fraction of the price of imports from Europe. Although the
Chinese machines were less durable, more subject to breakdowns, and pro-
duced at lower capacity than other imported equipment, they provided an
opportunity for small-scale and informal producers, who could not afford
the large-scale European machinery, to obtain equipment that could pro-
duce better-quality products than would be possible with locally produced
alternatives.
A second potential channel for technology transfer is Chinese invest-
ment which gives rise to spillovers. Vertical spillovers from FDI occur mainly
through backward linkages to local suppliers, but most studies of Chinese
OFDI in SSA have found that these are quite limited. A survey of 1,000 Chi-
nese firms in SSA found that on average they sourced less than half of their
supply from local firms (Sun et al., 2017, p. 47). Chinese manufacturers in
Nigeria create few backward linkages, preferring to import their inputs (Chen
et al., 2016, pp. 17–19). In Ghana it was also reported that apart from the
plastic recycling firms and steel mills which use local waste as a raw material,
Chinese firms import almost all their inputs (Tang, 2016a, pp. 16–17).
Several factors contribute to the limited development of linkages by Chi-
nese firms. Where activities are supported by the China Exim Bank, the tying
of loans to purchases of Chinese goods discourages the development of local
linkages.24 Chinese manufacturers in SSA are usually market seeking, prefer-
ring to source their parts and components from their established suppliers in
China and tending not to be well-embedded in the local context (Gu, 2011,
pp. 33–4).
The lack of local linkages is not solely the result of Chinese firms’ prefer-
ence for Chinese suppliers; it also reflects the absence of local networks of
suppliers able to provide products that are competitive in terms of price and
quality (Sun et al., 2017, p. 47). There is some evidence from SSA that Chinese
firms tend to create fewer backward linkages to local suppliers than Western
investors (Amendolagine et al., 2013). As Morris et al. (2012, p. 132) note,
it is an open question whether the low level of linkage creation by Chinese
24
The Exim Bank’s financing conditions require at least 50 per cent of project procurement
to be sourced in China, with Chinese companies used to implement the projects (Corkin, 2013,
p. 101).
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How China is Reshaping the Global Economy
firms is the result of their relatively recent entry into SSA or if it reflects more
fundamental differences between Chinese and Western companies.
There are also questions over the extent to which exports to China create
forward linkages through downstream processing of raw materials. Although
resource-based manufactures account for a higher share of SSA exports to
China than to developed-country markets, the bulk of commodity exports
to China are exported in unprocessed form (see Figure 6.2).25 China has rec-
ognized this as a problem and this may lead to more local processing in
future.
Another potential spill over from FDI occurs via the training of locals em-
ployed by foreign companies. The evidence suggests that this channel of
technology transfer is also relatively limited despite some examples which
have been widely publicized, such as Huawei’s training initiatives (Li, 2016;
Tsui, 2016; Tugendhat, 2020). Generally, since local workers are mainly em-
ployed in unskilled posts, they receive little training, and what they do
receive is at the low-skilled operational level, often through learning-on-the-
job (Shen, 2013, p. 38; Calabrese and Tang, 2020, pp. 15–16).26 There are
cases in the textile and garment industry in South Africa and Botswana where
local ex-employees of Chinese companies have tried to set up their own busi-
nesses, but with limited success. One problem has been that former workers
are only familiar with a specific part of the production process, which again
illustrates the limited extent to which technology is being transferred to the
host country (Tang, 2014, p. 23).
Also because Chinese firms have few connections with the local business
sector, opportunities for technology transfer to local firms are limited apart
from instances where Chinese firms are involved in joint ventures with lo-
cal firms. These are relatively rare in SSA, where the bulk of investment is in
100 per cent Chinese-owned projects (Shen, 2013 Figure 8; Calabrese and
Tang, 2020, p. 18). It is perhaps not surprising, then, that host govern-
ments in SSA have a negative view of the impact of Chinese FDI in terms
of technology transfer (Shen, 2013, Table 1).27
25
A case study of timber in Gabon found that when the destination market shifted from Europe
to China, the level of processing fell (Kaplinsky et al., 2011).
26
Recent studies of Chinese firms in Ghana, Nigeria and Ethiopia confirm that local employees
are mainly unskilled and that formal training provided is limited (Chen at. al., 2016, p. 14; Tang,
2016a, pp. 18–19; Tang, 2019, pp. 7–9). In contrast almost two-thirds of the firms surveyed by
Sun et al. (2017, p. 40) reported that they provided some training to their workers but the study
provides no details on the extent or nature of the training offered.
27
In a survey of government opinion in five countries (Liberia, Ethiopia, Rwanda, Nigeria,
and Zambia) all had a negative opinion of China’s contribution in terms of technology transfer,
which contrasted with a positive view of its job creation (Shen, 2013, Table 1).
172
China’s Economic Impacts on Sub-Saharan Africa
28
For a critical view emphasizing China-side factors that limit the likely shift of labour-
intensive manufacturing to SSA, see Ozawa and Bellak (2011).
29
Unit labour costs take into account both relative wages and productivity levels.
173
How China is Reshaping the Global Economy
this depends on the quality of management in the firm (Dinh et al, 2012,
p. 30).
A third problem is that other costs are higher in SSA than in China, most
notably the cost of inputs and logistics (trade costs). As the World Bank study
by Dinh et al. (2012, p. 55) recognizes, these wipe out any advantage of
low wages in most light manufacturing sectors. In the garments industry,
for example, most inputs have to be imported from Asia, which involves
significant additional transport costs, while the well-known deficiencies of
infrastructure in SSA, including power outages and poor transport and port
facilities, also add to the cost.
Finally, even if wages continue to rise in China, there is no guarantee that
SSA will become a preferred location for production by Chinese or other
firms. Manufacturers are already relocating within China, away from the
coastal areas to the inland regions, and in other Asian countries where wages
are considerably lower (The Economist, 2015). If they do relocate outside
China, other Asian countries have wage levels comparable to those in SSA
and similar or higher levels of productivity.30 Other Asian countries also have
lower input and logistics costs than SSA (Iarossi, 2009).
The three countries discussed in this section are all significant partners for
China in SSA, but each represents a quite different case. Angola is China’s
major supplier of oil in SSA and has been a pioneer of Chinese resources-for-
infrastructure loans. Ethiopia does not have major oil or mineral resources
but has been a significant recipient of Chinese loans and infrastructure
projects. This has led some commentators to conclude that China’s interests
in Ethiopia have been political rather than economic, leading one commen-
tator to describe it as a case of infrastructure for diplomatic support (Adem,
2012). Finally, South Africa is SSA’s most industrialized economy and China’s
most important trade partner in the region. It also engages with China as a
fellow member of the BRICS (Brazil, Russia, India, China, and South Africa)
and the G20.
30
Wages in Vietnam, for example, are lower than in Zambia and similar to those in Tanzania
(Dinh et al., 2012, Tables 1.1 and 1.2). According to Ceglowski et al. (2015, Table 6), unit labour
costs in India and Indonesia are similar to those of Ethiopia and Tanzania, and much lower than
those of other SSA countries.
174
China’s Economic Impacts on Sub-Saharan Africa
7.5.1 Angola
As shown in Chapter 6, Angola is one of China’s most important economic
partners in the region. It ranks second after South Africa as a source of Chi-
nese imports, and is the largest recipient of Chinese loans, as well as the
most important market for Chinese contractors in SSA. Its economic rela-
tions with China are largely complementary, since it is an oil exporter which
faced a massive task of reconstruction when the prolonged civil war ended
in 2002, with much of the country’s infrastructure destroyed or in poor
condition.
In 2001 the Angolan government requested financial support from the In-
ternational Monetary Fund (IMF), but refused to agree to the Fund’s demand
for increased transparency and macroeconomic stabilization through cuts
in public expenditure and reduced borrowing. In 2002 President dos San-
tos approached China, and after an initially cautious approach with a loan
of $145 million from the China Exim Bank and China Construction Bank
for projects to be carried out by Chinese construction companies in 2002, a
$2 billion loan agreement was signed between the China Exim Bank and the
Angolan Ministry of Finance in 2004. Further loans from the Exim Bank were
agreed in 2007 and 2009, so that by 2011, China had provided $14.5 billion
in loans to Angola (Corkin, 2013, p. 145). As seen in Box 6.1, the loans were
to be repaid through oil sales by the state oil company Sonangol. Oil exports
and Chinese loans for infrastructure projects are thus at the heart of relations
between Angola and China.
OIL EXPORTS
Angola is China’s most important supplier of oil in SSA and one of its
top-three sources globally. China is by far the most important market for
Angolan oil, overtaking the USA in 2007, and it now accounts for around
two-thirds of the country’s oil exports. This does not, however, imply that
China was a major driver of Angolan oil production, which more than dou-
bled between 2002 and 2008 and was due to earlier exploration, mainly by
Western oil companies. Sinopec was the first Chinese oil company to enter
Angola when it set up a joint venture with Sonangol in 2004 and acquired a
50 per cent stake in an oil block previously owned by Shell. Despite further
acquisitions in subsequent years, the share of Chinese firms in Angolan oil
production and exports remains limited (Corkin, 2013, pp. 145–51). Further-
more, in 2007, Angola joined OPEC, which set a quota of 1.9 million barrels a
day (Hammond, 2011, p. 355). This meant that further expansion of exports
to China could only come about if exports to other markets were reduced,
although rising oil prices meant that the value of exports continued to rise
even after production stabilized.
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The state oil company, Sonangol, plays a central role in the Angolan
oil industry, in a regulatory capacity, organizing auctions and signing
production-sharing agreements, and itself directly involved in oil explo-
ration and production. All companies entering the industry must establish
a relationship with Sonangol through a joint venture or a consortium or by
signing a production-sharing agreement. Sonangol has first refusal when any
company wants to sell its share of an oil block (Alves, 2013).
Sonangol is central not only to the oil industry but also to political power
in Angola because it is the main source of government revenue. It has been
described as the centrepiece of a parallel state system which is firmly under
the control of the presidency, where political power is highly concentrated
(Soares de Oliveira, 2015, Chapter 1).31 This has given the government con-
siderable control over the use of oil revenues. In Angola, there is a lack of
transparency in accounting for oil revenues and evidence of corruption lead-
ing to the disappearance of significant sums of money.32 These revenues
were used to consolidate the political power of the ruling party, The Pop-
ular Movement for the Liberation of Angola (MPLA), and to enrich the local
elite (Soares de Oliveira, 2015, Chapters 3 and 4).
31
In 2016 President dos Santos’s daughter became the head of Sonangol.
32
The relationship between Sonangol, the Ministry of Finance, and the Central Bank is known
locally as the Bermuda Triangle because of the lack of transparency and the tendency for large
sums to disappear (Corkin, 2013, p. 43)
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China’s Economic Impacts on Sub-Saharan Africa
prestige projects, such as basketball and football stadiums, most have been
in sectors such as transport, energy, water, health, and education.33 Nor is
it the case that infrastructure investment has been primarily directed at re-
source extraction. Because Angolan oil is located offshore, investment in
building and rehabilitating roads and railways is not directly linked to the
export sector.34
Loans have been used by the Angolan political elite to promote state build-
ing and consolidate the position of the ruling party, MPLA. It is also widely
believed that the elite has benefitted economically from the relationship.
Loans have even given rise to disputes between members of the elite over
access to and coordination of the disbursement of funds (Ferreira, 2008,
p. 312). In 2004 a scandal broke out as a result of attempts by members
of the Angolan elite to siphon off Chinese funds, and the Angolan Finance
Minister had to go to Beijing to reassure the Chinese authorities (Ferreira,
2008, p. 297). Nevertheless, the sheer scale of infrastructure construction has
undoubtedly contributed to the country’s rapid economic growth since the
end of the civil war.
Chinese loans are of course not cost-free and will require servicing in the
future, mainly through oil exports. This raises two questions: the terms on
which loans are granted; and the sustainability of the debt incurred. China
granted loans to Angola on terms that compared favourably to alternative
sources because of the grace period before repayments started and the length
of time over which the loans were to be repaid (Corkin, 2013, pp. 79–80;
GAO, 2013, Appendix II). The level of indebtedness incurred was not exces-
sive in relation to the oil prices that prevailed at the time. Recent estimates
put Angola’s total debt to China at $25 billion (George, 2016), less than the
annual value of exports to China in recent years.
33
See Corkin (2013, Appendix 3) for a list of projects financed under various Chinese loans to
Angola. Corkin claims that ‘the number of prestige projects built with Chinese financing seems
to outweigh the poverty reduction projects’ (p. 121). She does not provide any evidence to back
this claim.
34
The indirect link is through repayment of loans by sales of oil, but as argued previously, this
is more a means of reducing the risk to the Exim Bank than a mechanism for extracting resources.
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How China is Reshaping the Global Economy
domestic currency, the Kwanza, for a number of years, which helped keep
down the cost of imports (Corkin, 2013, p. 115).
The decade of high oil prices represents a missed opportunity. The addi-
tional resources from increased oil revenues and Chinese loans were used
to consolidate the political position of the MPLA and for the personal en-
richment of the Angolan elite, rather than to transform the economy, which
continued to be highly dependent on oil exports.
Angolan manufacturing at the beginning of the twenty-first century was
extremely limited, and this has changed little since then.35 There was very lit-
tle investment in local manufacturing, and the bulk of manufactured goods
sold locally were imported. There has been no attempt by the Angolan gov-
ernment to develop a coherent industrial policy. Industrial policy in Angola
is the responsibility of the Ministry of Industry, but there is no coordination
between industrial promotion and oil-sector policies, which come under the
Ministry of Petroleum (Morris et al., 2012, p. 169).
Oil exports have generated very few backward linkages to local suppliers,
partly because of the specific nature of the offshore oil industry and partly
because of the lack of local capabilities. There is a wide gap between the
complex and capital-intensive nature of the sector and the very low level of
domestic capabilities (Morris et al., 2012, Table 6.1). An attempt by Sonangol
and Sinopec to develop forward linkages by building a refinery in Luanda
collapsed in 2007 as a result of disagreement between the partners (Alves,
2013). Another plan to build a new refinery was shelved in 2016 as a result
of the drop in oil revenues.
Similarly, there has been limited use of local contractors and inputs in
infrastructure projects.36 In projects financed by Exim Bank loans, at least
50 per cent of procurement must be sourced from China. Although the An-
golan government does have local content requirements, there is not the
political will to enforce them (Corkin, 2013, p. 117). It is also doubtful
whether local suppliers are capable of supplying the quality or quantity of
inputs required. There has been some growth in the local supply of materi-
als for the construction industry including bricks, cement, and wooden door
frames and windows in recent years, but these have mainly been provided
by Chinese rather than Angolan companies (ibid., p. 104). The fact that the
35
The share of manufacturing in GDP increased from 2.9 per cent in 2000 to 4.3 per cent in
2019 (World Bank, World Development Indicators).
36
There are also complaints concerning the lack of employment opportunities for Angolans
because of the extensive use of Chinese workers in the construction industry. Employment issues
are discussed in more detail in Chapter 8.
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China’s Economic Impacts on Sub-Saharan Africa
7.5.2 Ethiopia
Ethiopia is Africa’s second-most-populous country, with over 100 million
inhabitants. Despite still being a low-income country, it has grown rapidly
since the mid-2000s, with GDP increasing at an average of more than
10 per cent a year, almost double the regional average (World Bank,
http://www.worldbank.org/en/country/ethiopia/overview. Accessed 5
March 2018).
China and Ethiopia have had close relations for more than two decades.
Under the Dergue (1974–91), Ethiopia was closely allied with the Soviet
Union, and, as a result, relations with China were strained. Much closer
relations with China developed after the Dergue was overthrown by the
Ethiopian People’s Revolutionary Democratic Front (EPRDF) in 1991. The
new government, which was strongly supported by the West initially, wanted
to diversify its relations and sent senior members of the EPRDF to Beijing to
initiate a new relationship. Ethiopian Prime Minister Meles Zenawi visited
China himself in 1995, and this was followed by Chinese president Jiang
Zemin’s visit to Ethiopia in the following year. Diplomatic relations between
the two countries continued to grow, and, in 2003, the first meeting of the
37
In 2009 import duties on construction materials were removed to ease supply bottlenecks,
making it even harder for a local supplier industry to develop (Corkin, 2013, p. 115).
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How China is Reshaping the Global Economy
Forum for China Africa Cooperation (FOCAC) to be held in Africa took place
in Addis Ababa. The 2005 elections in which the opposition did well, trig-
gering a government crackdown, led to strained relations with the West,
prompting even closer relations with China (Adem, 2012, p. 146).
In contrast to the two other cases discussed in this section, Ethiopia is not
currently an oil- or mineral-exporting country, so that access to resources
has not been a major factor in China’s involvement, although some Chi-
nese companies have been involved in oil and gas exploration. This has
led some commentators to conclude that China’s interest in developing
stronger relations with Ethiopia is driven primarily by diplomatic strate-
gic considerations (Adem, 2012, p. 155; Cabestan, 2012, p. 62). Its position
as a relatively stable country in the horn of Africa makes it an influential
power. It is also a hub for many regional organizations, most notably the
African Union, whose new building in Addis Ababa was built and financed by
China.
It has been claimed that Ethiopia has been following the ‘Chinese model’,
and it has been described as ‘the China of Africa’ (FT, 2018). Although the
EPDRF expressed interest in learning from China’s market-led socialism and
agricultural development (Adem, 2012, p. 145), it also drew on the expe-
riences of other East Asian developmental states, particularly South Korea,
Taiwan, and Japan. The lessons from China were incorporated selectively
by the government, as, for example, in the emphasis on selective state in-
tervention in the economy and on infrastructure as a key to development
(Fourie, 2015). There was no attempt at the wholesale application of the ‘Chi-
nese model’ in Ethiopia, and China has not tried to export its own model to
Ethiopia. Nevertheless, Ethiopia’s economic success and the perceived influ-
ence of the Chinese model reinforce China’s soft power in SSA (Cabestan,
2012, p. 53).
Despite the emphasis often put on political and diplomatic factors in
analysis of Sino-Ethiopian relations, strategic economic and commercial con-
siderations are not entirely absent. Although at present it is not a major
market for Chinese exports, because of its relatively low per capita income,
its large population does mean that it could become a significant market
in the future. It is already a significant market in SSA for Chinese contrac-
tors. Chinese firms have also been active in oil and gas exploration, which
could lead to Ethiopia becoming a more important source of resources in the
future.
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China’s Economic Impacts on Sub-Saharan Africa
Table 2). Ethiopia went from being a minor producer of sesame seed to be-
ing the largest in Africa, to meet the growing demand from China. The only
other product of any significance exported from Ethiopia to China is leather.
Although coffee is Ethiopia’s main export to the world market, Chinese de-
mand for coffee remains limited, and Ethiopian exports there are negligible.
Despite this, China became Ethiopia’s largest export market in 2012 and now
accounts for more than 10 per cent of the country’s total exports.
China’s role in Ethiopian imports is much more significant, and it cur-
rently accounts for about a third of total Ethiopian imports. These imports
include both consumer goods and capital goods. In some cases, most notably
footwear, there is evidence that competition from China led to downsizing
or bankruptcy of local firms, particularly at the bottom end of the market,
although some firms were able to survive by improving quality and design
(Gebre-Egziabher, 2009). In the main, imports from China compete with im-
ports from other countries rather than locally produced goods because of the
limited development of local manufacturing. Cheap Chinese products pro-
vide welfare gains to poorer consumers who would not otherwise be able to
afford them. Capital goods are imported to supply Chinese-financed infras-
tructure projects, and although this is a requirement of tied loans, Chinese
machinery and equipment usually are competitively priced.
Unlike Angola, Ethiopia has a large and growing trade deficit with China,
reflecting the low level of exports to China. Despite the granting of tariff-
free access to the Chinese market for a wide range of goods, exports to China
have not kept up with the growth of imports.
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How China is Reshaping the Global Economy
by non-Chinese donors in Ethiopia, including the World Bank, the EU, and
the African Development Bank. Ethiopia has also been a major recipient of
Chinese loans, which totalled around $13–15 billion since 2000.38
Although there is no systematic information on the extent of China’s con-
tribution to infrastructure development in Ethiopia, there is no doubt that
it has played a major role. China has been the largest provider of external fi-
nance for railways and the energy sector as well as a major financier for road
construction (d’Orey and Prizzon, 2017, pp. 14–15). Overall China is ‘one
of the largest, if not the largest, development partners in the infrastructure
sector in Ethiopia’ (ibid., p. 13).
In transport, Chinese companies have carried out some of the major
railway projects in Ethiopia, and Chinese firms have been involved in 60
per cent of the road works being undertaken (Cheru and Oqubay, 2019, p.
294). They have also been heavily involved in the energy sector, adding
1.5GW of generation capacity and almost 2600 kilometres in transmission
and distribution lines and dominating the construction of transmission lines
above 132 kV (IEA, 2016, p. 38). Chinese involvement in power generation
is all in renewables, including hydropower, a biomass plant, and a wind farm
(ibid., pp. 39–40).
There have been criticisms of the quality of some of the infrastructure that
has been built by the Chinese, particularly the deterioration of the condition
of the Addis Ababa ring road (Nicolas, 2017, p. 28) and the poor quality of
the telecommunications network installed by ZTE (Cabestan, 2012, p. 59),
but there is no evidence that Chinese contractors are generally worse than
those from other countries.
38
CARI reports a total of $13.7 billion between 2000 and 2019. AidData’s estimates for 2000–14
give a total figure of almost $15 billion, of which $3.7 billion was classified as official development
assistance (ODA)-like, which is not included in the China Africa Research Initiative (CARI) figure.
Horn et al. (2019) estimate that Ethiopia’s outstanding debt to China stood at $14.4 billion at the
end of 2017.
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China’s Economic Impacts on Sub-Saharan Africa
China has been an important source of FDI in Ethiopia. Its share of total
FDI increased from 11.5 per cent in 2000–5 to over a quarter since 2006, mak-
ing it the leading investor in the country (Shen, 2013, p. 13) The Ethiopian
Investment Commission reports that 70 per cent of Chinese investment was
in manufacturing and that a total of over 100,000 permanent and temporary
jobs have been created (Nicolas, 2017, Table 2).
China has also been responsible for the development of the Eastern In-
dustrial Zone (EIZ) in Dukem, 30 kilometres southeast of Addis Ababa. The
EIZ is one of five official special economic zones (SEZs) that China proposed
to develop in SSA. It was initially planned in 2007 and launched in 2009.
Unlike the other official Chinese SEZs in SSA which have been built and op-
erated by SOEs, the EIZ is run by a private company, Jiangsu Qiyuan Group
Co. Ltd (Wang et al., 2017, Table 6).39 Progress was relatively slow, but by
2016, there were over thirty companies operating in the EIZ, all, apart from
one, Chinese-owned (Nicolas, 2017, pp. 20–1). Total employment in the zone
reached over 18,000 in 2019 (CEPHEUS, 2020, Table 6).40 They cover a range
of industries including cement, steel pipes, machinery, vehicles, tractors, tex-
tiles, clothing, and footwear (Nicolas, 2017, Table 3). One criticism that has
been levelled at the EIZ is the lack of focus, which makes it difficult to exploit
the potential from developing industrial clusters (Giannecchini and Taylor,
2018).
39
Chinese companies are also involved in developing at least nine other industrial parks in
Ethiopia that are operated or owned by the Ethiopian Industrial Parks Development Corporation
(IPDC) (Wang et al., 2017, Table 5).
40
The initial plan was to attract eighty companies, creating 20,000 jobs.
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How China is Reshaping the Global Economy
41
Chinese production of sesame seed declined after 2002, and imports increased rapidly, with
Ethiopia accounting for around half of China’s imports (Chakrabarty, 2016, Figure 2).
42
For a more positive view of the contribution of Chinese firms to Ethiopian industry,
see Li, Z. (2014).
43
For a general overview of the relationship between South Africa and China, see Alden and
Wu (2014).
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China’s Economic Impacts on Sub-Saharan Africa
Considering the size of the South African economy and the scale of
their bilateral trade, Chinese OFDI in the country is relatively low, and
South Africa has a negligible share of Chinese construction and engi-
neering contracts in SSA.44 Nor has South Africa been a significant re-
cipient of Chinese loans. Trade is, therefore, at the heart of economic
relations between China and South Africa. In contrast to Angola, whose
economic relationship with China is largely complementary, relations
with South Africa involve a mix of complementary and competitive
aspects.
South Africa is also a key country for China politically. It enjoys a unique
relationship with China as the only African country that is a member of
the BRICS grouping and of the G20, and is, therefore, involved in reg-
ular summit meetings with China. Its diplomatic relationship with the
PRC is relatively recent, since South Africa had close relations with Tai-
wan during the apartheid regime, seeing it as a like-minded anti-communist
state and establishing military links, as well as encouraging Taiwanese in-
vestment in the ‘Bantustans’45 (Alden and Wu, 2014, p. 6) The African
National Congress did not immediately establish diplomatic relations with
Beijing after taking power in 1994, attempting at first to secure the dual
recognition of both Beijing and Taipei. When this proved impossible, the
government broke with Taiwan and established relations with the PRC
in 1998.
44
According to official Chinese statistics, only 15 per cent of the total stock of Chinese OFDI in
SSA was in South Africa (MOFCOM, 2016). A significant part of this was accounted for by ICBC’s
acquisition of a 20 per cent share of South Africa’s Standard Bank in 2007.
45
The Bantustans were the black homelands created by the apartheid regime in South Africa.
46
South Africa also exports gold and diamonds to China, but because these exports are often
made through third countries, they do not necessarily appear in the figures reported by South
Africa (Alden and Wu, 2014, p. 14).
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How China is Reshaping the Global Economy
of raw materials, these have had little impact on the structure of exports to
China so far.47
How significant has China been in the growth of South African mineral
exports? In recent years between a quarter and a third of South African ore
and metal exports have gone to China. However, the South African mining
industry is long established and technologically developed, and it exports
to a wide range of countries. It would not be difficult for the industry to
find alternative markets to China. Although there has been some Chinese
investment in South African mining by companies such as Minmetals, the
Zijin Mining Group, Jiquan Iron and Steel (JISCO), and Sinosteel, the scale
of investment is limited and has mainly involved joint ventures with ex-
isting firms rather than opening new mines (Shelton and Kabemba, 2012,
pp. 74–82). China’s involvement has not, therefore, been a major factor in
boosting mineral supplies from South Africa.
China’s demand for minerals and metals did, however, have a major im-
pact on global prices, particularly of iron ore, one of the main minerals
exported by South Africa. This indirect effect of China’s growth helped boost
the value of South Africa’s global exports between 2002 and 2011, and it
contributed to improving the country’s terms of trade.
47
The Comprehensive Strategic Partnership Agreement between China and South Africa,
signed in 2010, committed the countries to work together to include more value-added products
in South Africa’s exports to China.
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China’s Economic Impacts on Sub-Saharan Africa
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How China is Reshaping the Global Economy
48
This section is based on Edwards and Jenkins (2014) and Jenkins and Edwards (2015).
188
China’s Economic Impacts on Sub-Saharan Africa
7.6 Conclusion
49
Two econometric studies of the impact of China on economic growth in Africa found
no positive empirical evidence that exports to China enhanced growth unconditionally. See
Baliamoune-Lutz (2011) and Busse et al. (2016).
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How China is Reshaping the Global Economy
power and transport projects, has been very welcome. Despite concerns
about quality in some quarters, the competitiveness of Chinese companies
has meant that major projects are generally completed rapidly and within
budget.
Apart from South Africa, which has a relatively large and developed man-
ufacturing sector, and a few smaller economies with an important garment
export sector, China’s impact on manufacturing has had a limited overall
effect on SSA economies (despite vociferous complaints from local manufac-
turers) because of the small size of the industrial sector. Chinese competition
has merely served to highlight the lack of competitiveness of SSA manufac-
turing, which was keeping the continent from industrializing well before
China became a major source of manufactured goods.
Whether the potential benefits of increased commodity prices and loans
from China have been realized or not depends to a large degree on the ability
of the host government to capture a share of the rents generated, to avoid
the pitfalls of the Dutch Disease, and to utilize export revenues and Chinese
finance productively. Where the state is weak or the regime corrupt or para-
sitic, it is unlikely that the increased availability of resources will be translated
into strong economic performance.
Finally, the level of local capabilities is a critical factor in determining
the extent to which a country benefits from its relations with China. If the
technological capabilities of local firms are very low, it is unlikely that they
will be able to benefit from backward or forward linkages, and they are more
likely to be swept aside by Chinese competitors. Where the level of skills in
the local labour force is low, there is likely to be greater reliance on foreign
workers, so that employment is not generated locally, and training is not
provided.
The economic impact of China on SSA is not a predetermined outcome
of the interests and strategies of the Chinese state and non-state actors in-
volved: it also depends to a significant extent on the agency of African
actors.
190
8
8.1 Introduction
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0009
How China is Reshaping the Global Economy
other external powers in the region, and that claims about China’s negative
impact are based on an overly rosy picture of the role of the West. Others
question the empirical validity of claims made about China’s involvement in
Africa. This has even affected the Chinese literature on Sino-African relations,
much of which focusses on refuting Western criticism (ibid., p. 450).
While these are important issues which deserve serious analysis, there
is a danger that the focus on criticism of China’s impact on Africa has
tended to exclude consideration of other aspects of China’s social, politi-
cal, and environmental impacts, particularly those which present China in a
more favourable light. These include the jobs created by Chinese firms, the
increased policy space afforded to governments by China’s policy of non-
interference in their internal affairs, and the contribution that China has
made to the development of renewable energy in SSA. The claims made by
the Chinese government regarding its relations with Africa should not be
dismissed as mere rhetoric.
There are several different social impacts associated with China’s economic
activities in SSA. Much of the criticism revolves around the employment
practices of Chinese firms involved in infrastructure projects or foreign di-
rect investment (FDI) in the region. Although there are also broader social
impacts on local communities affected by Chinese projects, such as the dis-
placement of communities as a result of dam construction, these are not
discussed here.1 The focus of this section is on workers directly employed
by Chinese firms. This raises questions regarding the extent to which Chi-
nese companies have preferred to use Chinese rather than African workers,
the low wages paid, and various aspects of labour rights and working con-
ditions. Given that Chinese practices are often implicitly compared to the
behaviour of other external actors, the section also considers whether claims
that Chinese firms are worse employers can be substantiated. Finally, some
of the positive impacts on labour are discussed.
8.2.1 Employment
One of the most controversial aspects of China’s impact in SSA is the
claim that Chinese firms do not employ Africans, preferring to rely largely
on Chinese workers, particularly in major construction projects. It has
1
The issue of the impacts on local communities is discussed in the Latin American context in
Chapter 11 because the issue has attracted more attention there than in SSA.
192
Social, Political, and Environmental Impacts in Sub-Saharan Africa
also been argued that areas near to Chinese mines have higher levels of
unemployment because of the use of Chinese workers and the limited extent
of local backward linkages (Wegenast et al., 2019). Given the lack of em-
ployment opportunities in most SSA countries, this is a particularly sensitive
issue.
According to official Chinese figures, there were around 90,000 Chinese
workers employed on economic cooperation contracts in SSA at the end of
2019, down from almost 150,000 five years earlier (see section 6.2.3). These
figures underestimate the total number of Chinese working in the region.2
Nevertheless, the perception that Chinese companies do not offer jobs to
Africans is false (Sautman and Yan, 2015; Oya, 2019). A survey of 1,000 Chi-
nese firms in eight SSA countries in 2016–17 found that locals made up 89
per cent of employees. Even in construction projects, where reports of ex-
tensive use of Chinese workers are most common, 85 per cent of the labour
force was local. In manufacturing 95 per cent of those employed in Chinese
companies are local (Sun et al., 2017, Exhibit 12).3
There is also evidence that over time Chinese firms have increasingly lo-
calized their workforces as they become more familiar with conditions in the
host country.4 Rising wages in China have increased the cost of expatriate
workers, making it more attractive to use local workers for unskilled jobs.
However, the African workforce is mainly employed at the lower levels, and
it remains the case that managerial and technical posts are often largely filled
by Chinese employees (Shen, 2013, p. 38).5
In the manufacturing sector, the employment issue is not so much one of
Chinese firms employing Chinese workers as the impact of Chinese com-
petition on local production and jobs. Competition from imports from
China had a significant impact on the manufacturing sector in South Africa,
and this led to a substantial reduction in employment (see section 7.5.3).
Elsewhere in the region, although imports of manufactures from China
have grown and there have been complaints about local job losses, the
limited size of the manufacturing sector has meant that these negative
impacts have been relatively small in terms of the employment situation
overall.
2
Tang (2016b, p. 110) quotes an estimate by Xinhua, the official Chinese news agency, that
there were 750,000 Chinese living or working in Africa on a long-term basis in 2007, and other
sources that estimate that there may be as many as two million Chinese in Africa today.
3
Shen (2013, p. 38) reports a ratio of at least fifteen local employees to each Chinese
worker amongst firms interviewed, and no evidence of excessive import of Chinese workers in
manufacturing.
4
See Kernen and Lam (2014) on Ghana, Tang (2010) on Angola and the DRC, and Corkin and
Burke (2006) on Chinese construction companies in Angola, Sierra Leone, Tanzania, and Zambia
5
Sun et al. (2017, Exhibit 14) found that less than half (44 per cent) of the managers in the
Chinese firms that they surveyed were Africans.
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How China is Reshaping the Global Economy
8.2.2 Wages
While foreign firms usually pay higher wages than locally owned companies
in developing countries (Lipsey, 2004), it is often claimed that Chinese-
owned companies tend to pay lower wages to local employees than other
foreign companies operating in the same sector.6 In the DRC, for example,
FEZA, a Chinese mining company, paid lower wages than Western compa-
nies such as TFM operating in the same area (Shelton and Kabemba, 2012, p.
153). In Zambia, NFC Africa Mining plc is reported to pay the lowest wages
in the copper mining industry (Lee, 2009, p. 101; HRW, 2011, Annex IV).
Yan and Sautman (2013) criticize the Human Rights Watch (HRW) report,
arguing that it fails to take into account the lower proportion of low-paid
contract workers in Chinese firms compared to other foreign companies, so
that comparing the salary scales of permanent workers tends to exaggerate
the pay differential. There were also large increases in wages in Chinese com-
panies as a result of the 2012 collective bargaining negotiations after the
HRW report was published (HRW, 2011). Nevertheless, despite this, wages at
NFC Africa remain below those at other mines and smelters in Zambia.7
While these cases illustrate the differences in wages paid by Chinese and
other foreign companies, what is required is a more systematic compari-
son of wage levels. A United Nations Industrial Development Organization
(UNIDO) survey of foreign investment in SSA carried out in 2005 found that
the average wage paid by Chinese firms was only just over half that of Indian
firms, and less than a fifth of that paid by Northern firms (Henley et al., 2008,
Figure 15). A study based on a 2010 UNIDO survey confirmed this, showing
that Chinese investors paid significantly lower wages than either Northern
or Indian firms (Coniglio et al., p. 201, Table 6). The study also found that
wages in Chinese companies were lower than those in domestically owned
firms in SSA.8
6
In some SSA countries, it has also been reported that wages in Chinese companies were even
lower than those paid by local companies and were below sectoral or national minimum wages
(Baah and Jauch, 2009, p. 66). On the other hand, a World Bank survey of Chinese firms in
Ethiopia found that the average wage of US$85 a month was above earnings in domestic com-
panies, although this does not take into account the sectors in which the firms operated (World
Bank, 2012, p. 12).
7
Although wages were lower at NFC Africa, it has also been pointed out that when copper
prices dropped as a result of the global financial crisis in 2008–9, the Chinese company main-
tained production and avoided laying off workers, whereas the profit maximizing strategies of
the global mining companies led to 19,000 miners losing their jobs (Lee, 2014, pp. 37–9).
8
The study controls for factors other than ownership that may affect the level of wages, such as
the size of the firm, the proportion of skilled workers, and the sector of activity. A recent study of
Chinese firms in Angola and Ethiopia however found that other factors such as individual worker
characteristics, skill, sector of activity, and location were more significant than firm ownership in
explaining differences in wages and that when these other factors were taken into account, the
wages paid by Chinese firms were not significantly different from those of other foreign firms or
domestic firms (Oya and Schaefer, 2019, section 8.2).
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
The lower wages paid by Chinese firms are most marked in the case of
skilled labour. Skilled workers in Chinese firms are paid over 20 per cent less
than those working for domestic firms and 40 per cent less than those in
US or EU firms, while the wage for unskilled workers is 10 per cent less than
that paid by domestic firms and 14 per cent less than that of US and EU firms
(Coniglio et al., 2014, p. 19). This may reflect the fact that Chinese investors
are able to bring in skilled Chinese workers, who are much cheaper than local
or expatriate skilled workers employed by other foreign firms or domestically
owned firms in SSA.
Other common complaints are that workers are often required to work
long hours and that overtime is not paid at a higher rate, despite local legis-
lation requiring this. In some cases it has even been noted that workers are
unaware that they are entitled to overtime pay. Construction workers in Chi-
nese companies in Ghana, Namibia, Zimbabwe, and Angola were reported to
be working long hours without overtime rates (Baah et al., 2009; Chakanya
and Muchichwa, 2009; Emmanuel, 2009; Jauch and Sakaria, 2009).
9
There is also a question of whether the increasing significance of China as an export desti-
nation for SSA countries has led to a reduction in labour standards in the exporting countries.
There is only one study that has systematically examined this question and it found evidence
of a moderate negative effect in countries where a significant proportion of exports go to China
displacing exports to markets with higher labour standards (Adolph et al., 2017).
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How China is Reshaping the Global Economy
its fair share of accidents and health problems. Health and safety standards
are often compromised even in the developed world, and this is even more
prevalent in developing countries.
China is regarded by many as the most dangerous place in the world
for miners.10 There are also numerous reports of health and safety stan-
dards being disregarded by Chinese companies in SSA. In 2006 the Zambian
government closed down the Chinese mining company Collum Coal Min-
ing Industries Ltd for forcing miners to work underground without safety
clothing and boots (IHLO, 2014). The HRW (2011) study of Zambian copper
criticizes working conditions in the Chinese mines, where health and safety
considerations are often ignored and workers are not adequately provided
with personal protective equipment.
Poor standards in health and safety, including lack of protective gear,
have also been reported amongst Chinese construction companies in
Ghana, Namibia, Zimbabwe, and Malawi (Baah et al., 2009; Chakanya and
Muchichwa, 2009; Chinguwo, 2009; Emmanuel, 2009). Health and safety
standards are also often very low in Chinese manufacturing companies, and,
in some cases, factory fires have resulted in the death of workers. In Nige-
ria twenty workers were killed in a fire while locked in a Chinese rubber
and plastics factory, and, in Kenya, twenty-nine workers died under similar
circumstances in 2007 (Baah and Jauch, 2009, p. 69).
There are also complaints of verbal and even physical abuse and sexual
harassment in some Chinese companies in Namibia, Malawi, and Kenya
(Chinguwo, 2009; Jauch and Sakaria, 2009; Masta, 2009). In 2006 two Chi-
nese companies in Mozambique, Monte de Ouro and Irmãoes Comércio Ko-
dak, were closed down for physical and psychological abuse of Mozambican
workers (Shelton and Kabemba, 2012, p. 154).
CASUALIZATION
Another criticism is that workers are often employed on casual contracts
with no job security or benefits. In Zambia in 2007, for example, only 56
of over 2,000 employees at NFC Africa were on permanent contracts, with
the remainder either casuals or on fixed-term contracts (Lee, 2009, p. 101).
However, irrespective of their ownership, mining companies often make ex-
tensive use of subcontracting to reduce costs. Other foreign-owned mines
in Zambia, such as the UK-Indian-owned Konkala Copper Mines and the
Swiss-owned Mopani Copper Mines, employed only half of their workforce
as permanent employees and the rest through contractors (Yan and Sautman,
2013, Table 1).
10
The death rate in coal mining in China is thirty times that in South Africa and 100 times
that in the USA (Bennett, 2006).
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
11
This is supported by a recent econometric study that found that areas in SSA with on-
going Chinese construction projects were likely to have lower levels of trade union membership
(Isaksson and Kotsadam, 2018b).
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How China is Reshaping the Global Economy
CHILD LABOUR
Another claim is that Chinese companies exploit child labour. This issue has
received a great deal of attention in the mining sector in Katanga, DRC,
where there is considerable Chinese investment (Amnesty International,
2013; RAID, 2009). Although Chinese firms do not employ children directly,
large numbers of children work in artisan mining in the region, which forms
part of the supply chain for Chinese investors.12 There have been reports of
child labour being employed by CCCM in Zambia, a company with a particu-
larly bad reputation, that has been closed down on several occasions (Shelton
and Kabemba, 2012, p. 150). In general, however, Chinese firms have not
been found to directly employ underage workers in SSA.13
In 2011 HRW published a highly critical report on labour abuses in Zambia’s Chinese
state-owned copper mines (HRW, 2011, 2012). The report is based on interviews with
143 workers at Chinese and non-Chinese companies. It identifies a number of prob-
lems at the Chinese companies, including low wages, unsafe working conditions,
excessive working hours, and anti-union activities, and it concludes that ‘The Chinese-
run companies . . . remain in routine violation of Zambian and international law on
12
Chinese companies are not the only ones buying ores produced using child labour in
Katanga. A BBC Panorama report claimed that a subsidiary of the Anglo-Swiss company Glen-
core Xstrata in Zambia had purchased ore from the Tilwezemba mine in DRC, although Glencore
has denied this (Amnesty International, 2013, p. 16).
13
None of the country case studies of Chinese investment in Baah and Jauch (2009) identify
child labour as a problem.
198
Social, Political, and Environmental Impacts in Sub-Saharan Africa
these same issues, and perform considerably worse from a labour standpoint than
their competitors from other multinationals in Zambia’s copper industry’ (p. 97). The
report was subjected to withering criticism by Yan and Sautman. They describe the re-
port as ‘bad social science [which] has not told us anything about Chinese investment
in Africa’ (Yan and Sautman, 2013, p. 152) and accuse HRW of building ‘a binary view of
a Chinese SOE versus Western-based privately owned firms and [making] China Non-
ferrous Metal Mining Corporation (CNMC) a strikingly negative example of investment
in Africa’ (ibid., p. 151).
This debate highlights many of the problems involved in evaluating the impact of Chi-
nese investment on workers in Africa. One of the main criticisms of the HRW report is
that by singling out a particular Chinese company for investigation it contributes to
a Western discourse that seeks to demonize China and Chinese firms. It essentializes
the practices of Chinese companies without locating them in their specific context.
The point here is that it is necessary to compare Chinese firms with other transnational
corporations, rather than simply enumerating the violations which occur.
The HRW report claims to do this, arguing that ‘Chinese-run companies are generally
the worst on issues involving health and safety, hours of work, and rights to orga-
nize’ (HRW, 2011, p. 97). However, there is a problem where the focus is so heavily
on one company or one group of companies despite the recognition of poor prac-
tices by Western companies. Another criticism of the report’s methodology highlights
its reliance on interviews with workers in a context of strong anti-Chinese feeling. This
suggests that the use of quantitative data is more appropriate than qualitative method-
ologies, but even where these exist, as in the case of wages and industrial fatalities, the
report and its critics interpret them very differently.
In the case of wages, Yan and Sautman (2013) argue that the Chinese mines have
relatively lower copper content in the ore and lower productivity, and when these are
taken into account, wages are not particularly low. ‘When the factors noted above
are accounted for, CNMC/non-CNMC wage comparisons can be explained in terms of
the specific structure, history, and profitability of CNMC’s production. Yet, HRW report
readers will only take away from it that cruel Chinese super-exploit African workers, a
point consonant with the mainstream China-in-Africa discourse’ (p. 145). While this is
a gross distortion of the thrust of the HRW report, which does point to poor conditions
in non-Chinese firms, it illustrates the problem with the type of approach which is not
explicitly comparative. It is reinforced by HRW’s claims that ‘by investigating the specific
practices of particular Chinese employers . . . it is possible to begin to paint a picture of
China’s broader role in Africa’ (HRW, 2011, p.1), although HRW specifically denies that
it has undertaken this work to assess ‘Chinese investment’ or ‘China in Africa’ (p. 13).
One problem is that with the partial exception of wages, where there is
some evidence that Chinese firms tend to pay lower wages, there are virtu-
ally no studies that systematically compare working conditions and labour
rights in Chinese and other companies in SSA. A second issue is that de-
spite the wide range of different types of Chinese firms operating in SSA (see
section 6.3), there is a tendency in the critical literature to lump all Chinese-
owned firms together, irrespective of whether they are central or local state-
owned enterprises (SOEs), large private firms, or small or medium enterprise
(SMEs).
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How China is Reshaping the Global Economy
As the evidence in the previous section indicates, there are clearly exam-
ples of poor working conditions and violations of workers’ rights amongst
Chinese firms in the region, but there are also examples of good practice. In
Nigeria, United Nigeria Textile plc is reported to have high health and safety
standards and good relations with its workforce. Some Chinese firms in South
Africa are also reported to perform well in this regard (Shelton and Kabemba,
2012, p. 160). There are also numerous examples of poor working condi-
tions and low standards in non-Chinese companies. The question, then,
is whether working conditions are significantly worse in Chinese-owned
companies than they are in ones under different ownership.14
The comparative studies that exist are based on a small number of firms,
from which it is difficult to draw general conclusions. In Ghana it was found
that Sinhydro and Shanghai Construction performed worse than other for-
eign and local companies (Baah et al., 2009). In Angola, too, it was found
that other foreign firms in the construction industry performed better than
the Chinese companies (Emmanuel, 2009). On the other hand, a study of
eleven Chinese and nine US-owned companies in Kenya highlighted simi-
larities between the two groups of firms (Rounds and Huang, 2017). However,
this study was based on interviews with managers, and it did not provide any
evidence on working conditions.
The most comprehensive comparative study of Chinese and other firms’
impact on labour in SSA is for Ethiopia and Angola (Oya and Schaefer, 2019).
This found that wages in Chinese firms are not systematically lower when
other factors are taken into account. It also found that, contrary to expec-
tations, the rates of industrial accidents reported are lower in Chinese firms
(Oya and Schaefer, 2019, pp. 55–8). However trade union representation is
limited amongst Chinese firms in both countries. The study concludes that:
‘There is significant variation in working conditions between and within
countries and sectors, especially with regards to wages. Only a combination
of several factors, including individual worker characteristics, sector speci-
ficities, local context, and a range of firm attributes, including the origin of
ownership, help us explain some of the variation in wages in both countries’
(Oya and Schaefer, 2019, p. 64)
This is consistent with a second line of argument against the criticism
of Chinese firms in SSA, namely that low wages, poor working conditions,
and low labour standards are the result of other contextual factors, rather
than inherent characteristics of Chinese firms. There is some truth in this
argument. For example, Chinese firms in Africa have tended to concentrate
14
The failure of HRW to carry out such a systematic comparison with other mining companies
in Zambia is an important element in Yan and Sautman’s (2013) critique of the report.
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
in the extractive industries and construction, where there are major health
and safety problems and the use of casual labour is common.
An explanation of the impact on workers of Chinese companies needs
to locate their activities in a broader context. In the extractive industries,
growth in the global demand for resources leads firms to expand into new,
frontier areas and bring more marginal mines back into production. It is in
such circumstances that the pressure to reduce wages and depress standards
is most intense, and, at the same time, the rule of law and the ability of
states to regulate are least effective. As latecomers, firms from China and
other emerging economies are likely to be particularly prominent in such
areas, since the most productive and accessible resources are already under
the control of incumbents. It is not surprising, therefore, that critics are able
to find numerous examples of exploitative practices in Chinese companies.15
In the manufacturing sector, Chinese firms are often in industries such
as clothing and textiles, footwear, and furniture, where production is highly
mobile and international competition is intense. In such industries cost min-
imization is crucial and working conditions are often highly exploitative.
Faced with interstate competition to attract investment, governments are
often prepared to support companies’ efforts to reduce costs and avoid en-
forcing regulation.16 The trends, such as the increasing casualization and
the violation of labour rights, observed in Chinese firms can then be seen as
illustrating a broader tendency in the global economy.
Another contextual factor that influences the behaviour of Chinese firms
is the nature of the local state and its capabilities. Many of the worst examples
of exploitative working conditions come from countries such as the DRC that
were characterized by their low standards well before Chinese firms made
their presence felt.
The emphasis on contextual factors does not rule out Chinese ownership
having some effect on firm behaviour, particularly in the early phases of a
firm’s expansion overseas, when the types of capitalism and labour relations
that characterize the home country do influence the way in which firms op-
erate abroad. The low priority given by Chinese companies in SSA to health
and safety standards and their reluctance to engage with independent trade
unions and expectations in terms of hours of work and intensity of effort
is partly a reflection of conditions in China. Tang (2016b, p. 115) cites the
15
This is not meant to imply that managers in these firms are not responsible for the poor
working conditions and low labour standards faced by their workers, but to put them in context
rather than falling into the trap of ‘China bashing’, which sees Chinese firms as particularly
culpable.
16
A government official in Namibia stated in relation to complaints about Chinese firms ex-
ploiting workers and paying low wages: ‘If we want to develop our country, we need to sacrifice
labour costs now to benefit later. The objective is to create jobs for Namibians and any FDI should
be able to do that’ (quoted in Baah and Jauch, 2009, p. 218).
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How China is Reshaping the Global Economy
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
in Chinese companies in Tanzania (Lu and Kweka, 2013, p. 8);17 and 76,000
jobs generated by Chinese FDI commitments in Zambia between 2000 and
201218 (Sinkala and Zhou, 2014, Table 1). Although the claims that there
are millions employed by Chinese firms in SSA are probably exaggerated,
particularly bearing in mind that total employment in manufacturing in SSA
in 2010 was only 9 million (Bhorat et al., 2017, Table 2) and many of the jobs
in Chinese firms are in manufacturing, they are certainly in the hundreds of
thousands.
In addition to providing employment opportunities for unskilled workers,
Kaplinsky (2013) points to other ways in which China’s economic pres-
ence in SSA may be promoting more inclusive growth. As mentioned in
Chapter 7, Chinese competition has led to lower prices for basic consumer
goods, helping to raise the living standards of poor consumers. Many of
the Chinese SMEs which have entered SSA tend to produce products for
poorer consumers, and to be more regionally dispersed. There is also some
evidence of small-scale African businesses benefitting from access to cheap
Chinese machinery and equipment, which could contribute to growing local
entrepreneurship.
8.2.6 Conclusion
Some of the critical claims concerning the social impacts of China’s presence
in SSA are exaggerated, but there is an element of truth to a number of them.
The current state of knowledge concerning many of these aspects is such
that claims and counter-claims are often based on anecdotal evidence and
individual case studies, and there is a need for much more systematic research
with more comparative analysis of Chinese firms compared to other foreign
investors in SSA, as well as greater awareness of the ways in which behaviour
is changing over time. A more balanced approach is also necessary to reveal
some of the positive social impacts of Chinese activities.
17
The lower figure was provided by the Chinese Business Chamber of Tanzania, and the higher
one by the Chinese Embassy. Both may be overestimates.
18
This refers to pledged investment, and it is unclear how much of this has actually been
carried out.
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How China is Reshaping the Global Economy
Diplomats and pundits, for their part, fear that the west is ‘losing’ Africa and
other resource-rich regions . . . China will befriend ostracised regimes and encour-
age them to defy international norms. Corruption, economic mismanagement,
repression and instability will proliferate.
(p. 4)
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
negative effects of China’s presence are examined.19 The section then turns
to other aspects of China’s political impact which are not highlighted in the
debate.
19
The appendix to this chapter provides an econometric analysis of the relationship be-
tween the various dimensions of Chinese economic involvement in SSA and authoritarianism,
corruption, and political instability.
20
Two other studies also found that Chinese imports from SSA tended to be negatively cor-
related with the level of democracy while Chinese exports tended to go to more democratic
countries (Grauwe et al., 2012; Landry, 2019).
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How China is Reshaping the Global Economy
biased towards undemocratic countries.21 Indeed when we add the voice and
accountability variable to the regression for Chinese projects, these tend to
be concentrated in more democratic countries.22 Nor is there evidence that
undemocratic regimes in SSA receive preferential treatment in terms of the
allocation of Chinese aid or loans.23
Despite the West’s attention to China’s relations with authoritarian
regimes in SSA, the only real evidence that China has strong economic
relations with such regimes, beyond what can be explained by oil and min-
erals, comes from China’s pattern of imports. As discussed in Chapter 6, the
pattern of trade is less subject than other economic relations are to con-
trol by the Chinese government. The tendency for China to import more
from countries that are less democratic is likely to reflect the fact that these
countries’ resources are not already tied up by Western companies, rather
than a deliberate strategy of supporting dictatorial regimes. If the latter were
the case, one would expect to find a much clearer pattern of Chinese FDI,
projects, loans, and aid being directed towards such countries. The evidence
is more consistent with the view that by adopting a policy that emphasizes
respect for national sovereignty and non-interference in the internal affairs
of other countries, China has been willing to do business with all kinds of
governments.
Some critics argue that even if China does not specifically seek out author-
itarian regimes in developing its economic relations with SSA, its policy of
non-interference is undermining the West’s efforts to promote democracy in
SSA by providing such regimes with economic options which enable them
to resist pressure from the West. However, both the West’s commitment to
promoting democratization and its ability to do so effectively are open to
question. In the past the West has been more than willing to support au-
thoritarian regimes when it was in its political or economic interest to do
so. It is also unclear how far closer economic relations with China are a key
factor in resistance to Western pressure to democratize. Angola and Ethiopia
are two examples of countries with strong economic links with China and
relatively authoritarian regimes. However, their reluctance to engage with
21
Two studies of Chinese FDI in SSA by Cheung et al. (2013) and Kolstad and Wiig (2011)
also found that autocracy or lack of political rights did not affect the level of investment. Landry
(2019) found that the level of democracy had a positive impact on Chinese investment in Africa
as a whole.
22
Cheung et al. (2014) and Berthélemy (2011) found no significant relation between their
indicators of democracy and the level of Chinese projects in Africa.
23
Several other studies have also found that there is no significant relationship between the
level of democracy and the amount of Chinese finance that a country receives (Dreher et al.,
2016; Li, 2017; Broich, 2017; Landry, 2018).
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
8.3.2 Corruption
Although problems of corruption are often merged with those of authori-
tarianism under the general heading of ‘poor institutions’, the relationship
between the two is neither inevitable nor fixed. It is quite possible for democ-
racies to be corrupt and for dictators to be clean. Various arguments have
been put forward to suggest that China tends to have closer economic
relations with countries characterized by high levels of corruption.
24
There were rumours of China’s involvement in the removal of President Robert Mugabe in
Zimbabwe in 2017. This was categorically denied by the Chinese government at the time.
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How China is Reshaping the Global Economy
It has been claimed that Chinese actors actually prefer corrupt regimes be-
cause it is easier for them to achieve their objectives by doing business with
corrupt elites. It has also been argued that Chinese business practices are
highly corrupt, and that this gives Chinese firms a competitive advantage in
countries where the control of corruption is weak. ‘This Chinese way of busi-
ness effectively matches with some traditional social norms in many African
countries and greatly oils the wheels of bureaucracies in host countries to
facilitate deals’ (Wang and Elliot, 2014, p. 1016).
It is claimed that while Western firms are subject to pressure from civil
society and legal constraints such as the US Foreign Corrupt Practices Act
of 1977 and the Organization for Economic Co-operation and Develop-
ment (OECD) Anti-Bribery Convention signed in 1997 to avoid situations
in which they are likely to be required to pay bribes and engage in other
corrupt practices, Chinese firms face fewer pressures.25 The Bribe Payers
Index from Transparency International, which ranks major countries ac-
cording to perceptions of the likelihood that firms pay bribes abroad,
lists China as twenty-seventh out of twenty-eight countries, ahead of only
Russia.26
It is also argued that the lack of transparency in many Chinese engage-
ments in SSA tend to create scope for corruption (CRS, 2008, pp. 127–8).
Chinese companies were initially reluctant to participate in the Extractive
Industries Transparency Initiative (EITI), and the Chinese government has
not signed up to it. However, recent evidence shows increasing numbers of
Chinese companies reporting on their payments to the governments of SSA
countries that are members of the EITI, such as the DRC, Liberia, and Nigeria
(EITI, 2016).
Relations between Angola (which does not participate in the EITI) and
China illustrate the link between lack of transparency and corruption. The
operations of Angola’s National Reconstruction Office, which handled large-
scale projects funded by Chinese loans, were dogged by accusations of
corruption before it was dismantled in 2010 (Corkin, 2013, pp. 131–4).27
While it is easy to provide examples of corrupt practices on the part of
Chinese companies in SSA, corruption is by no means confined to the
Chinese.28
25
However, as Transparency International has pointed out, about half of the countries that
have signed the OECD Anti-Bribery Convention are taking minimal or no enforcement action
(Chu and Wong, 2014).
26
Transparency International (2011). In 2011 China made bribery of foreign officials by
Chinese firms a criminal offence for the first time.
27
Angola is one of the most corrupt countries in the world, ranked 146th in Transparency
International’s Corruption Perceptions Index in 2019.
28
For example, two US construction firms, Halliburton and Kellogg Brown and Root, were
found guilty in 2009 of paying bribes to Nigerian officials to win contracts worth $6 billion
208
Social, Political, and Environmental Impacts in Sub-Saharan Africa
between 1998 and 2006 (Brautigam, 2009, pp. 294–5). In 2015 a UK printing company, Smith
and Ouzman Limited, was ordered to pay more than £2 million for bribing public officials in
Kenya and Mauritania (Clare, 2016).
29
This is supported by the finding that Chinese projects tend to be disproportionately located
in the home regions of political leaders (Dreher et al., 2019).
30
The studies by Cheung et al. only cover FDI up to 2007, and, as shown earlier, Chinese FDI in
SSA has grown rapidly since then. This may account for corruption no longer being a significant
factor. In Landry (2019) the negative impact of corruption is found when South Africa is not
included and loses significance in the model for all African countries.
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How China is Reshaping the Global Economy
flows from China, Landry (2018) finds that lending tends to favour countries
where control of corruption is weaker. Dreher et al. (2018) found contrasting
results between official development assistance (ODA)-like flows from China
and those granted on a more commercial basis (‘other official finance’). There
is no relation between the former and the level of control of corruption,
whereas the latter tend to flow disproportionately to countries where the
control of corruption is weak. The mixed evidence raises questions about the
claim that China systematically prefers to operate in countries where there
is weak control of corruption.
Although China may not systematically engage with countries where the
control of corruption is weak, does its presence in a country lead to less
control of corruption? This was tested econometrically to see if any of the
measures of Chinese presence had an effect on the WGI Control of Cor-
ruption indicator (see Appendix Table A8.4). As expected, a country’s gross
domestic product (GDP) per capita had a positive effect on its control of
corruption, whereas dependence on fuel exports was associated with weaker
control. The only indicator of Chinese involvement that was significant (and
then only at the 10 per cent level) was the value of Chinese projects com-
pleted per head of population; but contrary to claims that China promotes
corruption, this was associated with stronger control of corruption.31
31
There is some evidence that to the contrary Chinese projects are associated with higher
levels of corruption at the local level in Africa (Isaksson and. Kotsadam (2018a).
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
Sudan and the DRC is merely a result of its quest for resources or there is a sig-
nificant positive relation with conflict even when controlling for a country’s
resource endowment.
To test this hypothesis, the WGI indicator for Political Stability and Lack of
Violence was added to the specification used in Chapter 6. There is weak ev-
idence that China tends to import more from politically unstable countries,
significant only at the 10 per cent level (see Table A8.3). On the other hand,
there is stronger evidence that Chinese exports and infrastructure projects
go to countries that are more stable. The overall level of bilateral trade,
FDI, and loans are not affected by political instability. Previous studies of
Chinese involvement in SSA have also found that there is either no relation-
ship with political instability or that instability and conflict have a negative
impact on Sino-SSA relations.32 Claims based on anecdotal evidence of Chi-
nese involvement in politically unstable countries and conflict situations
are not supported by a more systematic analysis of the pattern of Chinese
operations in the region.
Although there is no clear evidence that China tends to be more engaged
in countries where there is conflict, another question is whether China fu-
els conflict in countries where it is present. One way in which it might do
so would be by providing arms to the warring parties. China is now the
third-largest exporter of arms to SSA, but there are many other international
suppliers of weapons, so it is unlikely that this is an important factor in
fuelling conflict. In fact one study has found that China tends to be less
involved in exports of arms to countries involved in civil war than the US
(de Soysa and Midford, 2012). When econometric estimates of the impact of
China on political instability and conflict were made, as expected, GDP per
capita tended to reduce conflict and increase political stability, while depen-
dence on fuel exports had the opposite effect. However, the only indicator of
China’s presence that was significant was the value of infrastructure projects,
and this tended to increase stability (Table A8.4).33
32
On trade, there is no evidence that China tends to trade more with politically unstable coun-
tries (Grauwe et al., 2012; Landry, 2019). On FDI, a number of studies have found that conflict and
political instability have a negative impact on the amount of FDI from China (Sanfilippo, 2010;
Biggeri and Sanfilippo, 2009; Cheung et al., 2013; Drogendijk and Blomkvist, 2013; Chen et. al.,
2016; Landry, 2019). Previous studies of engineering projects have either found that they are neg-
atively affected by conflict (Biggeri and Sanfilippo, 2009) or that there is no significant relation
with political instability (Bérthelemy, 2011; Cheung et al., 2014; Sanfilippo, 2010). Landry (2018)
found that Chinese finance, like that of developed countries tended to go to more politically
stable countries.
33
A study of the impact of Chinese projects on conflict at the local level in Africa also found
that they tended to reduce the likelihood of conflict (Gehring et. al., 2018).
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How China is Reshaping the Global Economy
212
Social, Political, and Environmental Impacts in Sub-Saharan Africa
Brautigam (2020) shows it did not involve a direct reduction in Sri Lanka’s
debt to China i.e. it was not a debt-for-equity swap as is often implied.34 In
SSA there have been rumours that Zambia would have to hand over the in-
ternational airport in Lusaka to China (subsequently denied) and that Kenya
would need to cede the port of Mombasa, if it defaulted on its loans from
China to build the Standard Gauge Railway (Carmody, 2020, p. 25). However
none of these have come about.
The argument that China uses debt to advance its geo-political interests
in SSA is a broader one. It again lacks concrete empirical support and it can
plausibly be argued that were China to attempt to use a country’s debt prob-
lems in this way, it would be likely to prove counter-productive. It could
fuel opposition to the government locally and negatively affect China’s in-
ternational reputation as a different kind of power to the West. It would
raise questions about China’s traditional policy of non-intervention in the
internal affairs of other countries (DeBoom, 2020).
So far the claims of ‘debt-trap diplomacy’ are more significant as a part
of the political rhetoric that has developed around China’s growing involve-
ment in Africa, than as an objective analysis of Sino-African relations. That
is not to deny that there are real issues around debt sustainability in Africa,
but these need to be seen in a much broader context and not because of a
deliberate strategy on the part of China.
34
In fact the proceeds were used to help repay maturing, higher interest, international
sovereign bonds (Singh, 2020, p. 6)
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How China is Reshaping the Global Economy
214
Social, Political, and Environmental Impacts in Sub-Saharan Africa
in the internal affairs of other countries (Aidoo and Hess, 2015). As Gu and
Carty (2014, p. 60) point out: ‘China does not seek to shape African states in
its own image or interfere in politics, but it is realizing that it cannot simply
pretend that the problems of its local partners do not exist, or are exclusively
the concern of those countries.’
One way in which China has sought to reconcile the need to protect its
interests while continuing to maintain its commitment to non-interference
in the internal affairs of African countries is by acting with the African Union
and the United Nations. It has already been involved in international peace-
keeping missions in several countries including Liberia, Mali, South Sudan,
and the DRC, and although this has partly been motivated by a desire to
project China’s soft power as a responsible great power, protecting Chinese
economic interests has also played a role in some of these cases (Duggan,
2018).
The growing economic presence of China in SSA could potentially gen-
erate both positive and hostile responses within African society. There have
been outbreaks of anti-Chinese sentiments in a number of countries. The
most frequently mentioned example is Zambia, where opposition leader
Michael Sata campaigned successfully for the presidency in 2011 on an anti-
Chinese platform (Hess and Aidoo, 2014). There are other instances of hostile
acts directed at the Chinese in SSA countries, which have not generated
broader political campaigns. In 2014 workers at a Chinese-owned sugar mill
in Madagascar burnt down the factory, and the police had to evacuate all
Chinese nationals to the capital (Horta, 2015). In the DRC, rioters attacked
around fifty Chinese-owned shops during anti-government protests in Kin-
shasa in 2015 (AFP, 2015). In 2016 work on the Nairobi-Naivasha railway
was halted after Kenyan youths attacked Chinese construction workers (GCR,
2016).
Despite such incidents and outbursts of anti-Chinese sentiment in a num-
ber of SSA countries, public opinion polls show that the majority of those
surveyed in the region view China favourably (Sautman and Yan, 2009: Leko-
rwe et al., 2016; Pew Global Attitudes and Trends Database, n.d.). China’s
economic involvement in the region is the main reason why it is viewed
so positively. The most frequent factors cited by Africans are Chinese in-
vestment in infrastructure, the availability of low-cost Chinese goods, and
Chinese business investment (Lekorwe et al., 2016, Figure 15). It is clear that
as far as public opinion in Africa is concerned, growing Chinese economic
engagement is seen in a positive light by the majority of people.35 Political
35
The main factors contributing to a negative view of China are also primarily economic. In or-
der of importance, these are the poor quality of Chinese goods, displacement of local businesses,
and extraction of resources from Africa (Lekorwe et al., 2016, Figure 18).
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How China is Reshaping the Global Economy
factors are less important in explaining both positive and negative views of
China in the region.
8.3.6 Conclusion
The evidence reviewed here suggests that many of the claims regarding the
negative political impact of China in SSA have been greatly exaggerated.
There is no evidence to support the strongest claim that China is export-
ing its own authoritarian model to Africa or introducing its own corrupt
business practices and destabilizing African countries. In all of these cases,
internal conditions rather than outside influences, whether from China or
the West, are the determining factors affecting political outcomes.
There is also very little evidence to support the view that China has pri-
oritized the development of economic relations with countries that have
governments that are less democratic or where the level of corruption or
political instability is higher. The main drivers of Chinese involvement in
SSA are commercial and strategic considerations, and with the exception of
diplomatic relations with Taiwan, political factors are not significant. The
evidence is consistent with Chinese claims that it respects the sovereignty
of SSA countries and is prepared to develop relations with different types of
regimes.
The debate premised on contrasting China’s influence with the West’s gov-
ernance agenda in SSA has narrowed the discussion. This has led to relatively
little attention being paid to the way in which the growth of China is creat-
ing more policy space for African countries, and how the increased economic
involvement of China is affecting Chinese foreign policy in the region or the
attitudes of Africans towards China.
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Social, Political, and Environmental Impacts in Sub-Saharan Africa
36
It should be remembered that a significant part of this demand for resources is to produce
goods which are then exported from China, so that the ultimate source of demand is elsewhere,
mainly in the developed world.
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How China is Reshaping the Global Economy
of vast quantities of waste. Water supplies may also be affected by mines’ de-
mand for water. Logging, much of which is illegal, is often unsustainable and
leads to widespread deforestation (WWF-UK, 2009, EV 109).
In the case of exports to China, there are numerous reports of environ-
mental destruction in SSA, but what evidence is there that exports to China
are more environmentally damaging than exports to other markets? Such
an outcome could arise either because Chinese consumers are less aware or
less concerned about the environmental impacts of their consumption than
those in the West or because there is less government regulation of environ-
mentally damaging imports in China or because there is a significant volume
of illegal trade between SSA and China.
Because the bulk of SSA’s exports to China and elsewhere are made up
mainly of undifferentiated commodities such as oil and copper, which are
not sold to the final consumer, it is unlikely that exporters will have any
incentive to differentiate between a product sold to China and one sold to
other, more developed countries. Consumers can only take account of the
environmental impacts of a product that they buy when there is some form
of certification in place (see section 8.4.3 on timber).
The ability of governments to take action against imports of goods pro-
duced in an environmentally damaging way is limited by World Trade
Organization (WTO) rules that prevent discrimination on the grounds of
how a product has been produced.37 Governments are, therefore, only able
to restrict imports of environmentally damaging products under certain
exceptional circumstances. Thus, neither consumer demand nor import reg-
ulations are likely to lead to a significant difference in the environmental
impacts of goods exported to China compared to other markets.
In fact the most likely cause of exports to China having a negative en-
vironmental impact is where there is extensive illegal trade. In recent years
conservationists have pointed to demand from China for ivory and rhino
horn as a major threat to the African elephant and rhinoceros (Gao and
Clark, 2014).38 Although important from the point of view of conservation,
from the environmental point of view, the illegal trade in ivory and rhino
horn is less significant than the illegal trade in timber. The impact of Chinese
trade and investment in forestry is discussed in more detail in section 8.4.3.
37
The WTO generally prevents discrimination on the basis of ‘non-incorporated’ processes
and production methods (PPM). The application of this principle has given rise to considerable
debate (see Cottier, 2016).
38
In 2017 China announced a ban on trade in ivory, which has helped curb the demand for
ivory (WWF, 2019).
218
Social, Political, and Environmental Impacts in Sub-Saharan Africa
219
How China is Reshaping the Global Economy
39
A survey of Chinese firms in three African countries carried out in 2015 found that 60 per
cent of respondents had not heard of the Guidelines, and only 13 per cent could claim that they
were familiar with them (Weng and Buckley, 2016, Figure 4).
220
Social, Political, and Environmental Impacts in Sub-Saharan Africa
There is some evidence that large SOEs tend to perform better environ-
mentally than smaller private companies (CCICED, 2011, p. 112; Tang and
Sun, 2016, p. 74). A study in Mozambique, Kenya, and Uganda by the
International Institute for Environment and Development showed greater
awareness of Chinese government guidelines for foreign investors amongst
SOEs than in private firms (Weng and Buckley, 2016). Despite this, the sheer
scale of SOE operations is likely to mean that in absolute terms they have a
greater environmental impact overall (Tang and Sun, 2016, p. 75).
Other factors besides national origin may contribute to poor environmen-
tal performance by Chinese companies. Chinese extractive firms have been
latecomers in SSA, finding that US and European firms had already acquired
the most accessible resources. They have, therefore, tended to operate in
more remote areas which are often more ecologically sensitive and in some
cases, are located in National Parks, such as SINOPEC in Gabon and the Bui
Dam in Ghana. They also lack experience of operating in Africa, and there is
evidence that Chinese companies with a longer history of operating overseas
tend to perform better environmentally (CAITEC et al., 2015, Chapter 7).
Although there are considerable differences in the environmental prac-
tices and performance of Chinese companies in SSA, the perception remains
that, in general, Chinese firms tend to be more environmentally damag-
ing than Western ones. Relatively few comparative studies have tested this
empirically. One sector in which there has been more research on China’s
environmental impacts on SSA is forestry.
EXPORTS TO CHINA
Several characteristics of the Chinese market influence the environmental
impact that trade is likely to have in Africa, in contrast with the markets in
developed countries. First, imports concentrate mainly on unprocessed logs.
Although the share of round-wood logs in total Chinese imports of timber
has fallen in recent years as some African countries have imposed restrictions
221
How China is Reshaping the Global Economy
on log exports, they still account for the bulk of imports from Africa (Wilkes,
2016, p. 190). While there is a slight advantage in terms of a lower tariff than
on processed wood, the main reasons for this preference for raw logs are the
high efficiency of Chinese sawmills and the strong demand in China for
by-products such as woodchips and shavings. As a result, logs account for a
much higher proportion of timber exports from Cameroon and the Republic
of Congo to China than to other markets, particularly the EU (Kozak and
Canby, 2007).
A second characteristic of the Chinese market is that there is a demand for
a wide range of different kinds of wood, unlike demand in the North, which
is much more selective in terms of the types of species required (Cerutti et al.,
2011).
Third, there is much less demand for certified wood products in China
than there is in developed-country markets. Forestry has widely recognized
certification schemes, such as the Forest Stewardship Council (FSC) Forest
Management and Chain-of-Custody certificates and the Programme for En-
dorsement of Forest Certification, which provide for mutual recognition of
national standards that meet certain sustainability benchmarks. These cer-
tification schemes are much more prevalent in developed-country markets
than in China, and they provide a means by which consumers can distin-
guish between wood products made from sustainable timber and those that
are not. A Greenpeace (2015) study of Chinese companies operating in the
Congo Basin found that only three out of sixteen companies interviewed had
been asked by their customers to provide FSC certification. The degree of Chi-
nese consumers’ awareness of industry practices in tropical timber-producing
countries is low (Huang et al., 2013, p. 349).
Fourth, government regulation of imported timber and wood products
is stricter in developed-country markets than in China. The EU Forest Law
Enforcement Governance and Trade Action Plan (FLEGT) and the US Lacey
Act require importers of all wood products to demonstrate the legality of the
timber source (Huang et al., 2013, p. 349). Although the Chinese govern-
ment has taken some action to check illegal logging, this has concentrated
mainly on domestic Chain-of-Custody certification, and has no relation to
the legality of wood imported from third countries (Freeman and Xu, 2015,
p. 332). As far as imported timber is concerned, China has preferred to issue
guidelines rather than regulations and legal means (ibid, p. 334).
Finally, a significant proportion of Chinese imports of timber comes from
illegal logging. Freeman and Xu, (2015, p. 328) estimate that more than half
of Chinese imports come from illegal sources. A number of major Chinese
timber importers have been linked to illegal logging in the Congo Basin
(Greenpeace, 2015, pp. 16–19; EIA, 2019). As Table 8.1 indicates, a much
higher proportion of exports to China from several SSA countries is likely to
222
Social, Political, and Environmental Impacts in Sub-Saharan Africa
China EU
be illegal than is the case with the exports to the EU. These illegal imports are
likely to be particularly harmful to the environment of the countries from
which they are sourced because loggers ignore local regulations designed to
restrict deforestation.
Most of these characteristics of Chinese demand make it more likely that
exporting to China will have a negative impact on forests in the country of
origin. The fact that wood is not processed within SSA means that a dollar
of exports involves more environmental cost than would be the case if there
was more value added locally. Although less selectivity might mean that ex-
ports to China would cause more deforestation, in fact, it has been suggested
that because logging that is more selective requires strong penetration into
core forest areas, the reverse is likely to be the case (Brandt et al., 2014). The
limited demand for certified wood products and the lack of regulation of im-
ports to China, together with the extensive trade in illegal timber, all tend to
make exports to China more environmentally damaging than those to the
EU or USA.
Two factors might modify any tendency for such a dualistic market struc-
ture to emerge, with sustainable timber exported to the USA and the EU and
illegal or unsustainably produced timber exported to China. First, a signif-
icant portion of the timber imported to China is incorporated into wood
products and furniture for export, and where the destination market is the
EU or the USA, there is still a need to provide evidence of the origin of the
timber used.40 This has been an important driver for firms in China to ob-
tain FSC Chain-of-Custody Certificates. Between 2010 and 2013, 2,412 such
certificates had been issued in China (Blackmore et al., 2013, Table 1).
The second factor that might reduce differences between exports to China
and those to developed-country markets is that large TNCs or SOEs may
find it easier to adopt a uniform standard for their exports irrespective of
40
Between 1999 and 2009, exports accounted for about a quarter of total consumption of
wood products in China (Huang et al., 2013, p.349).
223
How China is Reshaping the Global Economy
CHINESE INVESTMENT
Although the forestry sector in SSA accounts for a relatively small share of
total Chinese outward foreign direct investment, the number of approved
projects has increased significantly from eight in 2007 to eighty-four in 2015,
with operations in twenty-five countries (Li and Yan, 2016). Chinese com-
panies are particularly involved in Gabon, where about a third of logging
companies are Chinese owned (Wilkes, 2016, p. 27) and in other countries
in Central and Southern Africa, including the Republic of Congo, Mozam-
bique, and Zambia. Chinese firms investing in SSA include large SOEs such
as the Jilin Sengong Group in Equatorial Guinea, Zhong Lin International
in Gabon, and large private firms such as Yihua Wood in Gabon, as well as
SMEs (Wilkes, 2016, p. 25).
While there is evidence that wood exported to China is likely to be pro-
duced in a less sustainable way than exports to Northern markets, does the
nationality of the firms involved also make a difference to the environmental
impact? Here what little evidence exists is less clear.
Most of the comparative studies that have been carried out look at dif-
ferent types of firms’ environmental practices and degree of regulatory
compliance rather than their actual environmental impact. In Cabo Delgado
province, Mozambique, it was found that European firms were more likely
than Chinese companies to be operating with an approved management
plan (Wertz-Kanounnikoff et al., 2013). A comparison of European and Asian
(many of them Chinese) companies in the Republic of Congo also found that
a higher proportion of the European firms complied with the requirements
of the country’s Forest Management Plan. However, European firms had the
greater impact on deforestation. This was attributed to the more selective
logging by European firms, which meant that they had to open up more ar-
eas of core forest in order to obtain a given volume of timber (Brandt et al.,
2014).
Studies of Gabon have come to conflicting conclusions regarding the ex-
tent to which Chinese firms operate without management plans and the
required licences, although it is noted that such practices are also common
amongst non-Chinese firms (Freeman and Xu, 2015, pp. 339–41). A study of
41
Examples from other sectors include the Chilean copper SOE, CODELCO, which is reported
to apply the same standards across its projects regardless of the end market (Blackmore et al., 2013,
p. 23), and TNCs such as Cargill, ADM, and Bunge, which export agricultural products from Brazil
to both Northern and Southern markets and have well-developed sustainability policies (ibid,
p. 37).
224
Social, Political, and Environmental Impacts in Sub-Saharan Africa
two European and one Chinese firm in Cameroon concluded that the market
to which the firms exported affected their logging practices more than the
nationality of the firm (Cerutti et al., 2011). The differences in deforestation
by European and Asian firms in the Republic of Congo can also be explained
by the fact that the Asian market for timber is much less selective than the
European market in terms of species (Brandt et al., 2014).
More evidence is needed before coming to any definitive conclusions
about the relative environmental impacts of Chinese and other firms. There
is more convincing evidence that exports to China and those to Northern
markets might have different implications. Although this may involve higher
standards in exporting to the developed world, formal compliance may not
always lead to less environmental degradation.
42
For a review of the literature on China’s involvement in energy transitions in Africa, see
Shen (2020).
225
How China is Reshaping the Global Economy
Burgess, 2015, p. 1). There has, however, been an increased presence of China
in renewable energy in Africa. Between 2000 and 2017 Chinese finance for
wind and solar projects in Africa came to $1.5 billion (Muñoz-Cabré et al.,
2018, Table 9).
China’s involvement in wind and solar power in SSA has taken three
forms: exports of renewable energy equipment; investment in manufac-
turing equipment; and construction of generation capacity (Conrad et al.,
2011, Chapter 3). The most important has been the export of equipment
such as photovoltaic (PV) panels, solar water heaters, and wind turbines.
Although there has been talk of Chinese investment to produce such equip-
ment in the region, the only significant example so far has been Jinko Solar,
which opened a factory producing solar panels in Cape Town in 2014 (Shen
and Power, 2017, p. 13). An earlier attempt to set up a PV manufacturing
plant in Kenya failed (Conrad et al., 2011, p. 32). There has been talk of
Longyuan establishing facilities to produce wind turbines in South Africa,
but these have not yet materialized (ibid, p. 33). Chinese firms have been
more involved in constructing wind farms and solar power plants than in
manufacturing equipment in SSA. These include wind farms in South Africa
and Ethiopia and solar power projects in South Africa, Senegal, Kenya, and
Rwanda (IEA, 2016, Map 1; Tan et al., 2013, Annex 1 and 2). China is also
involved in a trilateral project with the United Nations Development Pro-
gramme and African countries (Ghana and Zambia) to promote the transfer
of renewable energy technology from China to Africa under the UN’s Sus-
tainable Energy for All (SE4ALL) project, which aims to enhance off-grid,
community-based electrification (IEA, 2016, Box 6).
Chinese involvement in renewable energy in SSA has primarily been com-
mercially driven. The rapid expansion of renewables in China has led to
substantial overcapacity in both wind turbines and solar panels. New in-
vestment in wind farms in China slowed down from around 2010, and as
a result Chinese firms began exporting on a significant scale, with exports
of wind turbines tripling between 2011 and 2013 (Shen and Power, 2017,
p. 6). The solar industry was much more export oriented from the outset, but
it has been hit by a slowdown in demand in developed-country markets and
increasing protectionism against Chinese solar products. A number of Chi-
nese PV manufacturers collapsed between 2012 and 2013, but even so, there
continues to be substantial excess capacity. The firms that survived looked
for new markets outside the EU and the USA, and there has been a mas-
sive increase in exports to Africa (ibid., p.8). All the Chinese investment in
Africa in solar power and almost three-quarters of investment in wind power
between 2000 and 2017 was financed by commercial sources (both SOEs
and private) rather than the policy banks (Muñoz-Cabré et al., 2018, Tables
10 and 11).
226
Social, Political, and Environmental Impacts in Sub-Saharan Africa
8.4.5 Conclusion
The picture that emerges of China’s environmental impact in SSA is more
mixed than the purely negative one that is often painted. There is evi-
dence that in some cases, most notably timber, exports to China are likely
to be more environmentally damaging than exports to developed-country
markets are, although environmental damage is by no means confined to
exports to China. In the case of petroleum or minerals, there is less reason
to suppose that the destination of exports leads to significant differences
in the environmental impact of production. In these sectors differences
in environmental impact are likely to be associated more with differences
between companies of different origin than with the destination of their
exports.
The environmental impact of Chinese companies overseas is becoming
a more important concern for both the Chinese government and some of
the companies involved. From the government’s point of view, reports of
environmentally destructive activities by Chinese companies undermine its
narrative of ‘mutual benefit’ and South-South cooperation used to promote
its soft power in Africa. The larger Chinese companies that now operate
globally are also under increased pressure to operate in an environmen-
tally responsible way. It is still too early to say how far the new guidelines
from MOFCOM and MEP will be a significant factor in promoting a shift in
behaviour, bearing in mind that they are only recommendations and com-
panies are not obliged to follow them. There are signs, however, that Chinese
companies’ environmental management and performance improves as they
acquire more experience of operating abroad.
The problems of environmental degradation arising from trade and in-
vestment in SSA are in large part a reflection of weak governance in the
43
The International Energy Agency (IEA) (2016, Figure 4) estimates that 20 per cent of capacity
added between 2010 and 2020 was based on coal, 19 per cent on gas, and only 7 per cent on
renewables other than hydropower.
227
How China is Reshaping the Global Economy
region. There is no doubt that in many SSA countries the lack of effective
regulation is a major factor that has allowed Chinese (and other) resource
extraction companies to cause environmental damage. As Tan-Mullins and
Mohan’s (2013) comparison of Ghana and Angola shows, where there is a
more active civil society and stronger local legislation, as in Ghana, Chinese
companies are likely to cause less damage than in a country such as Angola,
where power is highly concentrated in the hands of a narrow elite. Simi-
larly, the relatively limited development of renewable energy (apart from
hydropower) is also in part the result of the governments of the region’s
lack of appropriate policies and commitment. A more sustainable pattern
of development requires changes within the African countries and not sim-
ply better performance by external actors, whether they are from China or
elsewhere.
Appendix to Chapter 8
Econometric Analysis of Political Factors
228
Social, Political, and Environmental Impacts in Sub-Saharan Africa
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent level
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent level
As before, the dependent variables were lagged by one year to avoid problems
of reverse causality. Because the WGI indicators are not available for 2001, a
year of data was lost compared to the estimates in Chapter 6. The impact of
229
How China is Reshaping the Global Economy
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent level
each of the three variables on the six measures of Chinese relations with SSA
was tested separately. The results are reported in Tables A8.1–8.3.
230
Social, Political, and Environmental Impacts in Sub-Saharan Africa
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent level
Variable Source
231
Part III
China and Latin America and the
Caribbean
9
9.1 Introduction
Relations between the Peoples Republic of China (PRC) and Latin America
and the Caribbean (LAC) are a relatively recent development.1 Until the
1970s, all countries in the region, apart from Cuba, continued to maintain
diplomatic relations with Taiwan. In 1971, Chile, under the socialist Popular
Unity government, recognized the PRC, but many Latin American countries
did not do so until after 1979, when the USA and PRC established diplomatic
relations and when China began its economic reforms. Eight countries in
the region continue to recognize Taiwan and do not have diplomatic rela-
tions with the PRC, making the region the most significant concentration of
countries that maintain relations with Taiwan.
It was during the 1990s that China began to increase its political engage-
ment with Latin America. It first established a ‘strategic partnership’ with
Brazil in 1993. Relations with the region took off at the turn of the century.
Further strategic partnerships were signed with Venezuela (2001), Mexico
(2003), Argentina (2004), Peru (2008), and Chile (2012). Chinese Presi-
dents Hu Jintao and Xi Jinping have visited Latin America on a number of
occasions, while most Latin American leaders have undertaken state visits
to China. Although relations with the region remain mainly at a bilateral
level, China has engaged in a number of regional initiatives. It was eventually
allowed to join the Inter American Development Bank (IADB) in 2008, after
1
Latin America and the Caribbean, in this study, include thirty-three politically independent
countries, which are listed in the Appendix to this chapter. It does not include Caribbean terri-
tories that are dependencies of other states, such as the Cayman Islands and the British Virgin
Islands.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0010
How China is Reshaping the Global Economy
its application was initially blocked by the USA. It has had observer sta-
tus at the Organization of American States since 2004, and has established
dialogues with regional organizations such as Mercosur and the Andean
Community. However, the first regional summit between China and the
countries of the region, the China-CELAC (Community of Latin American
and Caribbean States) Forum, was not held until 2015.
Economic relations between China and LAC remained extremely limited
throughout the 1990s, but there has been dramatic growth since the start of
the twenty-first century. Initially this focussed on trade, but since the late
2000s, there has been an increased presence of Chinese companies through
foreign direct investment (FDI), construction and engineering projects, and
lending by Chinese banks. Acquiring raw materials has been a key part of
China’s involvement in Latin America, but it is by no means the only aspect.
The need to find new markets for Chinese goods has also been a factor in
the growth of Chinese exports to the region and of some FDI and loans. This
chapter describes the main characteristics of Sino-Latin American relations,
the main actors involved, and the drivers that have led to closer economic
links.
China’s economic relations with LAC have taken a number of forms, all of
which have increased considerably since the start of the Millennium. This
section documents the growth of bilateral trade, foreign investment, and
projects undertaken by Chinese firms in the region, and loans and aid pro-
vided by China to LAC. The significance of China for LAC varies considerably
between the different kinds of relationships.
9.2.1 Trade
Trade is central to Latin America’s economic relations with China. In the late
1990s, total trade (imports plus exports) between China and Latin America
was only around US$5–8 billion a year. Bilateral trade grew dramatically from
the turn of the century, to reach more than $300 billion in 2019. Despite
setbacks at the time of the global financial crisis and again at the end of
the commodity boom, China’s imports from Latin America increased almost
sixty-fold, and exports to the region almost thirty-fold between 1999 and
2019 (see Figure 9.1).
Trade between China and Latin America has been relatively balanced
overall, in contrast with China’s deficit in trade with Sub-Saharan Africa
236
China’s Economic Expansion in Latin America and the Caribbean
150
100
50
0
96
98
00
02
04
06
08
10
12
14
16
18
19
19
20
20
20
20
20
20
20
20
20
20
–50
Imports Exports Trade Balance
Figure 9.1 China’s trade with Latin America, 1995–2019 (US$ Billion)
Source: UNCTADStat.
(SSA). When commodity prices fell after 2012, China enjoyed a trade surplus
with the region but this moved into deficit when prices began to recover
at the end of the decade. The overall picture hides substantial variations
between countries, with China running trade deficits with Brazil, Chile, Peru,
Venezuela, and Uruguay, while it has surpluses in trade with other Latin
American countries, particularly Mexico.
Trade between China and LAC is predominantly inter-industry trade, with
relatively little of the intra-industry trade in parts and components, which
characterizes flows within global value chains (GVCs) (Ortiz-Velásquez and
Dussel-Peters, 2016). LACs participation in GVCs is much lower than in other
regions such as the EU and Asia (OECD, 2016, p. 108).2 The region has not,
therefore, taken advantage of the possibility of more complex trade relations
with China that integration into GVCs could provide.
China’s imports from the region are dominated by primary products
and resource-based manufactures, while exports are almost entirely of non-
resource-based manufactures. China’s imports from LAC are more heavily
concentrated in primary products than those of the USA, the EU, and Japan
(Figure 9.2). The share of primary products in China’s imports from LAC has
2
Mexico is an exception because of its high integration with the USA as a result of NAFTA.
237
How China is Reshaping the Global Economy
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
China Japan USA EU
Primary prods RBM Low tech Medium tech High tech
Figure 9.2 Shares of different products in imports from Latin America, 2017–19
Source: UNCTADStat
also increased in recent years.3 As a result, the growing share of the region’s
exports going to China has led to the ‘recommodification’ or ‘reprimariza-
tion’ of its export structure (Rosales and Kuwayama, 2012, pp. 92–107; Su,
2017, pp. 582–6).
Agricultural products, fuels, and minerals account for almost 90 per cent
of China’s imports from the region. The top products that China imported
from Latin America in 2017–19 were oil seeds (mainly soybeans), iron ore and
concentrates, petroleum, copper ores and concentrates, and refined copper,
making up more than two-thirds of total imports from the region. They are
all primary products or resource-based manufactures with a limited degree
of processing, such as refined copper.
Although the low level of processing of raw materials exported to China
and the very limited exports of manufactured goods partly reflects the fact
that Latin America’s comparative advantage is largely based on natural re-
sources, the higher share of such products in exports to China than to other
markets suggests that this is not the whole story. In fact Chinese policies to
promote manufacturing at home have made it more difficult for exporters
of processed products to access the market. One example of this is China’s
import of soybeans from Argentina. In the 1990s China promoted its own
crushing industry through a variety of incentives and protectionist policies,
3
The average share of primary products in Chinese imports from the region increased from
39 per cent in 2005–7 to 67 per cent in 2017–19, while the share of resource-based manufac-
tures (RBMs) fell from 44 per cent to 26 per cent over the same period (own calculation from
UNCTADStat data).
238
China’s Economic Expansion in Latin America and the Caribbean
4
In 2018 and 2019 the region supplied three-quarters of China’s imports of soybeans following
a drop in Chinese imports from the United States as a result of the US-China trade war.
239
How China is Reshaping the Global Economy
as a source of imports for the region, and as a destination for its exports. The
USA continues to be a more important market for Latin America than China,
but this partly reflects the close ties between Mexico and the Dominican
Republic-Central America Free Trade Agreement (DR-CAFTA) countries and
the USA.
As this suggests there are considerable variations in the extent of trade
linkages with China between individual countries. China accounts for more
than 15 per cent of imports in all the major LAC countries, although the
share is lower in Central American and Caribbean countries which rely
more heavily on the USA and neighbouring countries and several of which
still maintain diplomatic relations with Taiwan (Table A9.1). There are even
starker differences between countries in terms of their dependence on the
Chinese market for their exports. In the period 2017–19, exports to China
only accounted for more than 10 per cent of total exports for six countries
in the region: Chile, Peru, Brazil, Uruguay, Venezuela and Cuba (Table A9.1).
For Mexico and the Caribbean and Central American countries the share of
exports going to China was extremely low.
240
China’s Economic Expansion in Latin America and the Caribbean
30,000
25,000
20,000
15,000
10,000
5,000
0
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
MOFCOM Flows MOFCOM Stock Monitor CGIT
5
A study by the Brazilian Central Bank estimated that around 90 per cent of investment by Chi-
nese firms in Brazil between 2010 and 2016 was made through third countries and not therefore
included in the MOFCOM figures (BCB, 2018, Figure 14).
6
China Global Investment Tracker, available at: http://www.aei.org/china-global-investment-
tracker/ (accessed 18 October 2016).
241
How China is Reshaping the Global Economy
2019. Even if Hong Kong is excluded from the total, Latin America’s share
of China’s total FDI stock only came to less than 2 per cent (own calculation
from MOFCOM data).7 This may well underestimate the true significance
of the region if a high proportion of Chinese FDI comes via other coun-
tries. According to the China Global Investment Tracker, over 10 per cent of
cumulative Chinese investment between 2005 and 2020 was in LAC.
How does the level of Chinese investment in Latin America compare to
other sources of inward investment to the region? Despite large recent in-
flows, China’s share of total inward investment in Latin America remains
low. Recent estimates suggest that, based on official figures, China accounted
for less than 1 per cent of the stock of FDI in the region (Table A9.1). Even
taking the higher unofficial estimates of Chinese FDI, the share of China in
inward investment in recent years has only been around 5–6 per cent of total
inflows (ECLAC, 2015, p. 36). Dussel Peters (2020b, Table 1) estimates that
China accounted for 6 per cent of total FDI in the region between 2011 and
2019 rising to around 8 per cent towards the end of the period.8 This still
means that it is a relatively minor player compared to the EU and the USA
(40 per cent and 25 per cent of the total, respectively; ECLAC, 2013, p. 11).
Not surprisingly, the most important destination for Chinese OFDI in LAC
has been Brazil which accounts for between a third and a half of invest-
ment in the region.9 Other major destinations for Chinese firms are Peru,
Argentina and Venezuela.10 Chile has also recently become an important
area for investment. Mexico, the second largest economy in the region how-
ever receives relatively little Chinese OFDI, relative to its overall economic
importance, although it is expected to grow in future (Dussel Peters, 2019).
Colombia too has received relatively less Chinese investment than other
LAC countries (Velosa, 2019). The country with the highest share of Chinese
OFDI in its total stock of inward investment in 2019 is Venezuela which has
seen a substantial drop in investment from other sources since 2011. Several
resource-rich Caribbean countries such as Guyana, Jamaica, Suriname, and
7
In 2019 the stock of Chinese FDI in two Caribbean tax havens, the Cayman Islands and the
British Virgin Islands, came to US$418 billion, accounting for almost a fifth of the total world-
wide. Since these are unlikely to be the final destinations of Chinese FDI, there is an argument
for excluding them from the comparison with investment in Latin America.
8
Another estimate indicates that China accounted for 6.7 per cent of total FDI in LAC between
2015 and 2019 (own calculation from Ray and Barbosa, 2020, Figure 10).
9
According to Red ALC Brazil accounts for 36 per cent of cumulative investment in the re-
gion between 2000 and 2019, while the corresponding figure for CGIT is 52 per cent. The official
MOFCOM figure for the share of the stock of OFDI in the region at the end of 2019 is lower
at 22 per cent, but as mentioned earlier these official figures vastly underestimate the extent of
investment by Chinese companies in Brazil.
10
For more details on Chinese OFDI in individual Latin American countries, see Dussel Peters
(ed.), (2019) and the special issue of the Journal of Chinese Political Science (Blanchard (ed.), 2019).
242
China’s Economic Expansion in Latin America and the Caribbean
Trinidad and Tobago also have relatively high shares of Chinese investment
compared to the rest of the region (see Table A9.1).
The bulk of Chinese investment in Latin America has been in natural re-
source sectors. In the period up to the Global Financial Crisis over 90 per cent
of investment was in raw materials but since then there has been diversifi-
cation into other sectors, particularly manufacturing and utilities. Although
three-quarters of cumulative investment up to 2012 was still in resource sec-
tors, this fell to less than half between 2013 and 2019.11 This is still much
higher than the region’s FDI from other countries as only a quarter of all FDI
in the region was in resources (ECLAC, 2015, p. 37). The most significant sec-
tor in terms of Chinese OFDI in Latin America is metals, which accounted
for more than a quarter of all Chinese investment announced in the re-
gion between 2005 and 2020, according to the AEI/Heritage Foundation. The
other major sector for investment is oil and gas, which accounted for almost
20 per cent of total Chinese investment in the region in 2005–20.12
All of these studies are based on information collected from published
databases and media reports, and they only include large-scale investments
and, thus, overestimate the share of extractive industries by failing to capture
some smaller investments, particularly those by private firms. However, these
are unlikely to change the general picture that emerges: that Chinese invest-
ment in Latin America has been heavily oriented towards resource extraction
despite recent diversification into manufacturing and utilities and services.
11
Own calculation from Red ALC-China database, available at https://www.redalc-china.org/
monitor/informacion-por-pais/busqueda-por-pais (accessed 16 March 2020).
12
Own calculation from American Enterprise Institute/Heritage Foundation, China Global
Investment Tracker, available at: https://www.aei.org/china-global-investment-tracker/ (accessed
27 November 2020).
13
Two major high-speed rail projects were cancelled in Venezuela and Mexico. The project to
build a canal in Nicaragua between the Caribbean and the Pacific has also been stalled.
14
Unlike the case of OFDI where the official Chinese figures are substantially lower than those
provided by unofficial sources based on media and other sources, the official figures for contracted
projects are larger than the two alternative estimates that are available. It is more than double
the corresponding figure from the China Global Investment Tracker database for the same period
and 80 per cent greater than that provided by the Monitor de la Infraestructura China en America
243
How China is Reshaping the Global Economy
25,000
20,000
15,000
10,000
5,000
0
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
NBS CGIT Red-ALC
Latina. This suggests that the official figures are more comprehensive than those collected from
media announcements.
15
For more details, see the case studies on Argentina (Stanley, 2018). Brazil (Hiratuka, 2018)
and Ecuador (Garzón and Sastro, 2018) .
244
China’s Economic Expansion in Latin America and the Caribbean
Other
7%
Transport
Other Energy 28%
16%
Oil
4%
Coal Construction
5% 8%
Utilities
Gas
Hydro 1%
5%
23% Agriculture
2%
Technology
1%
Figure 9.5 Sectoral distribution of the value of Chinese project contracts in LAC,
2005–20
Source: American Enterprise Institute/Heritage Foundation, China Global Investment Tracker
capita, the highest levels are in Caribbean countries with small populations
(Bahamas, Antigua and Barbuda, and Dominica). Other countries with rel-
atively high levels ((over $1000 per capita between 2005 and 2018) include
Ecuador, Guyana, Jamaica, Suriname, Trinidad and Tobago, and Venezuela,
all of which are oil or mineral rich (Table A9.1).
According to the China Global Investment Tracker, and the Monitor of Chi-
nese Infrastructure Investment in Latin America, energy has been the most
important sector for contracts in the region, followed by transport.16 Be-
tween them, these account for over 80 per cent of the total between 2005
and 2019. Although energy accounts for more than half of the value of con-
tracts, the most important subsector is hydropower. Oil and gas together
account for less than 10 per cent of the total (Figure 9.5). The main sector for
transport contracts is railways, with large deals in Venezuela and Argentina.
As was seen earlier, LAC is far less important for China as a location of
construction projects than Asia or Africa (Figure 4.2). At its peak in 2015 the
region accounted for 10 per cent of the value of projects completed abroad by
China, but since then its share has fallen to around 8 per cent (NBS database).
This makes it slightly more important for China relative to other regions than
exports of goods to LAC in recent years. In absolute terms however, the total
16
Unfortunately the official Chinese figures on economic cooperation do not give a breakdown
by sector.
245
How China is Reshaping the Global Economy
value of Chinese exports to the region in the late 2010s was more than ten
times the annual revenue from completed contracts (see Figures 9.1 and 9.4).
There are no comprehensive data on the share of all infrastructure projects
in LAC that are built by Chinese firms, but there are indications that this has
increased significantly in recent years. Figures for the largest 250 interna-
tional contractors show that the share of Chinese firms in the region almost
doubled from 12.9 per cent in 2014 to 23.7 per cent five years later (ENR,
2015, p. 40; ENR, 2020, p. 40). China still lags well behind Europe which
accounted for 60 per cent of the value of international contracts in LAC in
2019.
There are expectations that the invitation to participate in the Belt and
Road Initiative (BRI) that was extended to LAC countries at the China-
CELAC Ministerial Forum in Santiago in January 2018 will boost Chinese
involvement in infrastructure in the region. There is some evidence that an-
nouncements of infrastructure projects in the region has picked up, although
it is not clear whether this was a result of countries signing up to the BRI
(Jenkins, 2021).
17
The Inter-American Development Dialogue China-Latin America Finance Data Base is avail-
able at: http://www.thedialogue.org/map_list (accessed 1 December 2020).
18
See Bilotta (2018) and Ugarteche and de Leon (2019) on the growth of the Chinese state-
owned commercial banks, ICBC, BOC, and CCB in LAC.
246
China’s Economic Expansion in Latin America and the Caribbean
120,000
100,000
80,000
60,000
40,000
20,000
0
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
New Loans Debt to China
Figure 9.6 Chinese loans and debt in Latin America, 2005–19 (US$ Million)
Source: China-Latin America Finance Data Base; Horn et. al. (2019).
Figure 9.6 shows the total for LAC extracted from their database. This shows
that debt grew from very low levels in the middle of the first decade of the
twenty-first century to almost $110 billion in 2016.19
In addition to bilateral lending China also created several regional funds in
2015 and 2016: The China-Latin American Production Capacity Cooperation
Investment Fund of $30 billion, the Special Loan Program for China-Latin
America Infrastructure Projects for $20 billion and the China-LAC Coopera-
tion Fund of $10 billion.
Chinese loans to Latin America were dominated by one country,
Venezuela, which received 45 per cent of the total loans provided to the
region between 2005 and 2019, despite having received no new loans
since 2016; and four countries together—Venezuela, Brazil, Argentina, and
Ecuador—accounted for over 90 per cent of the total.
Looked at from the LAC side, Venezuela and Ecuador, as well as some of
the small Caribbean countries that have hosted significant Chinese projects
(Antigua and Barbuda, the Bahamas, and Dominica) and Jamaica are the
countries that are most heavily indebted to China. In each case the estimated
debt to China in 2017 came to more than 10 per cent of GDP (Table A9.1).20
Over 40 per cent of all Chinese loans to Latin America were classified as
being for infrastructure, while over a third went to the energy sector.21 It
should not be assumed that all the loans for energy were related to China’s
19
This is less than the total amount of loans extended by the Chinese policy banks as reported
China-Latin America Finance Data Base since some of the loans have been repaid or written off.
20
For more details on individual countries see Zapata Rosso (2019) on Bolivia. Castro Salgado
(2019) on Ecuador, Piña (2019) on Venezuela and Minto (2019) on the Caribbean.
21
Own elaboration from the Inter-American Dialogue database. The on-line version of the
database shows a much higher share of energy in total lending, but this appears to be because
247
How China is Reshaping the Global Economy
demand for resources since a significant share was to finance local electricity
generation and transmission. Less than 2 per cent of all loans went to the
mining sector. As in SSA, more than half of Chinese loans to Latin America
were commodity backed, particularly in Venezuela and Ecuador (Brautigam
and Gallagher, 2014, Table 1). Both Venezuela and Ecuador are regarded as
high-risk countries, and they have low credit ratings, so ensuring repayment
through commodity exports helps to reduce the risk for Chinese lenders.
Because many Latin American countries are classified as middle income,
they have not been major recipients of aid. According to China’s State Coun-
cil, LAC accounted for only 12.7 per cent of Chinese aid funds in 2009 and
8.4 per cent in 2010–12. Based on the earlier estimates of global Chinese aid,
this would only amount to around US$430 million in 2008. More recently
it has been calculated that Chinese aid to the region came to $560 million
in 2013, representing about 7 per cent of total aid flows to the region and
making China the fifth-highest-ranked donor (Stallings, 2017, Table 4.2).
It is clear that only a small proportion of Chinese financial flows to the
region can be classified as ODA. Although total financial flows from China
to Latin America in recent years have been roughly similar to those to Africa,
its aid flows to the region are less than a sixth of the level of Chinese aid to
Africa.
Latin America plays a less significant role in China’s foreign policy than
Africa does. China’s Ministry of Foreign Affairs (MOFA) issued its first policy
paper on Latin America in 2008, two years after producing the equivalent
document on Africa (PRC, 2008). Much of the paper is concerned with eco-
nomic relations. A second policy paper published in November 2016 also
emphasized economic relations (PRC, 2016). Although diplomatic relations
are formally channelled through MOFA, economic relations have largely
been driven via the policy banks and major state-owned enterprises (SOEs).
Economic relations between Latin America and China involve a number
of different actors (Dussel Peters and Armony, 2015; Creutzfeldt, 2017). Ex-
ports are dominated by a number of large companies, including some Latin
American SOEs such as CODELCO in Chile and PDVSA in Venezuela, large
private Latin American companies such as Vale in Brazil, and major transna-
tional corporations such as Cargill, BHP-Billiton, and Rio Tinto, as well as
Chinese-owned oil and mining companies. These companies are responsible
energy-backed loans are classified under energy, even though the loan does not go to the energy
sector.
248
China’s Economic Expansion in Latin America and the Caribbean
for the Latin American exports of oil, minerals, and soybeans that account
for the bulk of all exports to China.
The actors involved in importing from China are more diverse. They in-
clude major transnational corporations such as LG, Samsung, and Dell, who
supply their Latin American subsidiaries from China. They also include ma-
jor department stores and retail chains in the region that rely on imports of
Chinese consumer goods. Chinese companies such as Lenovo and Huawei
export to Latin America on a significant scale. There is also an important
informal market for imported consumer goods from China in many Latin
American countries, often involving contraband goods which may have
been illegally produced.22 The main Chinese investors in Latin America are
SOEs. Dussel Peters (2020b, Table 5) estimates that three-quarters of the total
amount invested by Chinese firms in the region between 2000 and 2019
came from SOEs. Although private firms accounted for more than half of all
cases, they operate on a much smaller scale than investing SOEs. They have
however increased their share of total investment to about a third in recent
years.
The companies with the largest investments in the region are Sinopec,
the China National Offshore Oil Corporation (CNOOC), the China National
Petroleum Corporation (CNPC), State Grid, and Three Gorges Corporation
(Dussel Peters, 2020b, Table 7), all of which are owned by the central gov-
ernment. Sub-national SOEs such as Shougang Iron and Steel, controlled
by Beijing municipality, and Tongling Nonferrous Metals, owned by Anhui
province, have also made significant investments in the region (Gonzalez-
Vicente, 2012). Some private Chinese firms have also invested in Latin
America on a smaller scale.
A growing number of Latin American firms has invested in China. These
include food producers such as the Mexican Bimbo and Gruma Groups
and Marfrig from Brazil; companies such as the Brazilian aircraft manufac-
turer, Embraer, and electrical motor manufacturer, Weg; and the Argentinean
firm Tenaris, which produces steel tubes (IADB, 2012, 2014). Although the
amount of investment involved is far smaller than China’s OFDI in Latin
America, it does mean that some firms in the region have a direct inter-
est in relations with China over and above those that are purely trade
related.
To an even greater extent than Chinese FDI, project contracts in Latin
America are dominated by central SOEs which accounted for 98 per cent of
the total value announced between 2005 and 2019 (Dussel Peters, 2020a,
p. 10). The top five Chinese companies involved in the period were the
22
See for example Gomez-Aguiar (2012) on Mexico’s extensive imports of Chinese CDs and
Ǿdegaard (2017) on Chinese clothing imports in Peru.
249
How China is Reshaping the Global Economy
23
Gallagher et al. (2012, p. 5) estimates that the CDB accounted for 82 per cent of loans made
by Chinese banks up to that time, whereas the Exim Bank’s share was only 12 per cent. Data from
the Inter-American Dialogue database that are more recent show a lower share for the CDB and
an increase in loans from Exim Bank and other lenders.
24
Its share, according to Gallagher et al. (ibid.) came to 6 per cent.
25
For more information on the Chinese policy banks’ involvement in Latin America, see
Sanderson and Forsythe (2012, Chapter 4), Downs (2011, Chapter 2), Song (2019) and Hernández-
Cordero (2019).
26
See Dussel Peters (2015) for a discussion of the omnipresent role of China’s public sector in
relations with LAC.
250
China’s Economic Expansion in Latin America and the Caribbean
Exports to China LAC SOEs (CODELCO; PDVSA) Extractive TNCs (Vale; BHP-
Billiton)
Chinese SOEs (CNPC; Sinopec) Agribusiness TNCs (Bunge;
Cargill)
Imports from China LAC governments and SOEs Manufacturing TNCs (Dell; Sam-
Chinese SOEs sung) Chinese manufacturers
(Huawei) LAC retailers
(Falabella) Individual traders
Chinese FDI in LAC Central SOEs (CNPC; State Grid) Large Chinese firms (Huawei;
Sub-national SOEs (Shougang; Geely) (minor role)
Tongling)
LAC FDI in China LAC Translatinas (Bimbo;
Embraer)
Projects Chinese SOEs (Power Construc- Insignificant
tion Corporation of China; China
Communications Construction
Company)
Loans Chinese Policy Banks (CDB) Chi- None
nese State Commercial Banks
(ICBC)
27
This is part of a broader debate in international relations on whether China is a status quo
power or a revisionist power, and how far it is seeking to change the global order. See Shambaugh
(2013, Chs 3 and 4); Struver (2014).
251
How China is Reshaping the Global Economy
This has made China’s growing relations with Latin America a particular con-
cern in the USA, and has made China cautious in its involvement in the
region.
Some authors have identified competition with the USA as one of China’s
key objectives in expanding its presence in Latin America (see Ellis, 2009,
Chapter 2; Johnson, 2005). Some claim that since 9/11, the USA has tended
to neglect Latin America, which has created a vacuum that China has moved
in to fill (Urdinez et al., 2016). It has also been argued that China sees
a growing presence in the USA’s ‘backyard’ as a means of countering the
US presence in East Asia (Yu, 2015). This implies that China will partic-
ularly focus its economic engagement on those countries which are most
opposed to US influence in the region, such as Venezuela, Ecuador, and
Bolivia. This view is particularly prevalent amongst neo-conservatives, who
regard China’s growing involvement as a strategic threat to US interests in the
region.28
This view of the ‘Chinese threat’ to the USA contrasts sharply with one
that sees China’s growth in Latin America as driven by strategic economic
and commercial concerns and plays down the significance of geopolitical
considerations. Chinese scholars stress that China recognizes Latin America
as a US sphere of influence and has been very careful to avoid antagonizing
the USA by allying itself too closely with Latin American governments that
are hostile towards the USA (Shixue, 2008).
This is consistent with the view, attributed to Deng Xiaoping, that China
should keep a low profile in international affairs,29 and corresponds closely
to the official view of the Chinese government, which emphasizes China’s
‘peaceful rise’30 and a ‘harmonious world’.31
Most non-Chinese commentators share the view that China’s increasing
economic relations with Latin America are not primarily politically moti-
vated, and that closer political relations with China are a consequence rather
than a cause of China’s growing economic involvement (Trinkunas, 2016).
The pattern of Chinese trade and investment in Latin America is consistent
with China’s emphasis on national sovereignty and non-interference in the
internal affairs of other countries, which means that it is willing to do busi-
ness with a range of different regimes. It has developed strong economic links
28
See Sun (2012) for a Chinese perspective on US views of the threat posed by China.
29
The terminology used was that China should ‘bide its time, hide its brightness, not seek lead-
ership, but do some things’. At the 2010 annual meeting of China’s Association of International
Relations participants agreed to nine principal policy recommendations, amongst them ‘Do not
confront the United States’ and ‘Do not be the chief of the “anti-Western camp”’ (Shambaugh,
2013, pp. 19–20).
30
The term ‘rise’ was regarded as too threatening and was replaced by ‘development’ in
government terminology (ibid., p. 21).
31
Ibid., p. 25.
252
China’s Economic Expansion in Latin America and the Caribbean
with countries such as Chile and Peru, which are friendlier towards the USA,
as well as with countries that have been critical of US imperialism, such as
Venezuela and Ecuador.32 It has also been careful to maintain relations with
Latin American countries even when their governments change from left
to right of centre, as occurred in Argentina when President Macri replaced
Christina Fernandez de Kirchner in 2015.
One area where there is clear evidence that political factors have played
a key role in determining economic engagement is in relation to Taiwan.
Countries that recognize Taiwan obtain much less OFDI and virtually no
loans from China, although the lack of diplomatic relations does not have a
significant impact on trade flows with China (Piccone, 2016, Figure 2).
Competition with Taiwan to obtain diplomatic recognition under its
One China Policy was a consistent feature of Chinese foreign policy up
to 2008 and was particularly intense in Central America, which has the
largest concentration of countries of any size which still recognize Taiwan
(Aguilera-Peralta, 2010). In 2007, Costa Rica broke off relations with Tai-
wan and established them with the PRC. As a result, China bought US$300
million of Costa Rican government bonds and provided US$20 million in
aid for reconstruction after major flood damage occurred.33
Between 2008 and 2016, when there was an informal truce between Bei-
jing and Taipei, there were no further switches of diplomatic allegiance.
With the return of Taiwan’s Democratic Progressive Party to power in 2016,
the PRC renewed its effort to get more countries to switch recognition, and
Panama broke off relations with Taiwan and recognized Beijing in 2017, fol-
lowed by the Dominican Republic and El Salvador in 2018, and Nicaragua in
2021. It is likely that other countries in the region will also establish relations
with the PRC in the foreseeable future. It seems, however, that in recent years,
diplomatic relations are no longer a prerequisite for Latin American countries
to have economic relations with China. This is most dramatically illustrated
by the planned construction by the Hong Kong Nicaragua Canal Devel-
opment Investment Company (HKND) of the inter-oceanic canal through
Nicaragua, which still had diplomatic relations with Taiwan at the time.
32
Although the close economic links between China and Venezuela might seem to support
the view that China is motivated by a desire to back a regime that is hostile to the USA, in fact
it was the Chavez government that sought support from China, which was reluctant to respond
out of a concern about provoking a confrontation with the USA (Corrales, 2010).
33
Taiwan responded by offering additional aid to two of its allies in the region, Guatemala and
Nicaragua (Aguilera-Peralta, 2010, p. 177).
253
How China is Reshaping the Global Economy
34
Sanderson and Forsythe (2012, Chapter 4), suggest that part of the oil obtained by Chinese
companies in Brazil and Ecuador is sold on the world market rather than being exported to China.
254
China’s Economic Expansion in Latin America and the Caribbean
The exact amount of oil supplied under these agreements is not generally
published, but in the case of Ecuador it has been reported that they cover
90 per cent of oil exports (Ruiz, 2016). As in the case of ‘equity oil’ owned by
Chinese companies, this is not a guarantee that oil obtained in this way will
be shipped to China.
In the case of copper, diversification of sources of imports to China has
seen Latin America’s share decline, mainly as a result of a fall in Chile’s share,
while those of Peru and Mexico have increased, contributing to increased
diversification (Camus et al., 2013, Figure 4.11). There is less evidence of
diversification in the case of iron ore imports to China.
There has been some investment by Chinese mining companies in Latin
America, but there is no evidence that this has been part of a strategic plan
by the Chinese state to secure supplies. The desirability of OFDI as a means
of overcoming resource insecurity is controversial in China. While some pol-
icy thinkers see it as a major motive for investing in foreign mines, others
argue that it is a high-risk strategy. A PRC State Council report in 2004
points to the risks of acquiring poor quality resources, unexpected changes
in host government policy, social instability, and macroeconomic problems
(quoted in Koch-Weser, 2014, p. 14). In contrast to oil, there have been
no reported mineral-backed loans in the region, suggesting that strategic
economic concerns have not been a significant factor.
Three countries supply the bulk of China’s soybean imports: Argentina,
Brazil, and the USA. There has been little diversification of supply, but
imports from Latin America help ensure that China does not become overly
dependent on the USA for a key input required to ensure food security. With
growing demand in China, the government has had a clear strategic interest
in expanding imports of beans from Latin America. Purchases and leasing of
land by Chinese firms in the region have been very limited, and what there
is does not necessarily contribute to food security in China (Jie and Myers,
2017); nor are there any reported loans backed by agricultural products in
the region.
The corollary of the view that China’s strategic objective in Latin America
is to secure supplies of raw materials is the concern that has been expressed,
particularly in the USA, that China is seeking to ‘lock up’ the region’s re-
sources. However, most experts agree that this is not happening (Kotschwar
et al., 2012). Latin America’s main contribution to China’s resource security
is allowing it to diversify its oil supplies, reducing its dependence on the
Middle East.
A second strategic economic objective for China is to obtain markets
for its exports and reduce its reliance on the North American and Euro-
pean markets, particularly in the aftermath of the global financial crisis.
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How China is Reshaping the Global Economy
Although Latin America only accounts for 6 per cent of China’s total exports,
it contributed 10 per cent to the growth of Chinese exports between 2007
and 2012, as demand for Chinese goods in Europe and North America was
affected by the crisis (UNCTADStat, n.d.). The region has also acquired in-
creased significance as a result of the trade war between China and the
USA.
When China joined the WTO in 2001, many Latin American countries
did not grant it market economy status, which made it easier for them to
take anti-dumping measures against Chinese exports. Obtaining this sta-
tus became an important aim in Chinese economic diplomacy, and several
countries, including Argentina, Brazil, Chile, and Peru, agreed to recognize
China as a market economy during President Hu Jintao’s visit to the region
in 2004. China has also signed free trade agreements (FTAs) with three
Latin American countries, Chile, Peru, and Costa Rica, improving Chinese
exporters’ access to their markets.
Chinese loans to Latin America have also been used to promote exports
through directly tying them to Chinese goods or denominating part of the
loan in Renminbi (RMB), which can only be used in China. In Venezuela, for
example, loans have been used to import machinery from the XCMG Con-
struction Machinery Company (Sanderson and Forsythe, 2012, p. 137). In
2010 the Venezuelan government signed a contract to buy 300,000 house-
hold electrical appliances for low-income households from the Chinese firm
Haier.
A third objective has been to build up Chinese companies so that they
can compete on an international scale against Western multinationals. This
provides a further motive for supporting the expansion of large Chinese com-
panies in Latin America as part of the Go Global strategy. A large part of
the loans provided by the Chinese government has gone to fund projects
that are carried out largely by Chinese construction and engineering com-
panies. In Venezuela, for example, an ICBC oil-backed loan in 2012 was
used for 20,000 units of social housing built by CITIC Group (Sanderson and
Forsythe, 2012, p. 137).
Finally, China has used mercantilist policies to ensure that imports from
the region tend to be in unprocessed form. This is reflected in the structure
of exports from the region to China, which include a larger share of primary
products than Latin American exports to other markets (see Figure 9.2). This
is partly due to the Chinese government’s strategy of promoting downstream
value-added activities in China and importing raw materials in unprocessed
form. The experience of the Argentine soya industry illustrates this, as shown
in Box 9.1.
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China’s Economic Expansion in Latin America and the Caribbean
Soybeans have been described as ‘one of the most essential inputs in the global food
industry’ (Turzi, 2017, p. 170). Soybeans are processed in crushing plants to produce
oil and soybean meal. The latter has a high concentration of protein and is widely used
as feed in intensive livestock farming. It can also be processed into products for human
consumption, such as soy flour, soy sauce, and tofu, as well as being used as a meat
substitute in a variety of vegetarian foods. Soybean oil is the world’s most commonly
used edible oil.
Chinese imports of soybeans have grown rapidly since the mid-1990s. In 1995
China was essentially self-sufficient in soybeans, but since then, domestic consumption
has risen five-fold while production has remained unchanged (Turzi, 2017). Increased
demand in China has been driven by the improvement in living standards, which has
led to growing consumption of meat and, hence, the need for animal feed derived
from soybeans.
Argentina is the third-largest producer and exporter of unprocessed soybeans in
the world after the USA and Brazil, and the largest exporter of soy oil and soy meal
(Oviedo, 2015, p. 119). Soybeans and soybean oil account for more than two-thirds of
all Argentinean exports to China (ibid., Table 3). Argentina is the third-largest supplier
of soybeans to China after the USA and Brazil. China accounts for more than 80 per
cent of Argentina’s total soybean exports. However, despite being the world’s largest
exporter of soybean oil and meal, less than 20 per cent of Argentina’s oil and none of
its soybean meal are exported to China (ibid., Table 1).
This pattern of trade, in which Argentina’s exports to China are concentrated on un-
processed soybeans, was not always the case. In the late 1990s, processed soybeans
(oil and meal) accounted for a much greater share of Argentinean exports than un-
processed beans. Since the start of the millennium, however, the reverse has been the
case, with crude soybeans accounting for the bulk of exports, and soy meal exports
disappearing altogether (López et al., 2010, Table 19; Oviedo, 2015, Table 1).
This change came about as a result of the decision by the Chinese authorities in the
late 1990s to promote a local oilseed crushing industry through a variety of incentives.
As a result there was substantial investment in new plants in China, particularly in
coastal areas, to provide access to imported soybeans (López et al., 2010, pp. 17–18).
Some of these plants were established by the same major grain multinationals that
own processing plants in Argentina, such as Bunge, Cargill, and Louis Dreyfus. As a
result China was able to become largely self-sufficient in soybean meal, although it
continues to import some soy oil.
Argentina’s dependence on the Chinese market was brought into sharp relief when
the Chinese government banned imports of Argentinean soy oil in 2010. While the
stated reason was a failure to meet phytosanitary standards, the Chinese action was
widely seen as a response to restrictions on Chinese imports that had been put in place
by the Argentinean government.
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How China is Reshaping the Global Economy
policies are often intended to ensure that commercial interests coincide with
the strategic aims of the state. There are also areas where the interests of firms
and those of the state overlap, for example, where oil companies and the
government have a common interest in diversifying their sources of supply.
It is nevertheless worth considering the role of market forces in explaining
the behaviour of Chinese firms and financial institutions, particularly given
the perception in many quarters that Chinese firms act at the behest of the
Chinese state or the Chinese Communist Party.
The pattern of trade between China and Latin America is to a consider-
able extent a reflection of their comparative advantage, with Latin America a
relatively resource-rich region with abundant agricultural land relative to its
population while China is resource-scarce and labour-abundant. Although
market forces are modified by government trade and industrial policies,
commercial considerations play a major role in driving both China’s im-
ports from Latin America and its exports to the region. Latin America is a
low-cost source of the copper, iron ore, and soybeans, which Chinese pro-
ducers require, and China a booming market for Latin American exporters.
At the same time, transnational corporations producing computers, mobile
phones, TVs, and many other products have used China as a low-cost base
to supply their Latin American operations, and department stores and re-
tailers in the region have sought out cheap Chinese products in order to
increase their profit margins. Meanwhile, Chinese manufacturers, facing in-
tense competition and excess capacity at home, have been motivated to find
new markets.
The bulk of Chinese FDI in Latin America has been by SOEs, making the
debate between those who see Beijing as a ‘puppeteer’ and those who ar-
gue that ‘the business of business is business’ (Blanchard, 2011) particularly
relevant. Both camps are represented in the literature on Chinese FDI in the
region. Dussel Peters (2012) argues that ‘ownership matters’ and that as most
Chinese FDI is controlled by the Chinese state it is, therefore, qualitatively
different from other FDI in Latin America. In contrast, Lin Yue (2013) high-
lights the differences between central and provincial SOEs and argues that
there is no coordinated strategy (p. 26).
Despite the fact that the majority of Chinese investment has been by SOEs,
studies of particular sectors and firms support the view that, while they enjoy
government support, they operate with considerable autonomy and their
investments reflect their commercial interests.
The importance of resource seeking as a motive for Chinese FDI in Latin
America is clear from the concentration in the oil and gas and mining
258
China’s Economic Expansion in Latin America and the Caribbean
industries discussed earlier. Chinese companies have entered the oil in-
dustry,35 partly through the acquisition of stakes in existing firms such as
Sinopec’s purchase of 40 per cent of the subsidiary of the Spanish firm Rep-
sol in Brazil and CNOOC’s acquisition of a 50 per cent stake in Bridas in
Argentina in 2010. In other cases, particularly in Venezuela and Ecuador,
they have entered the industry by forming joint ventures with state-owned
companies.
The oil industry accounts for a major share of Chinese investment in the
region and is all in the hands of the four central SOEs. However, despite this,
the oil companies enjoy considerable autonomy, and their investments in
Latin America are largely motivated by long-term profitability and growth.
This is reflected in the fact that, as mentioned earlier, a significant portion
of the oil that they export from Latin America does not go to China. In this
case it seems that the commercial interests of the oil companies weigh more
heavily than China’s resource security.
In mining, there is a greater variety of forms of Chinese ownership than
in the oil and gas industry including provincially, municipally, and centrally
owned SOEs and private firms.36 Despite receiving state support, these firms
follow profit-driven strategies. Some are vertically integrated and own mines
in Latin America to supply their downstream operations in China. Shougang
Iron and Steel made the first investment by a Chinese SOE in Latin America
in 1992, when it bought the Marcona mine from the Peruvian government.
This was long before China adopted its Go Global strategy, and was prompted
by a desire to obtain reserves with a high iron ore content to supply its Chi-
nese iron and steel plants (Gonzalez-Vicente, 2012, p. 51). Other Chinese
companies such as Minmetals and some private miners were content to sell
their Latin American production on the world market.
Although initially the bulk of Chinese FDI in Latin America was of the
resource-seeking variety, market-seeking investment has increased signifi-
cantly since the Global Financial Crisis. The share of services and domestic
market oriented investment increased from less than 5 per cent between 2000
and 2009 to almost 40 per cent from 2010 to 2019.37 Initially FDI by SOEs was
almost entirely in resource extraction, although it later diversified into utili-
ties, while the overwhelming majority of private Chinese FDI (84 per cent in
35
On Chinese investment in oil and energy in Latin America, see Koch-Wesser (2015);
Hogenboom (2014); and Sun, H. (2014).
36
For accounts of Chinese mining investment in Latin America, see Koch-Weser (2014);
Gonzalez-Vicente (2012); and Kotschwar et al. (2012).
37
Own calculation from the Monitor de la OFDI China database. The share of manufacturing
also increased from 3 per cent to 10 per cent between the two periods.
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How China is Reshaping the Global Economy
terms of value) was linked to the domestic market (Dussel Peters, 2012, p. 15).
Lin (2013) also finds that whereas central government SOEs tend to concen-
trate in resource extraction and construction, provincial SOEs and private
firms tend to focus mainly on manufacturing and commercial activities.
Chinese investment in manufacturing in Latin America has often involved
firms first exporting from China and then moving to assembly and local
production to avoid import restriction (ECLAC, 2011, pp. 177–8). Gree, a
Chinese manufacturer of air conditioners, was one of the first Chinese com-
panies to begin production in Latin America when it opened a plant in Brazil
in the late 1990s, after a number of years importing its products from its
factories in China (ECLAC, 2011, Box III.5).
In other cases, Chinese firms have established operations in Free Trade
Zones in Latin American countries where they can assemble and package
products imported from China and sell them on the local market without
paying import duty. Huawei and TCL assemble electronic products in Tierra
del Fuego for the Argentinean market, while Lenovo has used the Manaus
Free Trade Zone to supply the Brazilian market.38
There are also examples of Chinese companies acquiring Latin American
firms in order to enter the local market. One of the most significant was
the purchase of seven electricity transmission companies in Brazil in 2010
by State Grid, the Chinese SOE that is the largest electricity company in the
world.39 This was the company’s largest investment outside Asia. In 2018 and
2019 State Grid made further acquisitions of electricity companies in Chile,
and China Three Gorges took over Luz del Sur in Peru.
There has been some market-seeking investment in Latin America to
supply not just the domestic market but also neighbouring countries. The
Chinese motor manufacturers Chery and Lifan have both established assem-
bly operations in Uruguay, mainly as a platform for entering the Mercosur
market (Bittencourt and Reig, 2014).40
Market-seeking has also been a key to the expansion of Chinese projects
in the region. Firms involved in construction and engineering projects in
LAC have mainly been motivated by two factors. First, the slowdown in
infrastructure construction at home has led them to look for alternative mar-
kets elsewhere. Second, the infrastructure gaps in most LAC countries have
created good opportunities for expansion for Chinese companies that had al-
ready acquired overseas experience in Asia and Africa (Chauvet et al., 2020,
p. 54).
38
See López and Ramos (2014) on Huawei in Argentina and Barbosa et al. (2014) on Lenovo
in Brazil.
39
See Barbosa et al. (2014) for a case study of State Grid’s operations in Brazil.
40
The Chery plant in Uruguay was closed in 2015 but the firm continues to produce vehicles
in Brazil for the Mercosur market.
260
China’s Economic Expansion in Latin America and the Caribbean
There are a few cases where Chinese FDI in Latin America has been mo-
tivated by strategic asset acquisition. These have mainly been a result of
global investments made by Chinese companies which have resulted in their
acquiring Latin American subsidiaries. The most noteworthy example was
the acquisition of IBM’s PC business by Lenovo, which gave the Chinese
firm subsidiaries in Mexico and Brazil. More directly, it has been suggested
that the links between Sinopec and Petrobras in Brazil were partly moti-
vated by the Chinese company’s interest in accessing Petrobras’ experience
in deep-water operations (Husar and Best, 2013).
As shown in Chapter 5, both the CDB and the Exim Bank are policy banks
with specific mandates to support the development of the Chinese economy
and Chinese exports. As such, they are more liable to be subject to strategic
government priorities than other SOEs. However, they are also expected to
operate on a commercial basis.
The debate over Chinese commodity-backed loans is central to interpret-
ing the role played by the Chinese banks. One view sees these loans as part
of a strategic move by the Chinese government to secure supplies of oil, but
in practice a significant proportion of the oil obtained in these deals does
not end up in China. An alternative view that emphasizes the commercial
interests of the banks sees the loans-for-oil deals into which the CDB has
entered in Venezuela and Ecuador differently: rather than a means by which
China obtains a secure supply of oil, they are a strategy used by the Bank to
reduce the riskiness of loans to countries with a low credit rating. By lend-
ing to these countries it can obtain relatively high returns without having to
bear an excessive level of risk, because payment is made through the sale of
oil to Chinese companies (Sanderson and Forsythe, 2012, Chapter 4).41
41
Economy and Levi (2014, p. 56) point out that some loan-for-oil agreements allow the
amount of oil supplied to be reduced when the oil price rises. This makes sense if the purpose of
the deal is to reduce the risk of the loan, but not if the aim is to secure supplies for China.
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How China is Reshaping the Global Economy
in the region.42 The most obvious case where a Latin American government
has sought Chinese support to counter the USA politically was in Venezuela
under President Chavez (1999–2013).43 However, China was reluctant to be
seen as deliberately challenging the USA in the region. Recently, the Bolivian
and Ecuadorean governments have also looked to China as a counterweight
to US hegemony. However, most of the governments of the region have not
sought to develop their relations with China for geostrategic purposes.
Some governments in the region have seen expanding relations with
China as a way of increasing ‘policy space’: it makes them less vulnerable
to the conditionalities of the Washington Consensus and gives them greater
scope to pursue alternative economic policies free from external pressures
(Kaplan, 2016). This is particularly attractive for left-wing governments in
the region that reject neoliberalism and are keen to re-establish a signifi-
cant role for the state in their economies. For example, in Ecuador, when
the National Assembly passed a law in 2010 which required the renegotia-
tion of contracts with transnational corporations in the oil industry, Chinese
companies proved more willing than Western ones to accept the new terms
(Hogenboom, 2014).
Despite the political interest of some Latin American states in develop-
ing closer economic relations with China, the main strategic objectives of
most governments in the region in expanding relations with China are eco-
nomic. The rapid growth of the Chinese economy has made it an attractive
market for governments which are keen to increase their exports and find
new markets. There have been numerous visits to China by Latin American
presidents, frequently accompanied by trade delegations. Although exports
continue to be concentrated in a narrow range of primary products, govern-
ments have been keen to diversify exports. The expansion of non-traditional
exports was an important motive for the Chilean and Peruvian governments
in negotiating FTAs with China.44 In some countries, such as Chile, where
SOEs contribute significantly to exports, and Argentina, which taxes agricul-
tural exports, governments have also seen their revenues rise as a result of
their growing relations with China.45
42
See, for example, Cesarín (2007) and Le-Fort (2006).
43
See section 11.3.4 for a discussion of relations between China and Venezuela.
44
See Wise (2016), who notes that these FTA negotiations were initiated by the Latin American
side. The case of Costa Rica, the third Latin American country to sign an FTA with China, is
rather different. Because the trade agreement followed the establishment of diplomatic relations
in 2007, Costa Rica’s exports to China, unlike those of the other two countries, were mainly
manufactures not primary products, and an FTA was seen as a way of getting a foothold in trans-
Pacific value chains.
45
See López and Ramos (2009, pp. 110–12) on the contribution to Argentinean tax revenues
of agricultural exports to China, and Barton (2010, Table 10) on the increase in Chilean revenues
from copper.
262
China’s Economic Expansion in Latin America and the Caribbean
In order to explore further the factors behind the growth of economic rela-
tions between China and Latin America, we use a similar economic model to
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How China is Reshaping the Global Economy
Where:
Y Indicator of economic relation with China in constant US$
China GDP China’s GDP in constant US$
LAC GDP Latin American countries’ GDP in constant US$
OPEN Trade/GDP Ratio
DIST Distance from China in ‘000 miles
LANDL 1 for landlocked countries
MIN Share of ores and minerals in total exports
FUEL Share of fuels in total exports
TAI 1 for countries which recognize Taiwan
UN Share of country’s votes that coincide with China
FTA 1 for countries with FTA with China
The data used cover thirty-two Latin American and Caribbean countries over
the period 2002–15. The dependent variables reflect the whole range of Chi-
nese economic relations with LAC and include LAC exports to and imports
from China, the stock of Chinese FDI in Latin America, the value of Chinese
economic cooperation projects, and Chinese loans to the region.46
As in Chapter 6, commercial variables are identified with market size
(measured by Chinese and Latin American GDP variables) and trade costs
(measured by an economy’s openness and geographic variables such as dis-
tance and being landlocked). Since China’s main strategic economic concern
in the region is to obtain secure supplies of natural resources, we again use
the share of minerals and fuels in a country’s exports as indicators of its
strategic significance. Two variables are used as indicators of political align-
ment: whether a country has diplomatic relations with Taiwan or with the
PRC; and the extent to which a country’s votes at the UN coincide with those
of China. Finally, all of the independent variables are lagged by one year to
avoid problems of reverse causation.
46
Data for trade flows and the value of Chinese projects were available for the full period. FDI
stock covers the period from 2003 onwards, and Chinese financial flows are for the period from
2005. See the Appendix for a list of variables and sources.
264
China’s Economic Expansion in Latin America and the Caribbean
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent levels
47
All Latin American countries are quite distant from China, which may explain why the
distance variable is not significant. There are only two landlocked countries in the region.
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How China is Reshaping the Global Economy
When Chinese imports and exports are considered separately, the pattern
remains broadly similar (see Table 9.2, cols. 2 and 3). Chinese and LAC GDP
and openness are significant for both imports and exports. The major differ-
ence is that although specialization in minerals does not have a significant
impact on the level of bilateral trade, when considered separately, both ex-
ports and imports tend to be higher for mineral exporters. This is consistent
with the high share of ores and metals in Latin American exports to China.
Paradoxically, China appears to import less from countries with which it has
an FTA, although aggregate trade is unaffected.
266
China’s Economic Expansion in Latin America and the Caribbean
48
In contrast a similar study by Feng et.al. (2018) found that, for those LAC countries with
diplomatic relations with the PRC, both oil and mineral resources, (as measured by the share of
oil and mineral rents in GDP) had a positive impact on the value of fulfilled contracts. In the case
of countries which recognized Taiwan, only mineral rents were statistically significant.
49
The Inter-American Dialogue data on loans are based on media reports and may, therefore,
be less comprehensive in terms of its coverage, particularly of the smaller countries in the region,
than the official statistics that are used here for trade, FDI, and contracted projects.
50
There is a positive correlation between loans and distance, but this is only significant at the
10 per cent level, and it does not make any economic sense.
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How China is Reshaping the Global Economy
is hardly surprising, given that loans-for-oil deals account for more than half
of Chinese lending to LAC (Brautigam and Gallagher, 2014). Mining does
not have the same strategic significance in terms of Chinese loans.
What is surprising is that strategic diplomatic factors do not have a statis-
tically significant impact on Chinese lending to a country. Given that loans
are provided by Chinese state banks, one would expect political factors to
play a significant role. However, in contrast to the situation for FDI stocks
and Chinese projects, where relations with Taiwan had a significant negative
impact, Table 9.2 shows no such relationship in the case of loans.51 Nor is
there any evidence that China lends more to countries that support it within
the UN,
9.7 Conclusion
51
Although in this specification, diplomatic relations with Taiwan are not statistically sig-
nificant, in a specification which includes control of corruption as an additional independent
variable, recognition of Taiwan did have the expected negative effect (see Table A11.1).
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China’s Economic Expansion in Latin America and the Caribbean
52
The only example included in the China-Latin America Finance Database of a Chinese loan
to a country which recognizes Taiwan was made to Honduras in 2013.
53
The exceptions are Argentina, Brazil, and Chile, which China regards as too advanced to
receive aid (Stallings, 2017).
269
Appendix to Chapter 9
Sources:
Cols. (1) and (2): UNCTADStat.
Col. (3): UNCTADStat for total inward FDI and MOFCOM (2016) for Chinese OFDI.
Col. (4): NBS Database for value of Chinese projects and UNCTADStat for population.
Col (5) Horn et al. (2019).
Notes
* Own estimate based on data on total Chinese loan commitments to 2017 from Gallagher and Myers (2020) and
Minto (2019), Table 1.
10
10.1 Introduction
Debate over the impacts of China on Latin America has raised many of the
same issues that were discussed in the case of Sub-Saharan Africa (SSA), but
with different emphases. This chapter considers the economic impacts. Once
more there are divergent views between the official Chinese position, which
emphasizes mutual benefit, and those in the West and within the region
who are often critical of key aspects of the relationship. The critics claim that
the growth of China has contributed to the primarization of Latin American
exports and to premature deindustrialization.
The framework presented in the Introduction (Table 0.1) and that was used
to discuss China’s impact on SSA in Chapter 7 is also relevant in looking at
Latin America. The distinctions between complementary/competitive and
direct/indirect impacts have been used to analyse the effects of China on the
region (Jenkins et al., 2008). The complementary/competitive dichotomy is
sometimes discussed in terms of some Latin American countries being ‘win-
ners’ and others ‘losers’ as a result of China’s impact (Funakushi and Loser,
2005; González, 2008). Broadly speaking, South American countries whose
economies are complementary to China are identified as winners, while Mex-
ico and the Central American countries and the Dominican Republic are seen
as losers. There are also likely to be winners and losers within countries in
terms of both sectors and particular social groups.
Section 10.2 considers the impact of China on Latin American exports
of commodities, and its effects on economic growth in the region. Chinese
involvement in infrastructure has, until very recently, been much less sig-
nificant in Latin America than in SSA, so this is discussed briefly in the third
part of the chapter. More emphasis is put on the impact on the manufac-
turing sector, which has been a major area of concern in the region. The
chapter ends with a more detailed consideration of China’s impact on three
key countries in the region: Brazil, Mexico, and Chile.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0011
How China is Reshaping the Global Economy
As seen in the last chapter, commodity exports from Latin America to China
grew rapidly from the end of the 1990s, and China became the most impor-
tant export market for several countries in the region. However, dependence
on the Chinese market was not as high in Latin America as in SSA; even in
Chile, where China accounted for the largest share of exports, less than a
third of the country’s total exports went to China.1 While this suggests that
the direct effect of exports to China was less than in SSA, the region was
also affected indirectly by the growth of Chinese demand and its effect on
commodity prices and the terms of trade. As a result there were significant
gains for some commodity exporters, but also worries about the possibility
of catching Dutch Disease.
1
This compares with more than half the total exports of Mauritania, the Democratic Republic
of the Congo (DRC), Sudan, and Angola.
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China’s Economic Impacts on Latin America
2
What follows is based on UNCTADStat data.
3
Although Mexico is also an exporter of manufactures, its terms of trade improved over the
period since it is also an oil exporter and benefitted from increased oil prices.
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How China is Reshaping the Global Economy
4
Whereas Brazil’s Real Effective Exchange Rate appreciated by over 80 per cent between 2002
and 2011, Chile’s only increased by 12 per cent over the period.
274
China’s Economic Impacts on Latin America
that the correlation between the two regions’ economic performances has
increased since the start of the millennium.5 There is also evidence that
those countries whose exports to China increased most after China joined
the WTO saw their growth rates increase (Hou, 2019).
This suggests that in the short and medium term, the growth of China has
had a positive effect on economic growth in Latin America. The longer term
impacts of increasing commodity exports are less clear-cut. One particular
problem is that it has led to deindustrialization as capital and labour shift
out of manufacturing (see section 10.4). More generally, there are concerns
that the structural changes which have been brought about in Latin America
as a result of China’s increased global presence will create a ‘resource curse’
in the region.
However, most of the economic mechanisms that are held to contribute
to the negative impact of natural resources are not set in stone, and can be
affected by government policy.6 Governments can operate counter-cyclical
macroeconomic policies to offset the effects of fluctuations in revenue from
commodity exports with prudent long-term fiscal policies. They can also use
various policies to prevent excessive appreciation of the exchange rate in the
face of a resource boom and put in place measures to protect the manufactur-
ing sector. Industrial policies can also be used to encourage local processing
and local suppliers in extractive industries, and taxes can be levied to raise
the share of revenue retained locally. This suggests that Latin American
governments are, at least in part, responsible for any longer-term negative
consequences of the growth of Chinese demand for resources.
In Latin America the share of gross domestic product (GDP) spend on infras-
tructure investment averaged 2.4 per cent between 1992 and 2013 (Serebrisky
et al., 2015, p. 8). A significant infrastructure deficit emerged in the 1980s
with the debt crisis and the subsequent privatization of many state-owned
utilities. The share of public infrastructure investment fell dramatically, and
this was not compensated for by an increase in the share of private invest-
ment (Perrotti, 2011, Table 1). Several estimates suggest that the region needs
to invest at least 5 per cent of GDP in infrastructure. This implies an ad-
ditional $150 billion a year (Serebrisky et al., 2015, pp. 7–8; Cavallo and
5
See Calderón, 2009, pp. 51–4; Cesa-Bianchi et al., 2011, Fig. 2; World Bank, 2011, Fig. 1.6 for
evidence of the increased correlation between Chinese and Latin American output.
6
For discussions of possible policies to avoid some of the pitfalls associated with resource
dependence, see Frankel (2012) pp. 15–19 and Saad-Filho and Weeks (2013), pp. 15–18.
275
How China is Reshaping the Global Economy
7
Calculated from China National Bureau of Statistics database.
8
This includes North Africa, as well as SSA.
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China’s Economic Impacts on Latin America
A major concern in Latin America has been that China is having a negative
impact on the region’s manufacturing sector and contributing to deindus-
trialization.11 The rapid growth of imports of Chinese goods has given rise
to complaints by business leaders and their trade associations and to de-
mands that governments impose protectionist measures. In Colombia the
shoe manufacturers claimed that more than 70 per cent of shoe factories
had closed because of Asian competition, and demanded more protection
from the government (El Espectador, 2013). In Peru, the National Indus-
tries Society (SNI) accused China of dumping textiles and garments at prices
that did not even cover the cost of the raw materials used (Murphy et al.,
2007). In Brazil the Federacão das Indûstrias do Estado de São Paulo (Feder-
ation of Industries of the State of São Paulo, FIESP) and a number of sectoral
associations affected by Chinese competition have called for increased gov-
ernment support and the implementation of safeguard measures against
China (Paraguassu, 2007).
At the regional level, calls have been made for joint actions to stem the
tide of Chinese competition. At the eighth World Footwear Congress held in
Guanajuato, Mexico in 2010, China was strongly criticized, and the president
of Argentina’s Chamber of the Footwear Industry called on Latin American
countries to join to form a strong united front ‘to defend local industries
from the diverse Chinese practices such as under-billing or using Panama to
triangle and ship their shoes to the rest of the continent’ (MercoPress, 2010).
The president of the Mexican steel association, CANACERO, pointed to the
9
China-CELAC Forum, http://www.chinacelacforum.org/eng/ltdt_1/t1269472.htm (accessed
10 December 2016).
10
Several major Chinese infrastructure projects in Ecuador and Venezuela have experienced
problems and delays (Deniz and Boria, 2017). In 2016 plans to build a high-speed rail link between
Tinaco and Anaco in Venezuela were abandoned in the face of the country’s deepening economic
crisis. The planned canal linking the Caribbean with the Pacific coast of Nicaragua is also stalled.
11
This section focuses on the effect on Latin American and Caribbean (LAC) manufacturing of
competition from Chinese products in both the domestic market and the export market. There is
a further indirect effect associated with the shift in capital and labour out of manufacturing into
commodity exporting sectors as a result of the commodity boom discussed in section 10.2.
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12
Whereas non-tariff trade barriers applied to more than a third of the region’s imports before
trade began to be liberalized, by the mid-1990s, they only affected 6 per cent of imports (Lora,
2011, p. 371).
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China’s Economic Impacts on Latin America
fell, although by a smaller amount.13 This was a marked change from the
situation that existed before 1980, when, with the exception of Argentina,
the manufacturing sector increased its share of employment in Latin America
(Palma, 2011, Figure 23.15).
This process of deindustrialization in Latin America, triggered by the
switch in economic policy in the 1980s, was already well under way by
the time China joined the World Trade Organization (WTO) in 2001. As a
member, China would eventually face the same tariffs as other WTO mem-
bers, although there was a transition period during which imports from
China continued to be restricted. Despite these remaining restrictions, as
discussed in Chapter 9, Latin American imports from China grew rapidly,
and, as a result, the share of Chinese-produced goods in local consump-
tion increased significantly. The latest figures show that imports from China
account for more than 15 per cent of the apparent consumption of manufac-
tures in Chile, Peru, and Uruguay and over 10 per cent in Colombia, Costa
Rica and Mexico (see Figure 10.1).14 Only in Brazil, with its more developed
and protected industrial sector, was the share of Chinese products less than
10 per cent.
The average shares shown in Figure 10.1 hide much higher levels of
Chinese import penetration in particular industries.15 In Colombia and Peru,
Chinese imports accounted for more than half of apparent consumption
in radio, TV and communications equipment, and in office, accounting,
and computing machinery, and more than a third of leather and footwear.
In Chile more than half of local consumption in leather and footwear,
wearing apparel and computer, electronics and optical equipment came
from China (see Table 10.1). Two types of industries stand out in terms
of the share of Chinese goods: traditional low-technology products such
as textiles, clothing, footwear, and furniture, and high- and medium-high-
technology products such as computers, electronic and electrical products,
and in the more advanced countries, electrical and non-electrical machinery
(see Table 10.1).16
13
In 1980 manufacturing accounted for 28.2 per cent of GDP and 16.5 per cent of total em-
ployment. These shares fell to 16.7 per cent and 14.2 per cent respectively in 2003 (Palma, 2008,
Tables 1 and 2).
14
Apparent consumption is defined as production plus imports minus exports. Import pene-
tration is usually measured as imports divided by apparent consumption.
15
Brazil, Chile, Colombia, Mexico, and Peru were the only major LAC countries where suffi-
ciently disaggregated data was available to arrive at meaningful estimates of import penetration
at the industry level.
16
The classification of industries by technological intensity is based on the Organization for
Economic Co-operation and Development (OECD)’s taxonomy. It is worth bearing in mind
that products classified as high technology do not necessarily involve advanced technological
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How China is Reshaping the Global Economy
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
00
02
04
06
08
10
12
14
16
18
20
20
20
20
20
20
20
20
20
20
Brazil Colombia Costa Rica Mexico Peru Uruguay Chile
processes, since they may only be assembled in China from parts and components produced
elsewhere.
17
Labour-intensive industries tend to be the most protected in the region (Moreira, 2016,
p. 43 and Fig. 33).
18
Textile and footwear is the second most important sector in value terms for Latin American
anti-dumping measures against China, after plastic and rubber products (Moreira, 2016, Fig. 43).
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China’s Economic Impacts on Latin America
Table 10.1. Industries with the highest level of Chinese import penetration
Brazil 2017 Chile 2016 Colombia 2017 Peru 2017 Mexico 2018
Sources: United Nations Industrial Development Organization and World Integrated Trade Solution for Brazil,
Colombia, and Peru; OECD’s Database for Structural Analysis for Chile and Mexico.
Notes: Brazil, Colombia, and Peru are based on International Standard Industrial Classification (ISIC) Rev.3
classifications, and Chile and Mexico on ISIC Rev.4.
* Also includes ISIC Rev.3 industries 32 and 33 (Radio, TV, & communications equipment; and Medical, precision,
& optical equipment).
The increased share of imports from China in these industries partly re-
flects the changing sourcing strategies of the transnational corporations,
which have relocated their production, or at least the final stages of pro-
duction, of computers, radios, TVs, and other electrical and electronic
products to China. It has also been driven by the increased international
competitiveness of some Chinese companies such as Huawei and ZTE
that have displaced other imports. As a result there is less hostility to-
wards Chinese imports in these sectors, and they are less of a target for
anti-dumping measures than the low-technology industries (Moreira, 2016,
Figure 43).
What then have been the effects of increased Chinese competition on the
manufacturing sector in LAC? Although not all of the growth of imports from
China has come at the expense of domestic production in Latin America,
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How China is Reshaping the Global Economy
there is evidence from a number of countries that there has been displace-
ment of local manufacturers by Chinese imports. Several studies based on
firm-level data have found that increased import competition from China
had a negative effect on the sales of local producers.19
How big an impact have imports from China had on local production in
these countries? One indication of this is how much larger production would
have been if local producers had not lost market share to China. If Chinese
import penetration had not displaced local production between the early
2000s and the early to mid-2010s, the latter would have been 2.5 per cent
higher in Brazil, 3.2 per cent higher in Colombia, 6.0 per cent in Peru and
6.2 per cent higher in Mexico. As with the data on the extent of import
penetration, this is a relatively modest impact on the manufacturing sector
as a whole.
Although the overall impact of Chinese competition on local manufac-
turing is negative, this hides considerable heterogeneity between sectors and
between different types of firms. The reduction in production is much greater
in certain industries than the overall averages estimated above. For example
it was over 20 per cent in textiles in Brazil, Colombia, and Peru, and in leather
and footwear in Colombia and Peru. At the firm level, it is smaller, less pro-
ductive manufacturers that have been worst affected in Mexico (Blyde and
Fentanes, 2019), Peru (Mercado et.al., 2019), and El Salvador (Li and Moreira,
2019a).
It is possible under certain circumstances for increased imports from
China to have a positive effect on local manufacturing. There are sev-
eral potential channels through which this could occur. First, increased
competition can lead to firms responding by improvements in produc-
tivity and innovation. However the evidence for several LAC countries is
that increased Chinese competition has been associated with lower pro-
ductivity performance amongst domestic producers (Moreira and Stein,
eds., 2019, Figure 4.2). Second, imports of low-cost Chinese inputs or
capital goods can help reduce production costs and increase profitability
for local producers. There have been very few studies that have analysed
this channel, but those that have do not find evidence of a significant
effect.20
Overall therefore the impact of increased Chinese imports has been nega-
tive for the manufacturing sector in LAC providing a basis for the complaints
that have been voiced by local industrialists. On the other hand, there are
19
Studies have been carried out under the auspices of the IADB on Mexico (Blyde and Fentanes,
2019), Peru (Mercado et al., 2019), El Salvador (Li and Moreira, 2019a), and Colombia (Molina,
2020).
20
See Blyde and Fentanes, (2019) on Mexico and Li and Moreira (2019a) on El Salvador.
282
China’s Economic Impacts on Latin America
21
See section 10.5.2 for a fuller discussion of the Mexican case.
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How China is Reshaping the Global Economy
22
In Honduras, apparel maquiladora firms employed 130,000 workers in 2004 (Agosin et al.,
2004).
23
Although China’s share of clothing imports to the USA fell after 2010, this was mainly a
result of increased imports from Vietnam and the share of Central America only recovered slightly
(Dussel Peters, 2018, Chapter IV).
24
See Gallagher and Porzecanski (2010, Table 3.4) on the impact of Chinese competition on
intraregional exports from Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico; Hiratuka
et al. (2012) on Argentina, Brazil, Mexico, and Uruguay; Jenkins (2014) on Brazil; and Dussel
Peters (ed.) (2016) on the major sub-regions within LAC.
284
China’s Economic Impacts on Latin America
285
How China is Reshaping the Global Economy
25
For example Huawei has an R&D centre in Mexico, but this only has fourteen employ-
ees and is mainly involved in modifying software for local clients (Micheli and Carrillo, 2016,
pp. 52–3).
286
China’s Economic Impacts on Latin America
Chinese companies such as Lenovo in laptops and TCL in televisions, air con-
ditioners, and mobile phones have established plants in Tierra del Fuego.
In Manaus the Chinese firm Kinski assembles motorbikes, and Gree makes
air conditioners, while the electronics firm CCE, owned by Lenovo, makes
laptops, desktop computers, tablets, and televisions. Even when operating
outside such free trade zones, Chinese firms often rely heavily on imports
from China for their inputs.
10.4.5 Conclusion
The Latin American economies had already seen a weakening of their man-
ufacturing sectors before China emerged as a significant player. Some com-
mentators have described many of the countries of the region as being caught
in the ‘middle-income trap’, unable to compete with low-wage countries in
labour-intensive low-technology industries and lacking the technological ca-
pabilities to compete with developed countries in high-technology sectors
(Paus, 2017). The rise of China has intensified this squeeze on middle-income
countries in LAC as it upgraded its manufacturing production (Paus, 2020).
The trade liberalization that occurred in the late 1980s and 1990s meant
that once China had become a member of the WTO its exports of manu-
factures were well placed to enter the Latin American market. In some cases
these exports were the result of transnational corporations (TNCs) switch-
ing production from other Asian countries to China, and had relatively
little effect on production within Latin America. In low-technology indus-
tries and increasingly in medium-low-technology industries, such as rubber
and plastic products and basic metals (especially iron and steel), Chinese im-
ports came to replace domestic production in the region. At the same time,
WTO membership gave China better access to developed-country markets,
and increased competition affected exports from Mexico and the Central
American and Caribbean countries, particularly to the USA. These negative
effects on some Latin American manufacturers were not offset by significant
gains in terms of growing exports of industrial products to China or increased
Chinese investment or technology transfer in Latin America.
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How China is Reshaping the Global Economy
sector has faced increased competition from Chinese products at home and
abroad. Mexico’s relations with China have been mainly competitive with
particular attention being given to the loss of market share to China in the
USA. Chile’s economy is complementary to China’s as it benefitted from the
growing Chinese demand for copper, its main export.
10.5.1 Brazil
Brazil is the largest and most diversified economy in Latin America, and
is China’s most significant partner in the region. It was the first country
in Latin America to be recognized as a strategic partner by China in 1993.
Brazil and China are both members of the BRICS (Brazil, Russia, India, China,
and South Africa) group of countries, and cooperate internationally. Brazil
is China’s most significant economic partner in Latin America in terms of
trade and investment. From the Brazilian point of view, China has been its
most important export market since 2009 and is its most important source
of imports.
Because of the size and diversity of its economy, Brazil has a complex
economic relationship with China. As an exporter of primary products, it
benefitted from the growing Chinese market and the commodity boom be-
tween 2002 and 2011. On the other hand, parts of the manufacturing sector
have faced competition from Chinese products both at home and in export
markets in the North and in Latin America. Not surprisingly, there are very
different views of the economic impact of China on the country.
COMMODITY EXPORTS
Brazil’s three most important exports to China are soybeans, petroleum and
iron ore, which account for more than four-fifths of its total exports. Around
three-quarters of Brazil’s exports of soybeans and more than half of its exports
of oil and iron ore go to China, making it by far the most important market
for these products.
Soybean exports to China increased from 3.2 million tonnes in 2001 to 58
million tonnes in 2019, accounting for virtually the entire growth of Brazil’s
soybean exports. The increase in cultivation in Brazil during this period was
therefore almost entirely down to the growth of demand from China. Brazil
also benefitted from the increase in world prices for soybeans, which rose by
more than 150 per cent during the commodity boom (2002–11). Again, as
seen in Chapter 3, this was partly a result of increased demand from China.
The bulk of Brazil’s soya exports to China have been unprocessed beans
to supply the Chinese crushing industry. Although there have been some
exports of soybean oil to China, in recent years these have been less than
1 per cent of the value of exports of unprocessed soybeans. Clearly exports to
288
China’s Economic Impacts on Latin America
China are concentrated at the initial stages of the value chain, with very little
processing taking place in Brazil. This is a result of the removal of export taxes
on unprocessed soybeans in 1995 and the measures taken by the Chinese
government to promote its local crushing industry. As a result the proportion
of Brazil’s total soybean production that was crushed domestically fell from
95 per cent in 1995 to less than 50 per cent in recent years (Oliveira and
Schneider, 2016, p. 172).
The economic gains from the soy boom in Brazil have been captured
mainly by global and Brazilian agribusiness, including the leading com-
modity traders ADM, Bunge, Cargill, and Dreyfus, and large-scale Brazilian
agribusinesses such as Grupo Amaggi and Vanguarda Agro. Unlike Argentina,
where the government imposes significant export taxes on agricultural ex-
porters so that soybeans made a significant contribution to government
revenues (López and Ramos, 2009, pp. 210–13), in Brazil, soybean exports
have not been taxed since the mid-1990s. Proposals to introduce a tax on
exports have been consistently blocked by the agricultural lobby. In 2016
the Brazilian Minister of Agriculture, Blairo Maggi, one of the largest soy-
bean producers in Brazil, described the tax idea as ‘crazy’, and the proposal
was dropped (Cordonnier, 2016).
Brazil’s exports of iron ore to China increased from 28 million tonnes in
2001 to 208 million tonnes in 2019. The share of Brazil’s iron ore exports
going to China went up from under a fifth to over half over the same period.
The foreign exchange generated by exports increased even more rapidly up
to 2011 as a result of the commodity boom. Subsequently falling iron ore
prices led to a decline in the value of exports to China, but then recovered
in the second half of the decade.
As seen in Chapter 3, the growth in demand from China was a major con-
tributor to the increase in iron ore prices during the commodity boom. The
global market for iron ore is highly integrated, and supply is dominated by
three major companies: BHP-Billiton, Rio Tinto, and the Brazilian firm Vale.
Although Brazilian exports of iron ore to China grew significantly, this was
a reflection of China’s increased share in global steel production, and Brazil’s
share of Chinese ore imports fell slightly during the commodity boom. Chi-
nese firms were not directly involved in the expansion of Brazilian mining,
so that the major impact on the Brazilian industry was through increasing
prices.
As was the case with soybeans, the bulk of Brazil’s exports of iron ore
to China is exported without further processing. Exports of iron and steel
have been less than a tenth of the value of Brazil’s iron ore exports in recent
years.
The Brazilian iron ore mining industry is dominated by Vale (formerly
CVRD), which was government-owned until it was privatized in 1997. The
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How China is Reshaping the Global Economy
EFFECTS ON MANUFACTURING
As well as being a resource-rich country, which means that certain sectors
are complementary to the Chinese economy, Brazil also has a substantial
manufacturing sector which faces competition from China. This high-
lights the problem of identifying countries in Latin America as winners or
losers in terms of their complementary or competitive relationship with
China.
The share of manufacturing in Brazil’s GDP has been falling since the
1980s, and has led to a debate between orthodox economists who see it as a
return to a more normal pattern following the artificial expansion of indus-
try as a result of import-substituting policies (Bonelli and Pessoa, 2010), and
heterodox economists who argue that it is the result of specific economic
policies, particularly in terms of financial openness and the overvalua-
tion of the exchange rate (Bresser-Pereira and Marconi, 2009; Soares et al.,
2011).
Although it is clear that Brazilian manufacturing was declining rela-
tively (although not absolutely) before China joined the WTO, the in-
creased import penetration of goods from China and competition from
Chinese products in export markets has put further pressure on Brazilian
industry.
As seen in Figure 10.1, China’s share of the Brazilian market for manu-
factured goods increased from less than 1 per cent in 2000 to 7.5 per cent
in 2015. Brazil remains a relatively protected economy, with only about
a third of apparent consumption of manufactures provided by imports.
26
These allegations have been denied by the company (Vale, 2019a).
290
China’s Economic Impacts on Latin America
Since China has been the main target of anti-dumping cases brought by
the Brazilian government in recent years, it is likely that in the absence of
such protectionist measures its market share would have increased even more
rapidly.27
The industries which have been most affected by Chinese competition in
the domestic market are textiles, clothing, leather and footwear, electrical
and non-electrical machinery, and computers, radios, TVs, and communica-
tions equipment (see Table 10.1). Manufacturers producing for the domestic
market have frequently called on the government to take action against
Chinese imports. In 2010 the Brazilian Shoe Manufacturers Association,
(Abicalçados) was successful in obtaining anti-dumping duties on footwear
imports from China. In 2011 the Brazilian Textile Industry Association (ABIT)
called on the government to investigate imports of denim from China, while
the Brazilian Machinery and Equipment Association, (ABIMAQ) made sev-
eral requests for safeguard measures to be applied against Chinese imports.
However, all of these requests were rejected (Rossone et al., 2011).
Although Brazilian manufacturing produces mainly for the domestic
market, with government assistance some sectors have been successful in de-
veloping exports. Chinese competition has led to the loss of export markets
in both developed countries and other Latin American markets. A survey by
the National Confederation of Industry (CNI) reported that over half of the
Brazilian exporters covered faced competition from China in foreign mar-
kets, and two-thirds of these had lost customers to Chinese exporters (CNI,
2011). Several reports by FIESP have made estimates of the negative impact of
Chinese competition on Brazilian exports to the USA, the EU, and Argentina
suggesting that there have been significant losses (FIESP, 2007; FIESP, n.d.).
A number of academic studies have analysed the impact of China on
Brazilian exports to the USA, the EU, and other Latin American countries (de
Sousa, 2018; Filgueiras and Kume, 2010; Hiratuka and Cunha, 2011; Jenk-
ins, 2014; Lélis et al., 2012; Machado and Ferraz, 2006). These too show
that Brazilian exports have been negatively affected by Chinese competi-
tion. Export industries that have lost market share to China include footwear,
electrical and non-electrical machinery, and wood and furniture, as well as
iron and steel, rubber, organic chemicals, and vehicles in the Latin American
market (Jenkins, 2014, Table 8).
27
China was affected by forty-six of eighty-two trade defence measures adopted by Brazil
(Global Trade Alert database at http://www.globaltradealert.org/site-statistics (Accessed 31 Oct.
2013). Although the Brazilian government agreed in 2004 to recognize China as a ‘market econ-
omy’ within the WTO, this was never formally approved, making it easier for Brazil to impose
restrictions on Chinese exporters.
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How China is Reshaping the Global Economy
28
These figures refer to the ultimate origin of FDI in Brazil and, therefore, include investment
from China which is channelled through other countries.
29
Trinkunas (2016, Table 3) estimates that in 2015 Chinese loans accounted for just over
3 per cent of Brazil’s total foreign debt.
292
China’s Economic Impacts on Latin America
joined the Asian Infrastructure Investment Bank, making it eligible for loans
from the bank.
CONCLUSION
The growth of China has contributed to both the deindustrialization of the
Brazilian economy and a shift in the composition of its exports towards pri-
mary products. The differential effects of growing relations with China have
created both winners and losers within Brazil. The main beneficiaries have
been a relatively small group of powerful global and Brazilian agribusinesses
and mining corporations. These are represented by the Brazil-China Busi-
ness Council (CEBC), which brings together major exporters to China such
as Vale, Usiminas, and Suzano Papel e Celulose, investors in China such as
Embraer, and Chinese firms with interests in Brazil. They emphasize the ben-
efits that the growth of China brings to Brazil through trade and investment
and stress the contribution that Chinese imports and investment make to
increasing Brazilian competitiveness. On the other hand, industrial interests
represented by the National Confederation of Industry (CNI), FIESP, and sec-
toral chambers of commerce have been highly critical of the negative effects
of Chinese competition on the manufacturing sector.
The Brazilian government did not capitalize on the growth of exports
during the commodity boom to obtain significant increases in government
revenue that could be used to promote upgrading. Chinese competition did
help to keep down prices of manufactured goods, which benefitted con-
sumers, but attempts by the Brazilian government to use industrial policy
to restructure the economy proved ineffective. Once the commodity boom
came to an end, the Brazilian economy struggled.
10.5.2 Mexico
Although Mexico is China’s second-largest trade partner in Latin America
after Brazil, the nature of this bilateral relationship is very different. Mexico
overtook Brazil as China’s largest market in the region in 2015, but Chinese
imports from Mexico are only about a fifth of the amount of those from
Brazil. As a result Mexico has a large trade deficit with China.30
This relationship has given rise to tensions between the two countries go-
ing back as far as the negotiations on China’s accession to the WTO. Mexico
was the last country to give its approval for accession, and maintained restric-
tions on imports from China for as long as possible. This reflected concern
30
The size of the deficit is a matter of debate, since Mexican and Chinese sources give very
different estimates (Dussel-Peters, 2005). In 2019 China reported a trade surplus of $32 billion
with Mexico, whereas Mexico reports a deficit of $76 billion (International Trade Centre (ITC)
data.
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How China is Reshaping the Global Economy
31
There has been some growth of exports of copper in recent years, but non-resource-based
manufactures continue to account for the bulk of exports.
32
See Sklair (1989, Chapter 3) and Wilson (1992, Chapter 3) for accounts of the development
of the maquiladora industry in Mexico.
294
China’s Economic Impacts on Latin America
70 per cent (own calculation from Sargent and Matthews, 2009, Table 1). The
Mexican Ministry of Labour estimated that 300 firms, mainly in the electron-
ics industry, relocated to China between 2001 and 2003 (Watkins, 2007, p.
155).
While this could indicate that China was a major cause of the crisis in the
maquila industry in the early 2000s, there were other contributory factors,
including the rising value of the Mexican peso and the removal of textile
quotas with the ending of the WTO Agreement on Textiles and Clothing in
2005. However, despite the existence of confounding factors, there is strong
evidence that Chinese competition did have a negative impact on Mexico’s
maquila exports.
Unusually, there are several studies based on plant-level data rather than
industry aggregates, which permits a much more disaggregated analysis of
the impact of Chinese competition taking account of the possible hetero-
geneity of impacts.33 All of these studies agree that US imports from China
had a negative impact on the Mexican maquiladoras. This is reflected in both
sales and employment, as well as in plant exits and entries. In other words
the greater the level of Chinese competition, the more likely it is that firms
will face falling sales and be forced to lay off workers or shut down plants
altogether. It is also more difficult for new firms to enter the industry, and
to survive if they do.
The industries which faced the greatest competition from Chinese im-
ports to the USA were apparel, footwear and leather, toys, and sporting goods.
These are relatively unskilled labour-intensive industries. On the other hand,
the lowest level of Chinese threat was in chemicals, auto parts, and food
processing, which tend to be more capital-intensive or resource-based in-
dustries (Utar and Ruiz, 2013, p. 271). This is consistent with the overall
shift in the composition of maquila exports away from traditional, labour-
intensive products. It is also reflected in the contrast between the trends in
employment in the three main sectors of maquila, with apparel declining
while electronics regained some of the levels lost at the beginning of the
decade, and auto parts expanded (Sargent and Matthews, 2009, Table 2).
How have firms responded to Chinese competition in the US market?
There is some evidence of upgrading within plants, with increases in pro-
ductivity and skill-intensity (Utar and Torres Ruiz, 2013). However Sargent
and Matthews (2008, 2009) have argued that the firms which have been most
successful in terms of surviving increased competitive pressure have adopted
a strategy that takes advantage of Mexico’s geographical position and
33
Studies include Shigeoka et al. (2006) and Utar and Torres Ruiz (2013), which both use official
Mexican data that have been made available at the plant level, and Sargent and Matthews (2008,
2009), who use their own plant survey.
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How China is Reshaping the Global Economy
its 2000-mile border with the USA. These firms have concentrated on ex-
ports of products with a high ratio of weight to value, and those which
require a high level of flexibility in response to demand.34 Firms that have
lost out have tended to be those producing highly standardized commodity-
type items which compete on the basis of price. These firms, whether
technologically sophisticated or producing low-technology products, have
struggled.
Chinese competition has affected not only Mexican exporters but also
those who are producing for the domestic market. As Figure 10.1 shows,
China’s share of apparent consumption in Mexico increased from less than
2 per cent in the early 2000s to more than 10 per cent by 2018. Indus-
tries with particularly high levels of Chinese import penetration included
computers and electronic goods, electrical equipment, leather and footwear,
furniture, textiles, and clothing (Table 10.1). Mexican manufacturers com-
plain that Chinese goods are smuggled into the country and that they face
unfair competition (Luna, 2014). In 2011 the Mexican Economy Secretary
expressed concern to the Chinese Commerce Minister about Chinese firms
declaring goods at falsely low prices and misclassifying products in order to
minimize import duties (Rojas-Mena, 2011).
Recently some commentators have claimed that Mexican wages are now
lower than Chinese wages (Yuk, 2013) While this may be an exaggeration,
it is certainly the case that the gap in wages between Mexico and China has
narrowed considerably since the mid-2000s (Kamil and Zook, 2013, Chart 3).
This should enable Mexico to regain some of its competitiveness with
China.
Since the global financial crisis, Mexico has reversed the decline in its share
of US imports of manufactures.35 However, this has not been at the expense
of China, which, despite increasing labour costs, has managed to maintain
its share of US manufactured imports at over a quarter of the total until it
dropped by more than 4 percentage points in 2019 as the trade war launched
by President Trump against China began to bite. Mexico has become more
competitive against other exporters to the USA as a result of increased pro-
ductivity and the depreciation of the peso against the dollar (Sirkin et al.,
2014). It also benefitted from proximity to the US market at a time when
high oil prices made it relatively more expensive to import goods from Asia
and US firms were increasingly adopting just-in-time manufacturing to hold
34
This is supported by Watkins’s analysis of China and Mexico’s exports to the US that shows
that Mexico is most competitive in products characterized by a high ratio of weight to value; qual-
ity rather than price competition; just-in-time delivery or frequent design changes; and where
protection of intellectual property is important (2013, p. 47).
35
Between 2008 and 2019, Mexico’s share of US imports of manufactures rose from
10.7 per cent to 15.1 per cent (own calculation from UNCTADStat data).
296
China’s Economic Impacts on Latin America
down the cost of inventories.36 This is in line with the emerging strategy of
manufacturers in Mexico to concentrate on exports of products which are
costly to transport or require speedy response to customer demand.
CONCLUSION
The economic effects of China on Mexico are the consequence of China’s
emergence as a global manufacturing powerhouse. This has affected Mexico
both directly and indirectly. The most widely discussed impacts have been
the indirect effects on Mexican exports, particularly to the USA. It is clear
that this has had a negative impact on Mexican manufacturers, who face in-
creased competition from China, and has been a factor in reducing the level
of regional integration within NAFTA (Gallagher and Dussel Peters, 2013).
There have also been direct effects in terms of the increasing penetration of
the domestic market by Chinese imports. Although this has brought some
36
Kamil and Zook (2013). It remains to be seen whether low oil prices will reverse this shift.
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How China is Reshaping the Global Economy
10.5.3 Chile
Although Chile is a medium-sized economy in the Latin American context,
its trade with China is more significant than its size would suggest. It is
China’s second-most-important source of imports from Latin America and
the third-largest destination for Chinese exports. It was also the first country
to sign an FTA with China, in 2006.
China’s imports from Chile are dominated by copper, which in various
forms accounts for around three-quarters of the total. Chile benefitted both
directly from increased copper exports to China and indirectly from higher
copper prices owing to the growth in Chinese demand for copper during the
commodity boom. Although the value of imports from Chile declined with
the fall in copper prices after 2011, the volume of Chinese imports continued
to grow and the value increased as prices recovered.
Copper exports are an important source of revenue for the Chilean gov-
ernment. The country’s largest exporter is the state-owned mining company
CODELCO, the bulk of whose profits accrue to the state. The government
also receives significant royalties and taxes from the country’s privately
owned copper mines.37 This significant share of government revenue means
that the benefits from increased copper prices and exports to China can
be spread much more widely than in other cases where exports were in
the hands of private firms and taxes were minimal. There is widespread
agreement in the literature that copper revenues have contributed to the
improvement of living conditions in Chile (AfDB, 2016, p. 20).
Although Chile enjoyed a substantial improvement in its terms of trade
during the commodity boom, it did not experience the symptoms of Dutch
Disease. The Chilean government applied fiscal rules and created a stabiliza-
tion fund to ensure that fluctuations in copper prices and tax revenues did
not lead to excessive swings in government expenditure.38 As Kulkarni and
Hartman (2014) show, Chile was able to use government policies to avoid
Dutch Disease during the commodity boom.
37
In 2006 and 2007, copper accounted for a third of all government revenues, although by
2014, this had fallen to less than 10 per cent (AfDB, 2016, p. 8).
38
The Copper Compensation Fund (FCC) operated from 1987 to 2006, when it was replaced
by the Economic and Social Stabilization Fund (FEES) (AfDB, 2016, pp. 15–20).
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China’s Economic Impacts on Latin America
Chile was the first country in the region to open up its domestic market
to foreign competition, following the military coup of 1973. This began a
process of trade liberalization which reduced import tariffs to 6 per cent by
2002 (Montfort, 2008, p. 3). Chile’s protected industrial sector was hard-hit
as a result, beginning the process of deindustrialization. By the time China
joined the WTO, the overall level of import penetration in the Chilean man-
ufacturing sector was already over a third (OECD, 2016, Figure 4.7). Chile
has one of the highest levels of Chinese import penetration of any country
in Latin America (see Figure 10.1).
CHILE-CHINA FTA
Chile began to negotiate an FTA with China in 2004. The agreement came
into force in 2006, and was followed by supplementary agreements on trade
in services (2010) and investment (2014). The Chilean government hoped
that this would help to increase non-traditional Chilean exports to China
and attract Chinese FDI to Chile (Wise, 2012, 2016). From the Chinese point
of view, an FTA would provide Chinese exporters with a competitive ad-
vantage in the Chilean market, although given the low tariffs in Chile, this
was relatively small. Some Chilean industrial sectors were, nevertheless, con-
cerned about increased Chinese competition. Opposition to the FTA was
particularly vocal in the textile and metallurgical industries and amongst
small and medium enterprises (León-Mariquez, 2011, pp. 165–6). In 2006 the
president of the Small and Medium Enterprise Confederation, Conapyme,
called for special support from the government in the face of Chinese com-
petition (Gachúz, 2012, p. 144). When it was signed, the agreement excluded
certain products in order to meet these concerns.39
The period following the creation of the FTA saw rapid growth in trade
between Chile and China. Exports to China continued to be dominated
by copper. Although exports of some non-traditional products, particularly
agricultural products such as fruit, wine, and salmon grew quickly, they ac-
counted for a small share of total exports. Imports from China grew even
faster than exports, although Chile continued to have a large trade surplus
with China.40
To what extent can the growth of this bilateral trade be attributed to the
FTA? The econometric estimates for the region as a whole show no evidence
that the existence of an FTA boosts bilateral trade (see Table 9.1). A limited
39
For some products, complete liberalization did not occur until 2015, while 152 products
imported from China, concentrated in textiles and clothing, were excluded altogether. Other
exclusions included specific types of cement, tyres, glass, and metal products.
40
Between 2005 and 2014, exports to China grew at an average of just under 16 per cent, and
imports grew by over 19 per cent per annum (Direcon, 2015, Table 2.3).
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How China is Reshaping the Global Economy
impact on Chilean exports to China is not surprising, since most of the cop-
per exported entered China duty-free before the FTA, and Chile does not
enjoy preferential terms compared to other exporters. The facts that Chile
was already a very open economy with low tariff rates prior to the signing of
the FTA with China and that it had FTAs with a number of other countries
meant that any preference margin for Chinese exporters was also small.41
Although there was some diversification of Chilean exports to China, the
gains were disappointing. Copper, which accounted for 80 per cent of ex-
ports in 2005, still made up 77 per cent of the total in 2014, despite the
fall in copper prices. Industrial products, broadly defined to include salmon
and wine, experienced a slight drop in their share from 13.8 per cent to
13 per cent over the same period. Agriculture, fishery, and forestry increased
from a very low level to make up 4.6 per cent of exports in 2014 (Direcon,
2015, Table 2.3). The number of firms exporting to China increased from
over 400 to more than 1,000 between 2005 and 2014, although only just
over 100 were regarded as well-established in the Chinese market (Direcon,
2015, p. 19).
China’s share of Chilean imports increased from around 10 per cent im-
mediately before the FTA came into force to over 20 per cent a decade later. As
elsewhere in the region, the imports included a wide range of manufactured
goods. The most important products imported included mobile phones,
computers, steel, cars, footwear, and toys (Direcon, 2015, Table 2.8). Accord-
ing to Organisation for Economic Co-operation and Development (OECD)
estimates, the share of imports from China in total apparent consumption
of manufactured goods in Chile doubled in five years from around 6 per
cent in 2005 to over 12 per cent by 2010 and continued to increase after
that (see Figure 10.1). The share was much higher in certain sectors such as
textiles and apparel, where it increased from 23 per cent to 65 per cent be-
tween 2000 and 2011, and in computers, machinery, and electronics, where
it went up from 23 per cent to 41 per cent over the same period (OECD,
2016, p. 99).
41
Between 2003 and 2007, Chile also signed FTAs with its other major trading partners, the
EU, the USA, and Japan.
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China’s Economic Impacts on Latin America
CONCLUSION
Perhaps more than any other country in the region, China’s impact on Chile
revolves around the bilateral trade relationship. Chile has been a major bene-
ficiary of China’s demand for copper and continues to be so, despite the drop
in global copper prices. The potential downside in terms of Dutch Disease has
been avoided through the Chilean state’s control of copper revenues and
the establishment of fiscal policy rules to avoid excessive swings in public
expenditure. Copper revenues have also been used in part to fund social pro-
grammes, which have helped ensure a wider distribution of benefits than in
other countries in the region.
The fact that the Chilean manufacturing sector had already declined as a
result of the neoliberal policies of the Pinochet regime from the mid-1970s
meant that the impact of increased Chinese imports were not so devastating
in terms of plant closures and job losses as in countries with a larger and
more protected industrial sector. On the other hand, the benefits which the
Chilean government had hoped to obtain from signing the FTA with China
in terms of diversifying exports and expanding Chinese FDI have yet to be
realized.
42
In recent years Chile accounted for between 1 and 2 per cent of the value of completed
contracts by Chinese firms in LAC (NBS Database).
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10.6 Conclusion
There is some truth in the picture that divides LAC countries into winners
and losers in terms of China’s economic impact. As Arteaga et al. (2020) show
there are significant differences in the impact of exports to China on eco-
nomic growth within the region. Whether a country is regarded as a winner
or loser, at least in the short to medium term, depends on the way in which it
was integrated into the global economy at the beginning of the twenty-first
century: those countries, mainly in South America, which had a compar-
ative advantage in minerals, fuels, and agricultural raw materials were the
main beneficiaries, while Mexico and a number of Central American and
Caribbean economies which served as export platforms for labour-intensive
manufactures supplying the US market were the main losers. The winners
also tend to be the countries that have received most investment and loans
from China.
This categorization of winners and losers, which is based on the export
specialization of different countries, only gives part of the picture. The dif-
ferences between countries are far less marked in terms of the increasing
share of Chinese manufactures on the domestic market. Throughout the re-
gion, manufacturers complain about ‘unfair’ competition from China. In
the longer term, concerns over deindustrialization and the primarization
of exports arose across LAC. For the winners, resources were attracted into
the commodity sector and away from manufacturing; for the losers, Chi-
nese competition made exporting manufactured goods less profitable and
again led to resources moving out of the manufacturing sector. Taken to-
gether with the increased competition from Chinese imports which affected
both groups of countries, the overall effect was to accentuate the regressive
structural changes that had begun in LAC in the 1980s with the adoption of
neoliberal economic policies. Despite claims that China’s relations with LAC
involve South-South cooperation and are mutually beneficial, the reality is
that they are reproducing the kind of centre-periphery relations which have
had negative impacts on LAC growth in the past.
Analysis that discusses the impacts of China on LAC in terms of countries
that are winners or losers also diverts attention from the distributional con-
sequences within countries. In fact it is sectors and groups within countries
that are the winners and losers. Extractive companies (both transnational
and state-owned) and agribusiness have been winners, while local manufac-
turers and unskilled workers are often the losers from China’s changing role
in the global economy.
The economic outcomes are not predetermined by a country’s position in
the global economy and its pattern of specialization: they also depend on the
local political economy of different countries and the capacity of the state.
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China’s Economic Impacts on Latin America
Some states have been better able than others are to capture some of the
gains from increased Chinese demand for resources and changing patterns
of global accumulation, and to avoid the problems of Dutch Disease. The
state also has a role to play in terms of distributional outcomes through its
tax and expenditure policies.
303
11
11.1 Introduction
Chapter 10 showed that the rise of China has had varied economic impacts
on the countries of Latin America and the Caribbean (LAC). There has been
a tendency for attention to be focussed mainly on the economic aspects of
the relationship. Rather less has been written on the social, political, and en-
vironmental consequences of China’s growing involvement with the region.
Nevertheless, these are also potentially very significant and, thus, form the
subject of this chapter.
In terms of the social impact, one of the reasons why deindustrialization
is such a cause of concern is that it can lead to the loss of well-paid manufac-
turing jobs and undermine hard-won labour rights and working conditions.
The primarization of LAC exports has also created problems in the region
because the growth of extractive industries often brings them into conflict
with local communities.
The debate concerning the political implications of growing Sino-LAC
economic relations has mainly been about whether it poses a threat to US
interests in the region. Headlines claim that ‘Rising China threatens US
clout in Latin America’ (Grudgings and Gardner, 2011) and that China is
‘Undermining America while Washington sleeps’ (Coyner, 2016). On the
other hand, there are those who claim that Chinese interests in LAC are
solely economic, and that the Chinese government has sought to ensure that
growing economic relations are not seen as a challenge to the USA. From a
Latin American perspective, the growth of relations with China is seen as
providing the countries of the region with more policy space (Kaplan, 2016).
A third area of concern is the environmental impact of growing eco-
nomic relations with China. This is often linked to the primarization of LAC
exports because extractive industries are often major drivers of environmen-
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0012
Social, Political, and Environmental Impacts in Latin America
tal degradation (Cooney, 2016; Ray, 2017). Mining and oil and gas extraction
often give rise to high levels of pollution, while soybean and timber ex-
ports contribute to deforestation. Major infrastructure projects such as dams,
roads, and railways also have a significant environmental impact.
1
See Dussel-Peters and Armony (2017) on Argentina, Brazil, Chile, and Mexico;
Salazar-Xirinachs (2018) on Brazil, Chile, Mexico, and Peru; Artuc et al. (2015) on Argentina,
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How China is Reshaping the Global Economy
Argentina 5.3%
Brazil 0.4% 0.3%
Chile 4.3%
Colombia 3.6%
Mexico 7.1% 3.5%
Peru 5.5%
El Salvador 14.3%
Total 4 countries 3.1% N/A
Source: Col (1): own elaboration from Dussel-Peters and Armony (2017), Tables 1A,
2A, 3A, 4A, and 5A; Col. (2): Moreira and Stein (2019, p. 116).
Brazil, and Mexico; Mendez (2015); Caamal-Olivera and Rangel-González (2015); Blyde et al.
(2017); Chiquiar et al. (2017); Blyde and Fentanes (2019) and Blyde et al. (2019) on Mexico;
Saslavsky and Rozemberg (2009); Paz (2016); Moreira et al. (2020) and Paz (2019) on Brazil;
López and Ramos (2009) and Castro et al. (2009) on Argentina; Molina (2020) on Colombia;
Li and Moreira (2019a and 2019b) on El Salvador; Mercado et al. (2019) and Pierola and
Sánchez-Navarro (2020) on Peru; and Alvarez and Claro (2009) and Pellandra (2017) on Chile.
2
Although the studies cover different time periods, Chinese import penetration was relatively
low in the 1990s so that most of the effects measured in the ILO study occurred after 2000 which
make it quite comparable to the IDB studies.
3
Other estimates for Mexico include Blyde et al. (2017) who give a figure of 4.2 per cent,
Blyde et al. (2019) who estimate that manufacturing employment would have been 8 per cent
higher in 2013 if import penetration had remained at 1998 levels, and Artuc et al. (2015), whose
simulations show a reduction of 6 per cent in formal and 2.6 per cent in informal manufacturing
employment.
306
Social, Political, and Environmental Impacts in Latin America
wages in Latin America,4 while others have found no impact.5 Even those
studies which do find that Chinese competition has reduced wages conclude
that the effect is relatively small and some workers, particularly the more
skilled, have seen their wages increase.6
Another concern over the impact of Chinese competition on the labour
market is that it may lead to the increasing casualization of labour and the
growth of informal employment. The outcome will depend on how firms
respond to increased competition. If smaller, less efficient firms, which tend
to be more informal, are most affected, or if large firms contract by laying
off temporary workers, it is possible that informality declines as competition
intensifies. On the other hand, if firms respond by trying to reduce labour
costs by replacing formal workers with cheaper ones, informality is likely to
increase. In Mexico, Blyde et al. (2017) found that increased import penetra-
tion was associated with a reduction in the number of permanent workers
and an increase in casual labour.7 Informal employment also increased in
Peru (Pierola and Sánchez-Navarro, 2020) and in El Salvador where some
displaced workers from the manufacturing sector ended up in informal agri-
cultural jobs (Li and Moreira, 2019b). In Brazil, on the other hand, there
was either no impact of import competition on informality (Costa et al.,
2016) or even a decline in informality (Paz, 2016).8 It is difficult, therefore,
to generalize about the impact of China on the nature of employment.
However, the concern about the impact of Chinese competition on labour
is not really about the impact on the economy as a whole but rather the
way that it plays out for particular groups of workers in specific industries
and localities. As seen in Chapter 10, the level of Chinese import penetra-
tion varies considerably across industries. This means that although at the
4
See Blyde et al. (2017); Blyde et al. (2019); Chiquiar et al. (2017); Artuc et al., (2015); and
Caamal-Olvera and Rangel-González, (2015) on Mexico, Molina (2020) on Colombia, Pierola
and Sánchez-Navarro (2020) on Peru and Costa et al. (2016) on Brazil.
5
See, for example, Mendez (2015) on Mexico, Paz (2016) on Brazil and Li and Moreira (2019b)
on El Salvador.
6
There are a number of possible reasons why, despite a negative impact on employment in
manufacturing, this is not reflected in a substantial fall in wages. First, reductions in manufac-
turing employment can be offset by increases in employment in other sectors, which affects
the overall level of wages. Second, where it is the lower-paid, less-skilled workers who are most
affected by job losses and where firms respond to Chinese competition by upgrading to more skill-
intensive products, the average wage within firms may increase as employment shrinks. Third,
where the level of wages is institutionally determined by trade-union bargaining or minimum-
wage legislation, or where there is a surplus of labour which keeps down wages, changes in
labour-market conditions affect employment rather than wages.
7
Simulations for Mexico in Artuc et al. (2015, Figure 15) also show a reduction in formal
employment.
8
The simulations for Brazil in Artuc et al. (2015, Figure 12) show little change in the ratio
between formal and informal employment as a result of China’s impact.
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How China is Reshaping the Global Economy
9
The differences between the four countries partly reflect the fact that Brazil and Chile’s trade
with China have been in surplus in recent years, whereas Argentina’s has been closer to balance,
and Mexico has had a large trade deficit.
308
Social, Political, and Environmental Impacts in Latin America
10
This oversimplifies matters in that the acquisition of a failing firm by a foreign investor
might avoid job losses that would otherwise have taken place, and could, therefore, be regarded
as job creating relative to the alternative in the absence of FDI.
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How China is Reshaping the Global Economy
2000 and 2017 was only a little over 110,000 (Salazar-Xirinachs et al., 2018,
Table 5).
CHINESE PROJECTS
A further source of employment by Chinese firms is in construction and
engineering projects which are not classified as FDI. According to the ILO,
based on information on sixty large Chinese infrastructure projects under-
taken between 2005 and 2016, a total of almost 200,000 jobs were directly
created11 , with a further 140,000 indirectly employed (Dussel-Peters and
Armony, 2017, Table 11). However, the bulk of this employment was created
during the construction phase, and the estimate of long-term employment
once construction was complete was only around 10,000. Assuming that the
construction phase lasted around two years for each project, the annual num-
ber employed as a result of these projects, including indirect employment,
would be less than 100,000.
Some of the jobs in Chinese projects in LAC are filled by Chinese nation-
als. According to official Chinese figures, around 20,000 Chinese workers
were employed in projects in the region at the end of 2018 (NBS, 2019,
Table 11.22). The use of Chinese workers has not been as extensive in Latin
America as in Sub-Saharan Africa (SSA). There have been instances, however,
where this has been an issue. In Peru, Shougang brought in a large number
of Chinese workers when it acquired the Marcona mine in 1992, but violent
protests quickly resulted in their being sent back to China (Sanborn and
Chonn, 2015, p. 35). Today only 20 to 40 of the company’s 2000 employees
in Peru are Chinese (ibid, p. 28).
The larger, more developed LAC countries, such as Brazil, Argentina, and
Mexico, have regulatory frameworks which require foreign companies to use
local workers. In 2015 the Brazilian government refused to allow the Chinese
company State Grid to bring in 11,000 Chinese workers to build the power-
transmission line from the Belo Monte hydroelectric plant (Couto, 2015).
Extensive use of Chinese workers in the Western hemisphere has tended to be
concentrated in the smaller Caribbean countries which have less bargaining
power to require the use of local workers, but even here, the trend has been
towards reducing their number (Shortell, 2014).
These intercountry differences underline the importance of the role of the
state in permitting the entry of large numbers of unskilled Chinese workers
for such projects. The larger Latin American countries also have a more
skilled labour supply than the small Caribbean states.
11
By 2019 this figure had increased to almost 275,000 (Dussel-Peters, 2020a, Table 4)
310
Social, Political, and Environmental Impacts in Latin America
CONCLUSION
The overall impact of China on employment in LAC is relatively small. Since
the total regional labour force in 2015 was around 300 million, even the most
generous estimate of the total employment created by Chinese trade, FDI,
and infrastructure projects comes to far less than 1 per cent of the total.12 It
is not even clear whether, when the effects of exports on employment are
properly accounted for, trade has a positive impact on employment. It also
seems unlikely that the total additional employment created by Chinese out-
ward FDI (OFDI) and infrastructure projects in the region is anywhere near
the 600,000 estimated by Dussel-Peters and Armony (2017) once account is
taken of the fact that a high proportion of Chinese FDI has come through
mergers and acquisitions rather than greenfield investment and that most
of the employment included for projects only lasts during the construction
phase, with relatively few permanent jobs created.
The real concern over the effect of relations with China on employment is
the job losses that tend to be concentrated in certain industries and regions.
Because the aggregate employment effects are relatively small, the impact on
average wages is not very large. Nor is there much evidence on the impact of
China on working conditions and labour rights in the region. This is an area
where more research is required.
12
Dussel-Peters and Armony (2017) give a figure of 1.8 million for the total employment
created.
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13
In Peru, for example, it was reported that 53 people were killed and almost 1,500 injured in
social conflicts, most of which were related to extractive industries, between 2011 and 2016 (The
Economist, 2016).
14
This does not include those employed as a result of mergers and acquisitions by Chinese
firms.
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Social, Political, and Environmental Impacts in Latin America
313
How China is Reshaping the Global Economy
15
Two comparative studies of Chinese and other mining companies in Peru focus mainly on
labour issues and environmental impacts and provide little information on impacts on local
communities (Kotschwar et al., 2012; Irwin and Gallagher, 2013).
314
Social, Political, and Environmental Impacts in Latin America
countries other than China.16 This may reflect the fact that other foreign
investors continue to be more significant than the Chinese in the region17
or biases in the reporting of such conflicts, but it certainly shows that such
conflict affects a wide range of foreign firms.
Many of the reasons given for expecting Chinese firms to be particularly
damaging for local communities are changing over time. Concern about
social impacts is increasing both at home and abroad, and Chinese firms
are coming under greater scrutiny. They are also learning as they acquire
more experience of operating in Latin America. The case of Chinalco in Peru
is often cited as an example of such learning, and its experience in develop-
ing the Toromocho mine contrasted with the earlier example of Shougang in
Peru. Despite initial resistance from the community, the majority of residents
agreed to relocate to a new town by 2013, and although problems remain to
be resolved, major conflict has been avoided. As Sanborn and Chonn (2015,
p. 42) comment, Chinalco ‘has raised the bar for community relocations by
prioritizing dialogue and consensus building rather than sheer use of force’.
There are other examples of Chinese companies which have made seri-
ous efforts to avoid negative impacts on local communities. In Bolivia a
joint venture between China’s Jungie Mining and the Alto Canutillos mining
cooperative found during consultation that the local community in
Tacobamba was opposed to the opening of a tin-processing plant near the
mine, and the firm agreed to locate on a site 25 miles away, avoiding
potential conflict (Saravia López and Rua Quiroga, 2017).
There is insufficient evidence to make systematic comparisons between
Chinese and other transnational companies in terms of their impacts on local
communities. In some cases it has been suggested that Chinese companies
enjoy better relationships with local communities than the previous owners
or other foreign companies.18 If it is a factor, the nationality of a firm is
only one of many that explain the impact of FDI on local communities. As
some commentators have observed, the capabilities and interests of the host
government and the degree of mobilization of the local population in the
affected area are likely to be more important in determining the outcomes for
local communities than the national origins of the firms involved (González-
Vicente, 2013).
16
Only 7 out of more than 200 mining conflicts recorded by the Observatory of Mining Con-
flicts in Latin America (OCMAL) involved a Chinese firm as the main investor (Shapiro et al.,
2018, Table 5). Similarly, very few of the cases cited in a study of mining conflicts in Colombia,
Mexico, and Peru involved Chinese firms (Hazin, 2013).
17
Shapiro et al., (2018, Table 5) find that relative to the number of mining projects in LAC,
Chinese firms are more likely to have been involved in a conflict.
18
Ray and Chimienti (2017) claim that in Ecuador two Chinese-owned companies, Andes
Petroleum and PetroOriental, have had a more positive relationship with both government and
civil society than the previous owner, Canadian firm Encana.
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How China is Reshaping the Global Economy
I am very concerned with the rise of influence China is pursuing in our Hemi-
sphere and I believe it is important that the USA grasps the economic, social and
national security implications of a Latin America under the thumb of China.
Once China is able to move in and expand control, it will be difficult to turn the
tide.
(Burton, 2008)
19
For a Chinese review of US views on China’s role in Latin America, see Sun (2012), and for
a US analysis, see Erikson (2011).
316
Social, Political, and Environmental Impacts in Latin America
system by a more multipolar one in which China plays a leading role (Xiang,
2007, 2008). A second version of the ‘China threat’ thesis, while recognizing
that the involvement of China in LAC has been driven by economic con-
siderations, argues that growing economic relations give China considerable
political influence, which it uses to garner international support. Although
this view does not regard China’s economic expansion in the region as strate-
gically motivated, nevertheless it does see growing Sino-LAC relations as a
challenge to US hegemony in the region (Ellis, 2014, p. 207).
An alternative view of China’s growing economic relations with LAC sees
them as a consequence of globalization and China’s deepening integration
with the global economy (Erikson, 2011; Sun, 2012). While this has in-
evitably led to closer political and diplomatic ties with the region, these do
not threaten US interests, and the US retains considerable influence in LAC
(Trinkunas, 2016). During the Obama administration, the US government’s
official position played down concerns about China’s growing relations with
LAC, and even went so far as to welcome them as a good thing under the
right circumstances (Ellis, 2014, p. 207). This changed significantly during
the Trump administration as was illustrated by the warnings against closer
ties to China issued by Tillerson, Pompeo and Mattis.
On the Chinese side, there is recognition that Latin America is a US sphere
of influence, and as a result the Chinese government has tried to avoid
antagonizing the US by developing especially close political relations with
governments in the region that are hostile towards the US. As Jiang Shixue
(2008, p. 40) comments, ‘China is well aware of the fact that the USA consid-
ers Latin America its backyard, and China has no intention of challenging
US hegemony in the region’. For China, its relationship with the US is more
important than its relationship with any Latin American country, and its
relations with LAC have been pragmatic rather than ideological.
While these issues are a cause of concern in the US, from a Latin American
point of view, China’s increased presence in the region is often viewed more
positively. The relationship with China is often framed in terms of South-
South cooperation, in contrast to the unequal North-South relations with
the developed world (Harris and Arias, 2016). Growing relations with China
can provide greater policy space for Latin American governments and reduce
their dependence on the US and international financial institutions (Cesarín,
2007; Le-Fort, 2006).
Since the region’s debt crisis in the 1980s, LAC countries have sought to
avoid fiscal deficits In order to maintain their credit ratings, which put a
limit of government expenditure. The availability of Chinese funds which
are provided without imposing macroeconomic conditions on the recipient,
has enabled some regimes in the region to increase their social expenditure,
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How China is Reshaping the Global Economy
20
Kaplan (2016) compares the cases of Venezuela and Brazil. In Venezuela the Chavez and
Maduro governments used Chinese loans to finance their social programmes which would not
have been possible had they needed to raise funds on international capital markets. In Brazil,
Chinese loans were less significant and not provided directly to the government, which continued
to rely on the financial markets and consequently had much less autonomy to run fiscal deficits
than Venezuela.
21
See Table 9.2. The only statistically significant relationship with a country’s votes in the
UN was for Chinese exports to LAC and this was only significant at the 10 per cent level. Given
that trade, particularly exports to LAC, are carried out mainly by commercial actors, it is highly
unlikely that consideration of a country’s political stance internationally would have influenced
decisions.
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Social, Political, and Environmental Impacts in Latin America
Table 11.2. Shares of Latin American trade with China and the United States, 2019 (%)
22
The view that growing economic relations with China lead to LAC countries’ foreign policies
becoming more pro-Chinese tends to play down LAC governments’ own agency.
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320
Social, Political, and Environmental Impacts in Latin America
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
LAC with US LAC with China
Figure 11.1 Coincidence of voting between Latin America, China, and the United
States, 2000–15
Source: Voeten, Erik; Strezhnev, Anton; Bailey, Michael, 2009, ‘United Nations General Assembly
Voting Data’, https://hdl.handle.net/1902.1/12379, Harvard Dataverse, V18, UNF:6:xkt0YWto
BCThQeTJWAuLfg==
23
Ambassador Affonso Celso de Ouro Preto, quoted in Zhou (2012, p. 136).
321
How China is Reshaping the Global Economy
changed after Lula and the Workers’ Party came to power in Brazil in 2003
and adopted a strategy of diversifying the country’s foreign relations and
promoting South-South cooperation. This led to developing relations with
China (and other large emerging powers) becoming a key part of the govern-
ment’s strategy (Cardoso, 2013; Zhou, 2012). Economic relations with China
received a further boost with the global financial crisis in 2008, and the sta-
tus of the political relationship was symbolically raised to a ‘strategic global
partnership’ in 2012 under Lula’s successor, Dilma Rousseff.
Political relations between Brazil and China became more difficult
under President Bolsonaro who aligned himself closely with President
Trump. During his election campaign, he used the slogan that ‘The Chinese
are not buying in Brazil. They are buying Brazil’ (quoted in Stallings, 2020,
p. 68). Although other members of the administration favoured good
relations with China, policy has oscillated between the critical and the
conciliatory approaches (Trinkunas, 2020).
China’s extensive economic relations with Brazil have been driven by
commercial and strategic economic considerations rather than political fac-
tors. Brazil is a major source of iron ore and soybeans for China and, as the
seventh-largest economy in the world, is also a significant market for Chi-
nese exporters and investors. There is no reason to attribute the growth of
Sino-Brazilian economic relations to geostrategic motives (Maciel and Nedal,
2011, p. 252).
On the Brazilian side, commercial interests have been the main factor
leading to closer economic ties with China. The growth of the Chinese mar-
ket created profitable opportunities for Brazilian mining and agribusiness
companies, while the growing competitiveness of Chinese manufacturing
led to increasing imports from China, often by transnational corporations
such as Samsung, Panasonic, and Dell. Although the change of government
from Cardoso to Lula in 2003 led to a greater emphasis on political rela-
tions with China, bilateral trade and investment continued to be seen by
the Brazilian government as the central aspect of the strategic partnership
(Albuquerque, 2014, p. 110).
While the growing economic relations between China and Brazil were not
driven by Chinese geopolitical objectives, have the closer links given China
more leverage which could be used to influence Brazilian foreign policy?
This depends in part on the relative significance of these relations. Although
China became Brazil’s main trade partner in 2009, it still accounts for less
than a quarter of Brazil’s total trade (Table A9.1). In terms of exports, China
is as dependent on Brazil as a source of iron ore and soybeans as Brazil is
dependent on China for a market. As was seen in Chapter 10, China’s contri-
bution in terms of FDI in Brazil is marginal, and the share of Chinese loans
in Brazil’s external debt are also very low Trinkunas (2016, Table 3). Thus
322
Social, Political, and Environmental Impacts in Latin America
although China has become an important trade partner for Brazil, it has not
given it a great deal of leverage over Brazil’s external affairs.
It is in any case a mistake to think that closer economic ties between
China and Brazil will inevitably lead to a convergence in foreign policy (Blan-
chard and Serodio, n.d.). One reason for this is that, as seen in Chapter 10,
the growth of economic relations creates losers as well as winners, and this
can create hostility rather than cooperation. Brazil’s foreign policy cannot be
interpreted as reflecting the dictates of China. Brazil is as unlikely to accept
Chinese hegemony as US hegemony in Latin America. There is no evidence
that China’s increased economic involvement in Brazil has led to significant
change in Brazilian foreign policy.
China and Brazil do share certain common interests, which they have
sought to advance in international fora. They both advocate a move towards
a multipolar world and reforms to the international system to give more
weight to the interests of developing countries, with which both countries
identify. They share common interests, which are articulated through the
BRICS and within the G20 group of countries, which have become more
prominent in global economic discussions since the 2008 global financial
crisis.
On the other hand, there are also some areas of tension between China
and Brazil. In 2005 Brazil had hoped for Chinese support in its bid to
obtain a permanent seat on the UN Security Council, but China voted against
this. Trade relations between the two countries have also given rise to ten-
sion with Brazil applying anti-dumping measures against Chinese goods
and, despite agreeing to grant China market economy status, never imple-
menting it. While China and Brazil cooperate in international fora, they
are also rivals in certain parts of the world. As shown in Chapter 10, Brazil
has lost out to Chinese competition in other parts of Latin America. It also
faces competition from China in some African countries, and on a visit to
Africa in 2010, Lula criticized the employment practices of Chinese firms
in the region (Blanchard and Serodio, n.d.). In these cases the Brazilian
government sees China as a threat rather than a partner (Cardoso, 2013,
pp. 46–8).
Given China’s relatively limited leverage over Brazil in terms of the signifi-
cance of bilateral economic relations, it seems likely that changes in Brazilian
foreign policy owe more to internal domestic factors than to any influence
of growing relations with China. As Maciel and Nedal (2011, p. 252) con-
clude, ‘While China’s economic presence in Brazil is clearly increasing, this
should be interpreted neither as a consequence of close political ties nor as
a development that invariably contributes to this end.’
323
How China is Reshaping the Global Economy
324
Social, Political, and Environmental Impacts in Latin America
24
One indication of this is the fact that the Mixed High-Level Commission formed under the
strategic partnership of 2001 was presided over by the two countries’ planning and development
ministers (Struver, 2014, p. 143).
325
How China is Reshaping the Global Economy
of oil in the world, it is important for China to have a foothold there. Sec-
ond, the loan agreements have not only secured oil supplies but also created
a major market for Chinese firms. Six Chinese companies obtained a total of
over $11 billion in government contracts between 2008 and 2011. The State
Grid Corporation is building power-transmission networks in Caracas, and
the ZTE Corporation is building an offshore cable (Sanderson and Forsythe,
2012, p. 136). Other Chinese companies benefitting from the loans included
the China International Trust and Investment Corporation Group and Haier
(see Chapter 9).
While Chavez sought to enlist Chinese support for his anti-USA cam-
paign, the Chinese government tried to avoid being drawn into any conflict
with the USA and kept its distance.25 China not only regarded its rela-
tions with the USA as more strategically important than its relations with
Venezuela and did not wish to directly challenge the USA in its backyard; it
was also aware that any US measures against Venezuela could damage Chi-
nese interests there (Corrales, 2010, p. 118). Thus at a political level, China’s
approach towards Venezuela has been cautious, seeking to avoid confronta-
tion with the USA while expanding its economic interests (Paz, 2011). As the
Chinese Foreign Ministry has emphasized, ‘China and Venezuela maintain
normal State to State relations. These relations are not based on ideology, are
not directed at any third party and will not affect other countries’ (quoted
in Romero, 2013 p. 128).
A second question is how much leverage China’s economic presence gives
it over Venezuela, particularly compared to the USA. Despite attempts to di-
versify its exports away from the US market it still accounts for more than
a third of Venezuela’s total exports, around double the share that goes to
China. As a destination for Venezuelan exports, China is on a par with
India. Similarly, as a source of FDI, China’s share of the total stock, although
growing, remains less than 15 per cent (Table A9.1). Where Venezuela is
highly dependent on China is in terms of loans, where it has been estimated
that loans from China account for almost 60 per cent of the country’s total
external debt (Trinkunas, 2016, Table 3).
While it is clear that loans from China enabled the Venezuelan govern-
ment to continue with its populist economic policies for longer than would
have been possible had the country been dependent on international capi-
tal markets for external funding (Kaplan, 2016), it is not obvious that they
have given China any advantage over Venezuela’s foreign policy and rela-
tions with the USA. In fact the current crisis in Venezuela has shown the
25
While President Chavez visited China on six occasions during his fourteen years in office,
there was only one visit by a Chinese President Jiang Zemin, to Venezuela during that period in
2001. A planned trip by President Hu Jintao in 2010 was called off as a result of a major earthquake
in Qinghai Province.
326
Social, Political, and Environmental Impacts in Latin America
limited degree of influence that China has there. Up to now it has been
largely absent from any discussions of how to resolve the crisis (Ferchen,
2017). China has maintained its policy of respect for national sovereignty
and non-interference in the internal affairs of other countries, while at the
same time its lending to Venezuela has slowed down. The Chinese govern-
ment increasingly regards Venezuela as an unreliable partner, and President
Maduro as more of a liability than an asset (Xu, 2017, p. 75).
The growing hostility of the Trump government and its increased use of
sanctions against Venezuela has highlighted the dilemma faced by China.
The recognition by the USA and its allies of the opposition leader Juan
Guaidó as interim president at a time of increasing tension between China
and the USA, made it inevitable that China would continue to maintain
diplomatic relations with the Maduro government.26 At the same time, the
deepening economic crisis in Venezuela has undermined China’s economic
interests in the country and China has been unwilling to extend further eco-
nomic support and tried to minimize the financial and reputational damage
from its involvement in Venezuela (Ferchen, 2020).
11.3.5 Conclusion
There is no evidence to support the strong view of the ‘China threat’, which
sees the growth of China’s economic involvement as motivated by a desire
to undermine the position of the USA in the region. Both the overall picture
and the history of individual countries where China has established partic-
ularly close relations are consistent with China’s claims that its relations are
essentially economic and that it respects national sovereignty and does not
impose political conditionality on other countries, apart from in relation to
Taiwan.
What is true is that growing economic links with China have created more
options for LAC countries and reduced their dependence on the West and
international financial institutions, providing them with more policy space
to pursue alternative economic strategies. However, changes in economic
policies and in the international relations of LAC are primarily the result of
internal developments within the region and are not due to external influ-
ences from either the USA or China. In the long term, it is clear that the
shifting of economic power to new centres of accumulation will need to be
reflected in changes in the way the global economy is governed. This should
not be interpreted as a plot to undermine US hegemony, but rather as the
inevitable result of a move towards a multipolar international system.
26
The refusal of China to accept Guaidó’s representative on behalf of Venezuela at the annual
meeting of the Inter-American Development Bank that was due to be held in Chengdu in 2019
led to the cancellation of the event.
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How China is Reshaping the Global Economy
Another of the concerns that has been raised over LAC’s growing economic
relations with China is the environmental impact. There are frequent claims
in the media that Chinese trade and investment have contributed to environ-
mental degradation in the region.27 How much evidence is there to support
these claims? Are the examples of environmental damage cited to support
them specific to relations with China, or part of a more general problem?
Unfortunately, attention has only quite recently turned to the environ-
mental impacts of Chinese relations with LAC. DialogoChina, an electronic
newsletter focussing on Sino-Latin American environmental concerns, was
set up in 2015. Academic research on the issue is just getting off the ground,
and one of the first collections of academic papers on the subject, by Ray
et al., was only published in 2017. Much of the debate on the environmental
impact of China on the region is based on anecdotal evidence.
In order to summarize the existing state of knowledge about the impact of
China on the environment in LAC, this section looks first at trade and then
at Chinese FDI and loans to the region. The case of soybeans, which has
consistently been amongst the top three products exported to China, is then
examined in more detail, in particular, the extent to which it contributes to
deforestation.
27
See, for example, Garzón and Salazar-López, 2017 and Watts, 2015.
328
Social, Political, and Environmental Impacts in Latin America
However, one should not exaggerate the overall effects of trade with
China. First, calculation of the net effect on LAC emissions and water us-
age needs to take into account LAC imports from China, as well as exports.
In terms of greenhouse gases (GHGs), the former are more carbon intensive
than exports to China, so that the net effect of trade with China reduces
emissions in Latin America. This is not the case in water, with exports sub-
stantially more water intensive than imports, so that in 2013, LAC exported
almost 120 billion cubic metres of embedded water to China (Ray, 2016,
p. 19).
Second, the estimates of GHG emissions associated with exports to China
represent a very small fraction of the total generated and used in all activities.
The World Resources Institute estimates that in 2012 LAC produced a total of
4.6 gigatonnes of CO2 equivalent, in contrast to the 115 kilotons produced
by its exports to China (Ray et al., 2017, Figure 1.8; Ray, 2016, p. 18). Again,
the contribution of exports to China to the region’s water footprint is more
significant.28
Although these aggregate comparisons show that LAC exports to China
have a greater environmental impact in the region than its exports to the rest
of the world, this is entirely due to the makeup of the basket of goods that are
exported to China. A second question is whether the same products exported
to different markets would be more environmentally damaging when the
destination is China. As discussed in Chapter 8, it is only under rather specific
conditions that the destination is likely to have an impact on environmental
performance. The fact that the main exports from Latin America are undiffer-
entiated commodities such as oil, iron ore, and copper means that consumers
are unlikely to be aware of their environmental impacts, so producers have
no incentive to apply different environmental standards when exporting to
different markets. One exception, discussed in section 11.4.3, is the export
of soybeans from the region.
28
The water intensity of exports to China is more than ten-times greater than the water
intensity of the region’s total economic activity (Ray et al., 2017, Figure 1.6).
329
How China is Reshaping the Global Economy
the environment that might result. This was even truer of the overseas op-
eration of Chinese firms under the Go Global strategy. Very little attention
was paid within China to the effects of the operations of Chinese companies
abroad. As a result even Chinese sources recognized that Chinese firms lagged
behind their Western counterparts in terms of adopting an environmen-
tal approach to their foreign investments (CCICED, 2011, p. 112). It is also
claimed that the environmental conditions attached to loans from the Chi-
nese policy banks are less stringent than those of other lenders (Gallagher,
2013).
The concentration of Chinese OFDI in Latin American oil and gas and
mining has given rise to concern, since these are sectors which have a
substantial environmental impact. There are several examples of Chinese
extractive companies contributing to environmental degradation in LAC,
such as Shougang’s Marcona mine in Peru and the Cerro Maimom mine
in the Dominican Republic (Ellis, 2014, p. 165). Some of the conflicts with
local communities discussed earlier in this chapter were triggered by the en-
vironmental impact of Chinese investment. International controversy was
created when the Correa government in Ecuador decided to reverse its de-
cision to protect the environmentally sensitive Yasuni National Park and to
allow Chinese companies to begin oil extraction.
Chinese firms are by no means alone in having negative environmental
impacts in LAC.29 It is often implied, however, that for the reasons men-
tioned earlier, Chinese firms perform worse than their Western counterparts
do. Unfortunately, there is a dearth of detailed research that systematically
compares Chinese and other firms in the region. One exception is Shougang
in Peru, where there have been several studies comparing its environmen-
tal performance with that of other mining companies (Irwin and Gallagher,
2013; Kotschwar et al., 2012; Sanborn and Chonn, 2017). Although the
Chinese mining company has been fined by the Peruvian environmental
authorities on a number of occasions, and has a poor record in terms of
complying with environmental standards and implementing the recommen-
dations of environmental audits, it is not the worst performer in the sector. It
has also been suggested that a later Chinese entrant to the Peruvian mining
industry, Chinalco, has learnt from the mistakes made by Shougang and is
showing signs of better environmental performance (Kotschwar et al., 2012;
Sanborn and Chonn, 2017).
Although these studies are all of one country (Peru) and one sector (min-
ing), they raise questions about the claims that are often made about the
29
For examples of the negative environmental impacts of non-Chinese investors, see The
Democracy Center et al. (2014) on European TNCs, and Gordon and Webber (2016) on Canadian
mining companies.
330
Social, Political, and Environmental Impacts in Latin America
30
A study of Chinese firms in Mexico also concludes that their environmental behaviour is
quite heterogeneous (Schatan and Piloyan, 2017, p. 336).
31
It has also been suggested that because of a weak environment ministry and overlapping
responsibilities, weak enforcement, and an emphasis on attracting inward investment, lower
environmental standards have been applied by Chinese firms in Peru than in Brazil or Chile,
which have stronger institutions (Blackmore et al., 2013, p. 24). It would be useful to have studies
which compare the environmental performance of Chinese companies in the different countries
where they operate.
32
After further studies and consultation, the project was given the go-ahead in 2017.
331
How China is Reshaping the Global Economy
332
Social, Political, and Environmental Impacts in Latin America
Now all of Argentina’s and almost 90 per cent of Brazil’s soybean areas are
planted with GM varieties (European Commission, 2016, Table 14).
333
How China is Reshaping the Global Economy
Soy monocropping can lead to nutrient depletion and damage soil structure.
Although, at first, the introduction of GM crops led to a reduction in the need
for herbicides and pesticides their use has increased over time, and as land
becomes more concentrated and farms larger, fumigation is often carried out
by plane so that the spread of toxins becomes more widespread (Leguizamón,
2014, p. 6).
In addition to the direct and indirect effects of the growth of soybean
production on the environment, there are impacts associated with the ex-
pansion of transport infrastructure to deal with increased export volumes
(Branford, 2017; Fearnside and Figueiredo, 2017). In Brazil, for instance, the
extension of soy cultivation has led to the development of new transport
routes. One of the major infrastructure projects announced in 2003 was the
paving of the BR-163 highway north from Mato Grosso to the Tapajos River,
and the new port of Miritituba, from where soybeans can be shipped by barge
to the Atlantic. The opening up of this route led to deforestation on either
side of the road. Several major new road, rail, and waterway projects in the
region are also planned to create new routes for soy exports. These include
the proposed railway from Brazil to the Pacific coast in Peru, the Ferrogrão
(Grain Railway) from Mato Grosso to the port of Miritituba, and a proposal
to transform the Juruena, Teles Pires, and Tapajos Rivers into an industrial
waterway, and these are likely to cause further environmental degradation
in the region (Branford and Torres, 2017).
334
Social, Political, and Environmental Impacts in Latin America
Brazil, and the Pengxin Agricultural Group Co. in Santa Cruz, Bolivia. Other
planned acquisitions by Heilongjiang Beidahuang in Rio Negro, Argentina;,
the Chongqing Grain Group in the Chaco and Cordoba in Argentina and
Bahia in Brazil; and by the Shanghai Pengxin International Group in Brazil,
all either fell through or were stalled (Jie and Myers, 2017, Tables 5.1 and 5.2).
The ability of Chinese firms to purchase land was restricted by a reinterpreta-
tion of the Brazilian land legislation in 2010 and new legislation in Argentina
in 2011. These have both been seen as a response to fear of acquisitions by
Chinese firms (Jie and Myers, 2017, pp. 107–9).
In the past, exports of soybeans from Brazil and Argentina were largely
controlled by the major transnational grain traders, ADM, Bunge, Cargill,
and Dreyfus (known as ABCD). China’s involvement has increased recently
as a result of the purchase by the China National Cereals, Oils and Foodstuffs
Corporation (COFCO) of the Dutch company Nidera and the agribusiness
arm of the Hong-Kong-based trading group Noble (Haro-Sly, 2017, p. 7;
Oliveira and Schneider, 2016, p. 7). Both of these firms have significant op-
erations in Argentina and Brazil. In Argentina they rank seventh and eighth
in terms of crushing capacity, and their combined capacity would put them
in fifth place (Oviedo, 2015, pp. 124–5). In Brazil, COFCO and other Asian
traders from Japan, South Korea, and Singapore have overtaken the ABCD in
terms of their share of grain exports (Bonato, 2016).
Chinese firms are also involved in the soy value chain as suppliers of
key inputs. Chinese companies supply 40 per cent of the world’s output
and 35 per cent of exports of glyphosate, the main herbicide applied to
soybeans. Glyphosate is one of the top products exported from China to
Argentina (Haro-Sly, 2017, p. 6). Chinese firms are also becoming involved
in the agricultural machinery sector in Argentina (Xinhua, 2016).
As noted earlier, the growth of soybean exports has also increased the need
for new transport infrastructure. Chinese involvement in transport projects
in Brazil is likely to increase in future with the creation of the $20 billion
China-Brazil Infrastructure Fund in 2017. There is interest by Chinese firms
in both the planned railway from Brazil to Peru and the Ferrogrão from Mato
Grosso to Miritituba Port. In Argentina, China financed the refurbishment
of the Belgrano-Cargas Railway, which links the soybean-producing areas of
the country to the port of Buenos Aires.
335
How China is Reshaping the Global Economy
33
Labelling requirements only apply to products that include GM ingredients. Meat products
from animals which have been fed GM soy do not have to be labelled.
34
Some GMO crops are planted illegally, but there are no data on the extent of this (Kruppa,
2015, Table 1).
336
Social, Political, and Environmental Impacts in Latin America
produced worldwide were sold in Europe, this would only account for about
a sixth of total EU imports of soybeans and soybean meal.35
Whereas many food producers in Europe have committed to using sus-
tainably produced soy, those in China have not. Again, there are some
signs that this may be changing. In 2016 more than ten large compa-
nies which account for a quarter of China’s imports of soybeans indicated
their support for greening their supply chains, but without committing
themselves to verifiable action (Vartparonian, 2016). If the same propor-
tion of China’s imports of soybeans were certified as in the EU, this would
have represented additional sales of 14 million tonnes of certified soybeans
in 2016.
CONCLUSION
There is now considerable evidence that the growth of soybean production
has caused environmental damage in Latin America, particularly through
deforestation, as both a direct and an indirect consequence of more land be-
ing devoted to soybeans. It is clear that this growth has been prompted by
demand from China, although up to now, the direct involvement of Chi-
nese companies has been relatively limited. There is also some evidence that
the switch of the market to China has had an impact on the nature of de-
mand, with less emphasis on non-GM or certified soybeans than is the case
for traditional export markets in Europe, although this may be beginning to
change.
However, the extent to which expanded soybean production causes en-
vironmental damage in Latin America is not simply a result of demand-side
factors. It also depends on the degree to which laws and regulations to pre-
vent deforestation and other negative environmental effects are established
and enforced. In Brazil the deforestation caused by soybean production in
Mato Grosso was significantly lower in 2006–10 than in 2001–5, despite the
rapid growth of exports to China. This was partly the result of better policies
to control deforestation and enforcement that is more effective (Lathullière
et al., 2014).36
The role of domestic politics in the relationship between soybean cul-
tivation and deforestation is underlined by recent developments in Brazil,
35
In 2014 the EU imported over 36 million tons of soybeans either as beans or embodied in
soybean meal (European Commission, 2016, Annex Table 1).
36
These included the Action Plan for the Prevention and Control of Deforestation in the Legal
Amazon launched in 2004, and further novel measures adopted in 2008. One policy which was
regarded as highly effective was a decision by the Central Bank in 2008 to prevent those with
pending fines for illegal deforestation from receiving any agricultural loans (Fearnside, 2017).
337
How China is Reshaping the Global Economy
11.4.4 Conclusion
There are several ways in which its growing economic relationship with
China has affected the environment in LAC, usually for the worse.
The growth of commodity exports and the primarization of the region’s
economies have had negative impacts as extractive industries such as oil,
mining, forestry, and agriculture (particularly soybean production), con-
tribute to pollution, deforestation, and other forms of environmental degra-
dation. Although this shift in the composition of exports is to a significant
extent a result of growing demand from China, exports to China are not nec-
essarily more damaging than exporting the same products to other markets.
There are exceptions, however, as illustrated by the case of soybeans, where
338
Social, Political, and Environmental Impacts in Latin America
37
A recent study of a Chinese financed and non-Chinese financed dam in Ecuador found that
in both cases the standards set in the relevant guidelines were not implemented and that the
extent to which they were effective depended on the mobilization of local civil society (Vallejo
et al., 2018).
339
How China is Reshaping the Global Economy
Appendix to Chapter 11
Econometric Analysis of the Impact of Economic Relations with
China on UN Voting
340
Social, Political, and Environmental Impacts in Latin America
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent levels
341
Part IV
Comparisons and Conclusions
12
12.1 Introduction
1
Amongst the few studies that attempt a broad comparison of China’s relations with Africa and
Latin America are Brautigam (2017); Leiteritz and Coral (2017); Narins (2016); and Zhang (2016).
Shen (2015) presents an interesting comparison of Chinese views of Africa and Latin America.
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0013
How China is Reshaping the Global Economy
China established relations with SSA much earlier than with LAC. In the
Maoist period, national liberation movements in SSA were seen as part of
the anti-imperialist struggle, and were supported by the Chinese govern-
ment. Many of these countries, which became independent in the early
1960s, established diplomatic relations with Beijing soon afterwards. Chi-
nese Premier Zhou Enlai made the first trip by a Chinese leader to Africa
in late 1963 and early 1964, visiting six SSA countries. This laid the ba-
sis for cooperation between China and several newly independent African
countries, and led to a number of subsequent Chinese projects in the region
during the 1970s, including the Tanzam Railway, the Jin Kang hydropower
project in Guinea, and the Bouenza hydropower station in the Republic of
Congo (He, 2014, p. 4). A majority of SSA countries supported China’s ad-
mission to the United Nations (UN) in 1971, and the region accounted for
twenty-one of the seventy-six votes in favour.
In contrast, the only country in LAC which recognized China in this
period was Cuba, after its socialist revolution. When the UN General Assem-
bly voted to admit the People’s Republic of China (PRC) in 1971, only seven
LAC countries voted for the motion, and eleven voted against it. More LAC
countries established diplomatic relations in the 1970s following the PRC’s
admission to the UN, but others did not do so until the 1980s after the USA
had recognized Beijing in 1979. Even today, there are eight LAC countries
which recognize Taiwan and do not have diplomatic relations with the PRC.
It was during the 1990s that China began to pursue a more active pol-
icy towards Latin America. Yang Shangkun was the first Chinese president
to visit the region in 1990. His successor, Jiang Zemin, visited the region
twice, in 1993 and 1997. During this period forty LAC Presidents and Prime
Ministers made state visits to China. In 1993, China established its first
strategic partnership in the region with Brazil.
Significant Chinese engagement with Latin America dates from well after
the start of the political and economic changes that began in China in the
late 1970s. This contrasts with the much earlier development of relations
with SSA in the 1960s. As a result, Chinese documents and statements about
the region are much less freighted with the language of anti-imperialism and
common struggle than those about SSA (Strauss, 2012).
Whereas during the Cold War the Chinese government saw SSA and LAC
very differently, with the former being of much greater strategic significance,
346
A Comparative Perspective on China’s Involvement
since the end of the Cold War and the prioritization of economic growth
within China, the official view of the two regions has tended to converge.
They are both seen as part of the developing world and are regarded as less
important for China than relations with its immediate neighbours in Asia or
with the big powers, particularly the USA (Sun, Y., 2014, p. 13; Zhang, 2016,
p. 96). Official Chinese statements stress the principles of non-interference
in internal affairs and respect for national sovereignty in China’s relations
with both regions. Economic relations are discussed in terms of South-South
cooperation and mutual benefit. The complementarity of their economies
with that of China is highlighted.
These similarities were reflected in the Chinese policy papers on Africa
issued in 2006 and on LAC two years later (PRC, 2006, 2008). The two papers
are similar in length and structure, and focus on similar areas of potential
cooperation (Zhang, 2016). Two further policy papers on Africa (PRC, 2015)
and LAC (PRC, 2016) show continuing similarities, although the Africa paper
is rather more fully elaborated. Key economic areas of cooperation identified
in both papers include energy and resources, infrastructure, manufacturing,
finance, and agriculture.
As was seen in Chapters 6 and 9, the main actors involved in China’s eco-
nomic relations with SSA and LAC are largely the same. At the central
government level, the Ministry of Foreign Commerce (MOFCOM) and the
Ministry of Foreign Affairs are the main actors, with MOFCOM being the
more important in terms of economic relations. State-owned enterprises
(SOEs) play a major role in terms of both Chinese foreign direct investment
(FDI) and engineering and construction contracts in both regions, while
the government policy banks are the main providers of credit. Some large
provincial and municipal SOEs are also involved in FDI and contracts in both
regions, as are large private firms such as Huawei and ZTE.
Two differences in terms of the actors involved in SSA and LAC are worth
noting. First, although the policy banks dominate lending to both regions, it
is the Exim Bank that is the most important Chinese lender to SSA, whereas
the China Development Bank is the main source of Chinese loans to LAC.
Chinese aid is channelled through the Exim Bank, which partly explains why
it is more important in SSA than LAC, since the latter receives much less aid
from China. In recent years there has been an increase in the share of loans to
LAC provided by the Exim Bank and to SSA by CDB, although the difference
in terms of the leading policy bank in the two regions remains.
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Although exact figures are hard to come by, SSA has seen the involvement
of more private Chinese investors, many of which are fairly small scale. In
contrast to LAC, where studies of Chinese FDI have focussed on SOEs, there
have been several studies of private Chinese investment in SSA (Gu, 2009,
2011; Shen, 2013). In the construction sector, for example, there are a num-
ber of firms in SSA which were set up by former employees of SOEs who
stayed on in the region. There are also numerous Chinese entrepreneurs who
view SSA as an opportunity to set up a new business. Although there are
Chinese businesses involved in LAC, particularly in the retail trade, the scale
of private Chinese firms is not comparable to their involvement in SSA.
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‘soft power’ in both regions, although they have also led to tension on
occasion.
Although political factors dominated Sino-African relations during the
Maoist period, after 1979, economic factors came to the fore. In Latin
America, since relations had been so limited before 1979, economic fac-
tors have always dominated the relationship. The most important strategic
economic objective for China in both regions is to secure supplies of raw
materials. The most significant of these is oil, and both regions have played
a role in reducing China’s dependence on the Middle East for its supply, al-
though SSA is more important in this respect than LAC. Both regions are also
strategically important as sources of key minerals such as iron ore and copper.
LAC is an important factor in food security in China through the region’s ex-
ports of soybeans, which help feed China’s growing livestock population. In
contrast, SSA has not been an important source of agricultural products for
China; nor, contrary to popular misconceptions, have there been extensive
Chinese ‘land grabs’ in Africa (Brautigam, 2015).
A second strategic economic objective has been to expand the market for
Chinese exports. This has been more important in LAC than in SSA because
of the size of the market there. As seen in Chapter 9, China has expended
considerable effort to get LAC countries to grant it market economy status, as
defined by the World Trade Organization (WTO), although several still have
not done so. In SSA China has faced fewer problems in obtaining access to
local markets, apart from in South Africa.2 In both SSA and LAC, loans have
played an important role in expanding the market for Chinese products.
Both regions have also been a testing ground for China’s Go Global pol-
icy, encouraging the international expansion of Chinese companies. Chinese
construction and engineering firms have been particularly active in SSA.
The commercial interests of Chinese firms have also played a significant
role in the growth of economic relations with the two regions. Chinese
traders have played an important part in the growth of exports to SSA and
LAC. The earliest investments made by Chinese firms in both regions oc-
curred in the 1990s, before resource security became a strategic economic
issue for the Chinese government. Although later investments have been
promoted by the Chinese state, the firms concerned, even when they are
SOEs, are partly motivated by commercial considerations, particularly in the
ways that their subsidiaries operate. The expansion of construction com-
panies overseas is also partly a result of increased competition and excess
2
While LAC is a more important market for China than SSA in terms of its size, Chinese
exporters have met more resistance there than in SSA. LAC countries, particularly Argentina,
Brazil, and Mexico, have been much more active against imports from China than SSA countries.
Between 2005 and 2019 countries from LAC have opened 269 anti-dumping actions against
China, compared to only 21 in SSA, all of which were by South Africa.
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Although Chinese interests in economic relations with SSA and LAC and the
actors involved are broadly similar, there are important economic, politi-
cal, and institutional differences between the two regions, which affect the
impacts of these relations. It is also important to bear in mind that, as empha-
sized throughout this book, significant differences exist between countries
within each region, and broad regional comparisons may not reflect their
individual situations.
3
See Casanova et al. (2015) on Latin America and Casanova and García-Herrero (2016) on
Africa.
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A Comparative Perspective on China’s Involvement
times SSA’s role has been as a source of natural resources, initially of minerals,
such as gold, diamonds, copper and iron ore, and later of oil. It has also been a
source of tropical agricultural products such as tea, coffee, and cotton. There
was relatively little migration to the region during the colonial period except
to a few countries in Southern Africa and East Africa.
After gaining their independence, governments did attempt to promote
diversification of the economic structure through import substituting indus-
trialization (ISI), and they tried to gain greater control over their natural
resources, in some cases through the nationalization of foreign companies.
Although there was a spurt of economic growth in the 1960s, these mea-
sures did not succeed in bringing about structural change or sustainable
growth. In the 1980s they were largely abandoned as a result of the Struc-
tural Adjustment Policies imposed by the World Bank and the International
Monetary Fund. These included reversing the protectionist policies adopted
in the 1960s and 1970s to promote local manufacturing and reducing state
intervention in the economy, through privatization of SOEs and other lib-
eralization measures. As a result the process of industrialization was halted
while manufacturing was still only a small part of overall economic activity
and was technologically backward.4
Throughout the period since independence, SSA’s position in the global
economy has been marginal. The region has never accounted for more than
about 1 per cent of global manufacturing (Rodrik, 2016a, Table 1). Flows of
FDI to the region have been largely confined to the extractive industries,
and investors have shown little interest in the manufacturing sector and the
small, fragmented domestic markets. Other types of financial flows have also
been very limited, and, in fact, overall SSA has been a net exporter of capi-
tal, with capital flight following liberalization contributing to the outflow
(Sundaram et al., 2011). The main sources of capital inflows on which
SSA have relied are foreign aid and migrant remittances. With aid increas-
ingly seen as a form of social safety net, there has been very little capital
accumulation in the region.
Most of the Latin American economies gained their independence a cen-
tury and a half earlier than the majority of SSA countries.5 Although they
continued to be primarily exporters of natural resources throughout the
nineteenth century, a number of countries expanded their exports to include
temperate agricultural products, as well as minerals and oil. There were sig-
nificant flows of immigrants, particularly to Brazil and the Southern Cone
countries. Some of the countries of the region began to industrialize in the
4
Tregenna (2015) describes this as ‘pre-industrialization de-industrialization’.
5
But not the Caribbean countries, which, like most SSA countries, did not gain independence
until the 1960s.
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How China is Reshaping the Global Economy
first half of the twentieth century, a process that intensified with the collapse
of the markets for their traditional primary product exports during the Great
Depression. After the Second World War, governments used ISI strategies
to encourage local manufacturing and attract inward investment. Although
initially manufacturing was for the domestic market, from the 1960s some
countries began to encourage manufacturers to export. The region also be-
came an important destination for international financial capital especially
during the 1970s, when some of the surpluses from the OPEC countries
were recycled there. The accumulation of debt led to a financial crisis when
Mexico defaulted in 1982. This led to the ‘lost decade’ of the 1980s and the
emergence of the Washington Consensus advocating trade liberalization and
privatization.
Two patterns of accumulation emerged in the region. Countries which
had previously been important centres of industrial accumulation, such as
Argentina, Brazil, Chile, and Uruguay, underwent what has been charac-
terized as ‘premature deindustrialization’. This involved a transition from
a trajectory that relied on the growth of manufacturing to one that was
more typical of primary commodity exporters (Palma, 2005) as a result of
the adoption of neo-liberal economic policies.6
A different pattern emerged in Mexico and in a number of Central Amer-
ican and Caribbean countries, which became important export platforms
assembling labour-intensive products, mainly for the US market.7 In contrast
to the first group of economies, these countries saw the share of manufactur-
ing in total employment increase in the 1980s and 1990s. Integration with
the US economy was reinforced by the North American Free Trade Agree-
ment and the Dominican Republic-Central America Free Trade Agreement
(DR-CAFTA), which came into effect in 1994 and 2009, respectively.
The historical and contemporary differences between the positions of SSA
and LAC in the global economy have led to contrasting economic situations.
Income levels are on average significantly higher in LAC than in SSA. LAC
countries also tend to be more industrialized and technologically advanced
than those in SSA.8 Only South Africa has a level of industrial development
comparable to those of the more developed Latin American economies. Some
Latin American business groups took advantage of pro-market policies to
6
Palma (2008) points out that South Africa also displays some of the characteristics of this form
of deindustrialization. He contrasts this with the other SSA countries, where deindustrialization
in the 1980s and 1990s was associated with a fall in per capita income, which he describes as
‘deindustrialization in reverse’.
7
Palma (2005) refers to this as the ‘maquila industrialization process’. He specifically mentions
Mexico, Costa Rica, the Dominican Republic, El Salvador, and Honduras as examples. One could
add Guatemala, Nicaragua, and Haiti as further examples.
8
Manufacturing value added per capita was more than twenty-times higher in LAC than in
SSA in 2010 (Taylor, 2016, Table 1).
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12.5.2 Geo-political Differences: The USA and China in SSA and LAC
Geopolitically, the two regions are situated rather differently. From the 1960s
to the 1980s, China competed for influence in SSA with the USA, the USSR,
and the former European colonial powers. In LAC, in contrast, the USA was
the dominant external power, and under the Monroe Doctrine, it sought to
exclude any other foreign countries. Despite the existence of some Maoist
guerrilla groups in LAC, China was not able to establish a presence there.
Indeed it was not until after 1979 that many countries established diplo-
matic relations with the PRC. Even after becoming a significant economic
actor in LAC, the Chinese government has recognized that the region is a US
sphere of influence, and it has been restrained in terms of developing very
close relations with countries that the USA regards as hostile. In SSA, China’s
efforts to secure influence have not been constrained by concern about the
reaction in the USA or in Western Europe in the same way.
The geo-political differences between SSA and LAC are vividly illustrated
by the reactions of the US government to countries in the two regions switch-
ing diplomatic recognition from Taiwan to the PRC. Following the change
in Panama, the Dominican Republic and El Salvador, the USA recalled its
ambassadors from the three countries in 2018 for discussions of their break
with Taiwan, and even considered cutting aid to El Salvador, clearly indi-
cating the seriousness with which it regarded the inroads that China was
making in the region (Shattuck, 2020). This contrasts with the lack of reac-
tion when three African countries, the Gambia, Burkina Faso and Saõ Tome
and Principe established diplomatic relations with the PRC at around the
same time.
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9
Isabel dos Santos the daughter of Eduardo dos Santos who was president between 1979 and
2017 is reportedly the richest woman in Africa. Recent reports have highlighted the way in which
this wealth was accumulated illegitimately at the expense of the Angolan people.
10
This involved a high level of mobilization of civil society through the Misiones.
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A Comparative Perspective on China’s Involvement
stronger in the region than in SSA.11 As a result, LAC states are likely to be
better placed to maximize the benefits and minimize some of the negative
impacts arising from growing relations with China. This includes policies to
obtain a share of the gains from the commodity boom and increased exports
to China, as well as measures to ensure that Chinese companies create jobs
for local workers and do not rely excessively on imported Chinese labour,
and the enforcement of environmental regulations and consultation with
local communities to avoid negative environmental and social outcomes.
Zambia and Chile are both major copper producers whose exports grew
substantially as a result of the boom in demand from China and the surge
in copper prices from 2002. However their ability to benefit from the com-
modity boom differed significantly reflecting substantial differences in state
capacity. As was seen in section 10.5.3, the Chilean government was able to
capture a significant share of the increased resource rents from copper, both
through the role of the state-owned mining company CODELCO and from
tax revenue. In contrast Zambia had privatized the copper industry shortly
before the start of the boom and the private mining companies paid very
little tax between 2002 and 2007 (Meller and Simpasa, 2011). Over the pe-
riod up to 2013, the Chilean government was able to capture a much larger
share of the resource rents from mining than its Zambian counterpart (Lund-
støl, 2018). Chile was also much more successful than Zambia in avoiding
the ‘Dutch Disease’ during the commodity boom (Cali and te Velde, 2007,
pp. 18–19). As Jepson (2020, p. 169) points out, one of the major prob-
lems faced by the Zambian state in trying to harness the potential of the
commodity boom was the lack of state capacity.
Finally, public attitudes towards China also differ substantially between
the two regions. There is evidence that China is seen much more favourably
in SSA than in LAC (Guo, 2017). In the latter, the average proportion
of respondents indicating that they had a ‘very favourable’ or ‘somewhat
favourable’ view of China in the nine countries covered by the Pew Global
Attitudes survey in 2014 was just over 50 per cent, and only in Venezuela
(67 per cent) did this exceed 60 per cent. In contrast, for the nine African
countries covered by the same survey in 2015, the average was just over
70 per cent, with only South Africa (52 per cent) scoring less than 60 per
cent (Pew Research Center, 2017).12
11
These generalizations are supported by the World Bank’s World Governance Indicators for
SSA and LAC. On average, these have consistently been lower in SSA than in LAC since they
were first recorded in 1996. These are, of course, averages, and there are countries in SSA which
perform better than some of those in LAC, as there is considerable variation in both regions.
12
It is possible that these differences reflect a more favourable view of China’s economic impact
on SSA countries than on LAC countries.
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Although the drivers of the growing economic relations between China and
SSA and China and LAC are broadly similar, the different contexts in which
they play out mean that the economic, social, political, and environmen-
tal impacts vary both between regions and amongst individual countries
(Table 12.1).
Before comparing the impact of relations with China on the two regions,
it should be noted that China is economically more significant for SSA than it
SSA LAC
Economic impacts
Growth of Benefitting fuel and mineral Benefitting fuel, mineral, and
commodity exporters temperate agricultural exporters
exports
Competition in Limited to a few garment exporting Particularly affected are Mex-
export markets countries ico, DR-CAFTA, and more
industrialized South American
countries
Competition from Mainly displacing imports from Significant impacts on some in-
imports from other countries dustries in more industrialized
China countries
Infrastructure Significant boost Limited up to 2020 but may
increase in future
Social impacts
Employment Some job creation by Chinese Job losses in manufacturing as a
companies but concerns exist result of Chinese competition;
over use of Chinese workers limited employment creation
from exports
Wages and working Weak trade unions and en- Stronger trade unions and regula-
conditions forcement of labour rights by tion in the more industrialized
government permitting low countries, providing more
wages and poor conditions protection for workers
Local communities Little effective opposition to effects Conflicts where civil society is
of extractive industries and dams mobilized on extractive issues
Political impacts
‘One China policy’ Accepted by all but one country Eight countries still recognize
Taiwan
Type of regime No evidence that China has No evidence that China has
promoted corruption or promoted anti-US regimes
authoritarianism
Policy space Increased resources not necessarily Increased policy space for pro-
used to promote development gressive governments to pursue
alternative economic strategies
Environmental impact
Environmental Weak environmental regulation al- Mobilization around environmental
degradation lowing firms to cause substantial issues to counter worst aspects
degradation
Wind and solar China playing a significant role Up to now, limited involvement
power apart from in Chile
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A Comparative Perspective on China’s Involvement
is for LAC. This is not so marked in terms of trade, where China accounted for
one in every six dollars of trade in SSA, compared with one in seven in LAC.13
SSA is significantly more dependent than LAC on China in other respects. In
terms of FDI, although accurate statistics on Chinese outward foreign direct
investment are hard to come by, it is likely that SSA has received at least as
much as LAC. However, LAC is a much more important destination for global
FDI, and the total stock of inward investment in LAC is three and a half times
that in SSA (UNCTAD, 2020, Annex Table 2). SSA is also more dependent on
Chinese infrastructure projects and finance than Latin America is, although,
again, there are considerable differences across individual countries.
13
There are considerable differences in dependence on trade with China at the country level
in both regions, and individual SSA countries are more dependent on China than LAC countries.
In LAC the country with the highest share of trade with China is Chile, where China accounts
for a quarter of its total trade. In SSA there are eight countries where trade with China makes up
more than a quarter of the total, and more than a third of Angola, Republic of Congo, Guinea
and South Sudan’s trade is with China.
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How China is Reshaping the Global Economy
involvement in infrastructure has been limited, although there are now signs
of significant increases in prospect.
Although there have been positive economic impacts of Chinese growth,
other impacts are less beneficial to both SSA and LAC. Because of its higher
level of industrialization, LAC has felt the impacts of Chinese competition
more strongly. In SSA much of the increase in imports of manufactured goods
from China has been at the expense of imports from other countries. Apart
from a few African countries which have developed exports of clothing and
textiles, and South Africa, which already had a substantial manufacturing
sector before Chinese imports began to grow, the impact on industrial devel-
opment has been to make it more difficult to get production started, rather
than displacing existing producers and causing job losses.
In LAC, and particularly in its more industrialized countries including
Argentina, Brazil, Colombia, and Mexico, increased Chinese penetration of
the domestic market has had a significant effect on local manufacturers and
workers, leading to a continuation of the process of deindustrialization that
began with the economic liberalization of the 1980s. In countries which
had seen manufacturing employment rise as a result of the adoption of the
maquila model of industrialization, Chinese competition in export markets
led to a reversal of the trend. In the Andean countries (Bolivia, Ecuador,
Peru, and Venezuela), there has been intensification of the so-called (neo)-
extractivist model of development, in response to increased demand from
China.
The lower level of technological development in SSA has meant that the
region stands to gain more from technology transfer from China than LAC.
Local firms in SSA have also been able to benefit from importing cheaper
Chinese equipment which is more suitable for the conditions in which they
operate. There is less evidence of this happening in LAC. Technology transfer
has tended to be at the more sophisticated end of the spectrum, for example,
through government collaborations to develop and launch satellites.
In neither region have manufacturers been able to link with global value
chains in which Chinese firms are involved and increase exports to China or
to use Chinese inputs to export to third countries. Although the relocation
of manufacturing to SSA as wages rise in China has been predicted by some,
it seems unlikely that this will become significant (see Chapter 7). Similarly,
despite hopes expressed in Latin America, there is little sign of China using
countries in the region as platforms for export.
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How China is Reshaping the Global Economy
14
Recently some authors have questioned the extent to which China’s involvement in Africa
has eroded the bargaining power of traditional aid donors and increased policy space in the
region. See Kragelund (2015) and Swedlund (2017).
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12.7 Conclusion
Although the objectives of Chinese actors in SSA and LAC are very similar,
the contexts in which they operate give rise to different outcomes in some
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respects. These reflect the different ways in which the two regions are inserted
in the global economy, specific geopolitical circumstances, and internal po-
litical and institutional structures in SSA and LAC, as well as differences in
their historical relationship with China. In drawing out the similarities and
contrasts between the two regions, it is important not to lose sight of the
heterogeneity that exists between the countries within each region. South
Africa, for example, has more in common with many Latin American coun-
tries in terms of its relations with China and the impact that these have had
than with the pattern described for SSA, whereas some of the smaller, poorer
Central American and Caribbean countries have some features that resemble
the SSA pattern more closely than that found in South America.
362
13
Conclusion
13.1 Introduction
China’s rapid economic growth and increased openness has been one of the
most significant features of globalization in recent years. Because of China’s
sheer size in terms of its population and output, its economic transformation
since the late 1970s has had a major impact both on the world economy
as a whole and on particular regions and countries. This study has focussed
specifically on the implications of Chinese economic growth for two regions,
Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC), where
it has had a significant impact both directly and indirectly.
As was pointed out in the Introduction, the re-emergence of China as a
global economic power over the past four decades was made possible by the
rapid advance of globalization in that period. This gave China increased ac-
cess to world markets, foreign investment and technology, contributing to
a major shift in the location of industrial production. However this would
not have led to rapid economic growth in China without major domestic
changes as well.
Part I of the book focussed on the major economic changes that have
taken place in China since the beginning of its economic reform in 1979,
and China’s growing role in the global economy. These changes involved a
major shift away from a centrally planned economy at home, and a much
greater degree of integration with the global economy (Chapter 1). This led
to the emergence of China as a major centre of global industrial produc-
tion and driver of world commodity markets (Chapters 2 and 3). Although,
initially, Chinese integration with the global economy was largely through
trade and inward investment, since the start of the millennium, it has also
seen the international expansion of Chinese firms as a result of China’s Go
Global policy and its increased significance in international financial markets
(Chapters 4 and 5).
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0014
How China is Reshaping the Global Economy
The focus of this book has been on the implications for SSA and LAC of
China’s growth during the first two decades of the twenty-first century. Eco-
nomic globalization was a key context for the rapid growth of the Chinese
economy and its international expansion during this period. By the middle
of the second decade of the century, the future of globalization was being
called into question, and it cannot be assumed that the trends analysed here
will continue in the future. The global financial crisis raised questions about
364
Conclusion
the benefits of unfettered globalization, and political changes in the USA and
the UK, two countries that had been in the forefront of globalization in the
past, created doubt about their commitment to further globalization in the
future.1 Tensions between China and the West have increased with the US-
China trade war and the actions taken by several Western governments to
restrict the activities of Chinese companies. In 2020 the COVID-19 pandemic
and its economic consequences raised further questions over the future of
globalization with massive falls in output, trade, and financial flows.
1
Paradoxically, it was President Xi Jinping of China who was the most vocal advocate of
globalization at the World Economic Forum in Davos in 2017.
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How China is Reshaping the Global Economy
366
Conclusion
Although SSA and LAC are not direct participants in the trade war between
the USA and China, a conflict between its two trading partners is bound to
have an impact particularly in LAC, and although the USA is less significant
than Europe in SSA, the region is also likely to be affected. Although referred
to as a trade war, the conflict between the world’s two leading economies is
much broader than just one over trade. It should be seen in the context of
the rapid narrowing of the gap between the two and the challenge that this
poses to the hegemonic position of the USA. When the USA imposed tariffs
on China in 2018, it did so in response to what it saw as China’s violation
of US intellectual property rights and its requirement that US firms investing
in China transfer their technology. The war is as much about maintaining
the USA’s technological lead, as it is about protecting the US market against
‘unfair’ Chinese competition. National security has also been invoked in or-
der to justify US restrictions on Chinese investment and to limit the access
of Chinese firms to US capital markets.
As far as China is concerned, the trade war has tended to intensify the
trends that were already under way. It has underlined the importance of
reducing dependence on exports, particularly to the USA, providing an addi-
tional rationale for rebalancing towards domestic consumption. It also makes
it more important for Chinese manufacturers to develop domestic suppliers
to avoid reliance on US and other producers that might be subject to US
sanctions. Even more significantly it makes it imperative to develop Chinese
technologies and reduce reliance on advanced technology from the West.
As this book has shown, economic relations between China and SSA and LAC
have been affected to a significant extent by the changes that have taken
place within China since the late 1970s. It is important therefore to consider
the impacts of recent changes within China and likely developments in the
future on relations with the two regions. Three sets of changes are particularly
relevant: the economic changes associated with slower economic growth and
rebalancing of the Chinese economy; the political changes that have taken
place under Xi Jinping; and the impacts of COVID-19.
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2
The Fourteenth Five Year Plan aims to double China’s GDP by 2035 which implies an average
growth rate of 4.4 per cent per annum between 2020 and 2035 (Chang, 2021).
3
In the longer term, China’s efforts to promote electric vehicles may sever the link between
the number of vehicles in circulation and petroleum imports. The government has set a target
for 40 per cent of cars to be electric by 2030.
368
Conclusion
The third aspect of China’s ‘new normal’ that is likely to affect SSA and
LAC is technological upgrading, as Chinese producers move up the value
chain. This is the result partly of deliberate government policy and partly
of rising wages in coastal areas. This has meant that China is becoming
competitive in an ever-wider range of more technologically sophisticated
products. It is no longer the case that Chinese exports are predominantly
low-technology, labour-intensive products so that manufacturers of high-
technology products elsewhere are unaffected by Chinese competition. As
seen earlier, in recent years China has exported products of an increasingly
sophisticated nature, which, particularly in the more industrialized LAC
countries, has led to increased competition for local producers and exporters,
a trend that is likely to continue in future.
Some optimists believe that this movement up the value chain will cre-
ate new opportunities for SSA and LAC to enter into more labour-intensive
activities which China is vacating. It is true that rising wages in the coastal
areas of China are leading to shifting patterns of accumulation. Up to now
these shifts have mainly been to inland areas and neighbouring countries
such as Vietnam and Cambodia. Despite the claims that have been made
regarding ‘flying geese’ in Africa, as seen in Chapter 7, there is no real ev-
idence that such a shift in global manufacturing capacity is under way. In
LAC, where wages are now similar to or lower than in the East of China,
there may be some reversal of the trend of losing market shares to China in
the North American market. However, rapid productivity growth in China
and its well-established supply networks and efficient logistics are likely to
keep the bulk of production there.
Just as China’s accession to the World Trade Organization and the com-
modity boom affected different countries in the Global South differently,
the effects of the ‘new normal’ are also likely to be heterogeneous. In SSA,
mineral exporters and countries which are more heavily reliant on exports to
China are likely to be most affected by a growth slowdown in China, while
agricultural exporters and those with more diversified exports are likely to
fare better (Igbinoba and Hoaeb, 2016). Similarly, in LAC there are likely to
be considerable differences between groups of countries in terms of the im-
pact of a slowdown in growth and a reduction in China’s rate of investment.
Mineral exporters such as Chile and Peru are the most vulnerable, followed
by fuel exporters. Exporters of manufactures such as Mexico, the Dominican
Republic, and Costa Rica are least affected (OECD, 2016, Ch. 5).
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370
Conclusion
The changes that were discussed in the previous two sections could po-
tentially have significant implications for Sino-SSA and Sino-LAC relations.
Three aspects are considered here: the impact of COVID-19; the effects of the
US-China trade war; and developments as a result of the inclusion of SSA and
LAC countries within the Belt and Road Initiative.
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by the pandemic has been considerable. The region has suffered its first reces-
sion in 35 years and the World Bank predicted that in 2021 GDP per capita
would have fallen to the levels of 2008. As a result, 40 million people could
be pushed into extreme poverty (World Bank, 2020, p. 1).
In both regions, the pandemic has led to increased fiscal deficits and debt
problems. In May 2020, the World Bank and IMF launched the Debt Ser-
vice Suspension Initiative (DSSI) to help low-income countries concentrate
resources on fighting the pandemic. Although most SSA countries and some
Caribbean and Central American countries were eligible to participate, the
majority of Latin American countries were not included because they are not
classified as low income. Nonetheless, debt problems extended well beyond
those covered by the DSSI. In June 2020 China launched its own initiative
announcing that it would cancel all the interest free debts that it was owed
by African countries.
The pandemic has had a direct impact on relations between China and
both SSA and LAC. China has increased its medical support in both regions,
providing masks and other equipment to help cope with the pandemic. Do-
nations have come not only from the central government but also from
provincial authorities, private companies, and charitable organizations such
as the Jack Ma Foundation. The Chinese government has also promised to
make available the vaccines that it develops to both regions and provided
loans to countries to purchase them.4
These initiatives have been described as ‘mask diplomacy’ and ‘vaccine
diplomacy’. They no doubt contribute to a positive image of China and to
an increase in its ‘soft power’. On the other hand, the image of China in SSA
was damaged by the eviction and mistreatment of Africans in Guangzhou
in April 2020 as part of the COVID-19 lockdown in the city (Li, 2020). The
Chinese government made major efforts to defuse such hostility and present
itself as an ally in Africa’s efforts to mitigate the effects of the pandemic.
High profile deliveries of personal protection equipment, other medical
equipment and vaccines from China, even when these are not donations or
not provided by the Chinese government, help project a positive image of
China in both SSA and LAC. The success of China in bringing the virus under
control at home, particularly when compared to the chaotic response of the
Trump administration in the USA, also contributes to a more favourable view
of China.
As SSA and LAC recover from the impacts of the pandemic, relations with
China are likely to continue to grow. As China overtakes the USA as the
world’s largest economy, the importance of the Chinese market for LAC
4
For more details on the role of China in relation to the pandemic in the two regions,
see Sanborn (2020) and Esteve and Van Staden (2020).
372
Conclusion
and SSA exports will grow and it will supply a wider range of goods to
the two regions. The need to attract capital will also increase creating more
opportunities for Chinese investors and banks.
13.4.3 The Extension of the Belt and Road Initiative to SSA and LAC
When it was launched in 2013, the BRI did not extend to LAC and only
included Kenya, Ethiopia and Djibouti in SSA as part of the Maritime Silk
373
How China is Reshaping the Global Economy
Road. Indeed, there was concern that the initiative would divert China’s at-
tention away from Africa (Stevens, 2017) and LAC. However this changed
with the expansion of the scope of the BRI. The 2018 FOCAC meeting in
Johannesburg emphasized the need to link the BRI to Africa’s economic in-
tegration and sustainable development agendas and President Xi Jinping’s
visits to Rwanda and Senegal in the same year saw those countries sign BRI
MOUs with China. By the end of 2021, 42 SSA countries were included in
the BRI.
LAC was even more marginal to the BRI, as first conceived, than SSA. No
countries in the region were included in the original list of participants and
China’s second Policy Paper on Latin America issued in 2016 did not refer to
it (PRC, 2016). However in May 2017 in a meeting with Argentina’s President
Macri at the Belt and Road Forum in Beijing, Chinese President Xi Jinping
described Latin America as a ‘natural extension of the 21st Century Mar-
itime Silk Road’. In January 2018 at the China-CELAC Forum in Santiago,
the Chinese Minister of Foreign Affairs invited Latin American countries to
participate in the BRI and the participants signed a ‘Special Declaration on
the Belt and Road Initiative’. At the latest count, 20 LAC countries had signed
BRI MOUs with China.
The extension of the BRI to SSA and LAC raised considerable expectations
regarding the impact that this would have on the two regions in terms of
trade, investment and particularly infrastructure development. So far, how-
ever, the impact has been limited. It is possible that once the pandemic
has passed, there will be significant effects, but in the short period between
the extension of the BRI to SSA and LAC, and the COVID-19 outbreak in
early 2020, it was not possible to observe any major transformations. One
consequence has been to rebrand a number of projects that were already
under way, as part of the BRI. Several commentators have described the
BRI as ‘New wine in old bottles’ (Ferchen, 2021) or ‘Old wine in new bot-
tles’ (Chen, 2020). The fact that the BRI now covers so many countries
suggests that participation will not provide countries with a specific advan-
tage in terms of relations with China.5 It is still too early to tell whether
the BRI will significantly alter the economic relations between China and
SSA and LAC, but there are grounds for caution. The growth of Chinese
trade, investment and lending to the two regions in the future is likely to
depend more on the recovery of the Chinese economy and its increased
significance as a driver of global growth, than on participation in the BRI
per se.
5
In this context it is noteworthy that at the time of writing, three of the largest Latin American
countries—Brazil, Mexico, and Colombia—had not signed BRI MOUs with China.
374
Conclusion
As long as China avoids a major economic crisis and continues to grow and
expand its share of global economic activity, its impact on SSA and LAC will
continue to increase despite the changes in its domestic and international
economic strategies discussed in the previous sections. Does this mean that
the problems facing the two regions that have been identified in this book
will intensify in future or are there indications that they can be resolved?
Some of the economic asymmetries that have been discussed are an in-
evitable consequence of the size of the Chinese economy. It will remain the
case that China is more important economically to SSA and LAC than the
countries of the two regions are to China. This asymmetry is also the case
when taking each region as a whole, so that even if African or Latin Amer-
ican countries were to present a common regional stance vis-a-vis China
they would still be in an unequal position. Despite the existence of regional
fora for discussions with China (the Forum on China–Africa Cooperation
(FOCAC), and the Community of Latin American and Caribbean States
(CELAC)-China Forum), regional cooperation is very limited and China’s
relations with the countries of both regions remain primarily bilateral.
Other economic asymmetries could potentially be changed either by gov-
ernment policies or by market-driven changes in economic relations. These
include the centre-periphery characteristics of trade with China, the con-
centration of exports to China in a very small number of products, and the
negative impacts on industrialization. These problems have gained increas-
ing recognition on the Chinese side as well as amongst critics in SSA, LAC,
and the West. The first part of the section of China’s second policy paper on
Africa that deals with economic and trade cooperation is titled ‘Helping boost
Africa’s industrialization’ (PRC, 2015, Part III.3(1)). Particular reference was
made to Chinese support for the development of special economic zones,
industrial parks, and science and technology parks, and the transfer of in-
dustries and technologies.6 This is in sharp contrast to the first policy paper
on Africa in 2006, which makes no mention of supporting industrialization
in the region (PRC, 2006).
The 2015 policy paper also states that China will encourage the diversifica-
tion of African exports to Chinese markets and continue granting duty-free
entry for most products from the least-developed countries with which it
has diplomatic relations. It also envisages support for African countries to
6
This is also mentioned in the section on infrastructure development, Part III.3 (3) of PRC
(2015).
375
How China is Reshaping the Global Economy
‘increase the added value of their primary products, create more jobs, [and]
generate more foreign-exchange income’ (PRC, 2015).
Although support for industrialization did not receive such prominence in
the 2016 policy paper on LAC, investment in specific industries, including
autos, new energy equipment, motorcycles, and chemicals, and upgrading
the level of industrialization in the region were specifically mentioned (PRC,
2016); the paper also mentioned the downstream expansion of cooperation
in energy and resources to improve the amount of value added locally. Chi-
nese commentators have also emphasized the need to diversify LAC’s exports
to China and to expand Chinese investment in manufacturing to support the
upgrading of the region’s industrial structure (Su, 2017: Zhang, 2017)
Whether or not such statements are reflected in major changes on the
ground remains to be seen. As was argued in Chapter 7, there are grounds for
scepticism concerning the expectation that there will be a significant transfer
of industrial capacity from China to SSA. It is also the case that duty-free
access to the Chinese market has not led to any notable diversification in
SSA exports. In LAC, too, countries which have signed free trade agreements
with China have not realized the increased diversification of exports that
they had hoped for. There may be some increase in raw-material processing
in SSA or LAC, particularly where this involves highly polluting activities
which are subject to increased environmental regulation in China, although
the excess capacity in China in industries such as steel and aluminium will
tend to discourage investment in downstream production in the countries
that supply the raw materials.
Overall, despite the good intentions expressed in official Chinese state-
ments, the nature of economic relations between China and SSA and China
and LAC are unlikely to change radically in the near future. They reflect
the way in which China and the two regions are integrated into the global
economy. They may change at the margins as incomes rise in China and
as demand, particularly for agricultural products, increases, but exports to
China are likely to remain largely of primary products. There are signs that
Chinese foreign direct investment (FDI) is diversifying somewhat away from
a concentration on natural resources, but this is mainly an extension of
China’s export strategy where it becomes profitable to set up local assembly
operations as the market expands.
There may be grounds for more optimism in the case of some of the nega-
tive social and environmental impacts associated with the growing presence
of China: China itself is changing, and environmental concerns particularly
are becoming more prominent. While initially, at least, this is leading to
changes at home, in the future, such concerns may extend to greater aware-
ness of the environmental impacts of production abroad and of the impacts
of FDI by Chinese firms. This could lead to more demand for environmental
376
Conclusion
certification for products sold in China. Also, as Chinese firms become more
globalized, their practices in terms of corporate social and environmen-
tal responsibility will come under more scrutiny, and this could lead to a
narrowing of the gap between them and the standards adopted by compa-
nies from the North. China is also likely to be an important player in the
development of renewable energy in both SSA and LAC in the future, thus
contributing to the reduction of global carbon emissions.
Perhaps the most significant change for SSA and LAC that is likely to come
about in the future is due to China’s rise is in terms of global governance.
China’s presentation of itself as a developing country has meant that it has
articulated demands for greater representation by developing countries in
global institutions such as the International Monetary Fund and the United
Nations. This could lead to changes in the global rules of the game that allow
more policy space for developing countries to pursue alternative economic
strategies which are more developmentally oriented than those of the recent
past.
377
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FAOStat. Food and Agriculture Organization of the United Nations, Food and
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NBS. National Bureau of Statistics of China, National Data. Available from: http://
data.stats.gov.cn/english/
WITS. World Bank, World Integrated Trade Solution. Available from https://wits.
worldbank.org/
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Zhang, D. and Smith, G., 2017. China’s foreign aid system: Structure, agencies, and
identities. Third World Quarterly, 38 (10), 2330–46.
433
References
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Index
ADM 56, 68, 224, 289, 335 ‘flying geese’ pattern of relocation 2, 49,
African Growth Opportunities Act (AGOA) 172–3
(2000) 88, 169–70 integration into production network 50
agency in relations with China Asian Financial Crisis (1997) 22, 37
of Latin America and the Caribbean 360 Asian Infrastructure Investment Bank
of Sub-Saharan African 144, 147, 190 (AIIB) 95, 102–3
Agricultural Bank of China 21, 101 asymmetry, economic 375
agricultural commodities Australia 49, 67
China’s demand for 55, 57–8, 60–3 authoritarian regimes 205–7
and strategy for resource security 68–9
supply conditions 55
banking reform 21
Agricultural Development Bank 21
Bank of China 21, 100–1
agriculture, initial reforms in 14
beef, China’s demand for 58
aid
Beijing, air pollution 29
architecture of Chinese 105–6
Beijing Consensus 111, 135, 214
China as a donor of 101–6
Belt and Road Initiative (BRI) 10, 16, 20, 83,
China as recipient of 101–2
166, 246, 277, 370, 373–4
Chinese projects linked to 79–81
bilateral investment treaties 20
as driver of overseas investment 110–12
Bolivia 66, 244, 252, 273, 315, 331–3, 335,
to Latin America 248, 269
358
scale of Chinese 103–4
Brazil
to Sub-Saharan Africa 125–9, 134–5, 147
and Dutch disease 274
AidData 126–8, 152, 182
economic impacts on 288–93
AIIB see Asian Infrastructure Investment Bank
as iron ore exporter 67
(AIIB)
and political impacts of China’s economic
aluminium products, and industrialization
activities 320–3
strategies 70
as soybean exporter 68
American Enterprise Institute/Heritage
British Virgin Islands 77, 240, 242
Foundation 122–4
Bunge 56, 68, 224, 251, 257, 289, 335
Angola
Burkina Faso 136, 158, 348, 353
Angolan Model 66, 129
business, three tiers of 25
economic impacts on 175–9
economic relations with 144–6, 154
exports to China 157 CADFund see China-Africa Development Fund
infrastructure investment in 176–7 (CADFund)
and ‘loans-for-oil deals’ 66 Cameroon 158, 167, 222–3, 225
loans to 127–9, 177–9 capital flows see also aid; loans; portfolio
oil exports 175–6 investment
and oil supply 138–40 maintenance of controls on 22
Apple iPhone 43 relaxation of controls on 23, 95–6
Argentina 67–8, 257, 332, 333–4, 338 capitalist accumulation 1–2
Asia carbon emissions 1, 30, 217, 329, 377
as destination of Chinese overseas Cargill 56, 68, 224, 248, 251, 257,
projects 80 289, 335
Index
CARI see China Africa Research Initiative China National Petroleum Company
(CARI) (CNPC) 65, 76–8, 85, 93, 132, 142,
cassava value chain 70 218–19, 249, 314, 324
Catalogue Guiding Foreign Investment in China Non-Ferrous Metals Mining Group
Industry, The 18–19 (CNMC) 142, 156–7, 187, 198–9, 219
Cayman Islands 77, 240, 242 China Ocean Shipping Company 76
CCPIT see China Council for the Promotion of China Petrochemical Corporation (Sinopec)
International Trade (CCPIT) see Sinopec (China Petrochemical
CDB see China Development Bank (CDB) Corporation)
central planning system 14–15, 27, 30–1 China Power Investment 132
China Railway Construction 132, 163
Chavez, Hugo 262, 269, 324–7
China Railway Engineering Corporation
child labour, in Sub-Saharan Africa 197
(CREC) 130, 173–4, 259
Chile
China Railway Group 78, 181–2
CODELCO 67 China State Construction Engineering
and commodities exports boom 274 Corporation 81
economic impacts on 287–8, 298–301 Chinese Communist Party 14–16, 24, 26, 137,
FTA with China 280–1 258, 370
China-Africa Development Fund Chinese Yuan 103
(CADFund) 97, 134, 140–1 CIC see China Investment Corporation (CIC)
China Africa Research Initiative (CARI) 126–9, Cleaner Production Promotion Law (2002) 32
152 clothing and footwear
China Bank Regulatory Commission 22 and Chinese manufacturing 36, 44, 51–2
China-CELAC (Community of Latin American in Latin America 277, 279, 281–3, 290, 296,
and Caribbean States) Forum 246, 277, 305, 308
285–6, 374 overseas markets 88
China Communications Construction relocation to China 49, 51
Group 80, 163, 181, 250–1 in Sub-Saharan Africa 120–1, 158–9, 169,
China Construction Bank 21, 101, 133, 175 181, 183–4, 186–7, 201–2, 358
China Council for International Cooperation CNOOC see China National Offshore Oil
on Environment and Development Corporation (CNOOC)
(CCICED) 220–1 CNPC see China National Petroleum Company
China Council for the Promotion of (CNPC)
International Trade (CCPIT) 87–91 coal
China Development Bank (CDB) China’s demand for 58
and Belt and Road Initiative 20–1 as energy 30–3
environmental impacts of 62–3
in Sub-Saharan Africa 97, 127, 133, 153,
overseas projects 87
162–3, 220
working conditions 195–6
support for expansion abroad 20–1, 99–100,
Colombia 277–82, 305
108
colonialism
China Export and Credit Insurance
comparisons with 3–4
Corporation (SINOSURE) 20
and processing of products 71
China Fishery Group 68
commercial banks
China Global Investment Tracker 87, 122–6, creation of 21
241–5, 350 as drivers of overseas investment 109
China International Trust and Investment and foreign lending 22–3, 99–101
Corporation 82, 326 greater independence of 21, 109, 113
China Investment Corporation (CIC) 22–3, joint-stock (JSCBs) 21
96, 98, 104, 107–8 and One Belt and Road Initiative 21
Chinalco 67, 312, 315, 330 in Sub-Saharan Africa 133–4
China National Cereals, Oils and Foodstuffs commercial objectives
Corporation (COFCO) 68, 335 of Chinese firms 84–91
China National Machinery Industrial and Chinese interests in Latin
Corporation 81 America 257–61
China National Offshore Oil Corporation and Chinese interests in Sub-Saharan
(CNOOC) 65, 76–8, 85, 132, 249 Africa 135, 141–4
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discontent, urban 14–15 Eight Principles for Economic Aid and Tech-
diversification nical Assistance to Other Countries 102,
of energy supplies 65 110–11
of metal supplies 67 embassies, and aid programmes 105–6
strategy for resource security 64 employment see also labour market
domestic financial market, and capital and casualization of workers 196–7
controls 22 and child labour 198
domestic market of locals 172, 192–3, 359
comparative perspective on China’s numbers in Latin America 278, 295, 305–11
involvement 358 numbers in Sub-Saharan Africa 202–3
and economies of scale and scope 40 reduction in 187–8, 305–6
expansion of 15–16 in Sub-Saharan Africa 192–3
in manufacturing in Latin America 278–83 and unemployment 188
opened up to foreign investment 18–19 as worst in Sub-Saharan Africa 198–202
reduction in protection 18 energy commodities
Dominican Republic 253, 330, 348 China’s demand for 55, 58, 60
Dominican Republic-Central America Free and commodity markets 55
Trade Agreement (DR-CAFTA) 240, 283, main recipient of lending 128
352, 357 renewable see renewable energy
Dongguan (Guangdong) 40 and strategy for resource security 65–6
DRC see Democratic Republic of Congo supply of 55
dual exchange rate 22 energy use, and economic
‘dual-track system’ 14–15, 17–18 transformation 30–2
Dutch Disease 159–60, 178, 274 enterprise reform, and state-owned
enterprises 23–6
environmental activism 32
econometric model environmental impacts
Caribbean 263–8, 340–1 and Chinese firms 218–21
China in Latin America and the and commercial objectives in Sub-Saharan
China in Sub-Saharan Africa 148–53, Africa 143–4
228–31 comparative perspective on China’s
economic impacts, comparative perspective involvement 361
on China’s involvement 356–8 domestic concerns 70
economic objectives see strategic economic of economic activities in Latin
objectives America 304–5, 328–38
economic policy, major changes in 14 of economic activities in Sub-Saharan
economic reform Africa 216–28
and the financial sector 21–2 of economic growth 15–16
and global economy 17–21 and economic transformation 29–33
and growth 363–4 lack of concern 71–2
impact of 2 in Sub-Saharan Africa 216–28
and the labour market 27 and trade in Sub-Saharan Africa 217–18
and manufacturing 35–6 environmental policies, and economic
Economic Trade and Development Zones transformation 31–2
(ETDZs) 17–19 Environmental Protection Law (2015) 33
economic transformation 13–16, 33 Environmental Protection Law of the People’s
financial sector 21–3 Republic of China (1979) 31
growing integration with global Eswatini see Swaziland
economy 17–21 Ethiopia
inside out view 1–2 development of manufacturing 182–3
labour, wages and productivity 26–9 economic impacts on 174, 183–4
natural resources, energy and the economic relations with 154
environment 29–33 infrastructure investment 181–2
outside in view 1–2 loans to 181–2
SOEs and enterprise reform 23–6 trade relations with China 180–1
Ecuador 66, 246–8, 251–2, 254, 259, 261–3, Eurozone crisis 95
269, 276, 312–13, 318–19, 330–1 exchange rates 22, 40–1
438
Index
Galanz 93
feedstuffs, China’s demand for 57–8, 61–2, 68 The Gambia 136, 154
finance see global finance garment industry see also clothing and
financial account 22 footwear
financial sector 15, 21–3, 124 and competition from China 283–4
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