The Rapidly Emerging Africa-China Trade and Investment Ties:
Sources of Legitimacy
Nir Kshetri, Bryan School of Business and Economics, The University of North Carolina-Greensboro
Corresponding address
Nir Kshetri
Bryan School of Business and Economics
The University of North Carolina at Greensboro
P. O. Box 26165
Greensboro, NC 27402-6165.
Tel: 1- 336-334-4530
Fax: 1- 336-334-4141
Email: nbkshetr@uncg.edu
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The Rapidly Emerging Africa-China Trade and Investment Ties:
Sources of Legitimacy
Abstract
The intra-developing world trade (also known as: South-South trade) is rising rapidly. In
particular, strengthening economic and business ties between Africa and China have
attracted policy makers’ attention worldwide. In this paper, we examine how Chinese
firms have won and maintained political, social and economic legitimacy in Africa and
give an overview of the main sources of legitimacy in the Africa-China business ties.
First, we examine the strategic fit of China-originated resources from the standpoint of
consumers, businesses and key decision makers in Africa. Then, we employ institutional
theory as a lens to provide insights into how China fits in the macro-level rules of games
in the continent.
The South-South Trade and Africa-China Business Ties
The intra-developing world trade (also known as: South-South trade) is rising rapidly.
One estimate suggests that over 40 percent of developing countries' exports go to other
developing countries, and trade among them is increasing at the rate of 11 percent a
year1. For instance, 13 percent of African exports go to Asian economies, mainly
developing ones2.
Many developing countries are welcoming of the Chinese as their trading
partner3. The developing world is thus fast becoming a strategic source for China’s raw
materials and natural resources needed for its industrial development as well as an
attractive market for its manufacturing and technology products. Nowhere is it more
evident than in the Africa- China trade. During 1995-2004, while China’s imports grew
by 17 percent a year (exports grew by 15 percent), imports from sub-Saharan Africa rose
by 30 percent a year4.
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The rapidly rising Africa-China trade remains strategically important to many
global players. China is the world's largest user and/or importer of copper, iron ore,
natural rubber, tropical sawn wood, pulp, paper and soybeans5. In 2003, China surpassed
Japan to become the world's second-largest oil consumer, after the U.S. According to the
U.S. Energy Information Administration, China accounted for 40 percent of total growth
in global demand for oil during 2001-20056. China became a net importer of petroleum
products since 1993 and of crude oil since 1996. The country relies on overseas
producers for one-third of its supplies and the proportion is expected to reach 60 percent
by 20207.
Africa, on the other hand, is considered to be the most mineral rich continent in
the world8. One estimate suggests that about two thirds of the world’s cobalt is mined in
central Africa9. The continent holds 8 percent of the world's crude oil reserves and
provides about 10 percent of the global production10. The U.S. imports 15 percent of its
oil from Africa and the proportion is expected to reach 25 percent by 201511. Nigeria,
Africa's biggest oil exporter and the world’s 11th largest producer with a capacity of 2.5
million barrels per day12, is fifth-largest oil supplier of the U.S.13. A low sulphur content
of West Africa's oil makes it easier and cheaper to refine14. Africa is not a only strategic
source of raw materials but is also becoming an attractive market thanks mainly to its fast
economic growth. The continent's economy grew by 4.8 percent in 2005.
Preliminary evidence indicates that multinationals based in developing countries
are familiar with business terrains of other developing countries. Also because of
economic, cultural and political proximity, third-world multinationals tend to do better in
developing countries than in the developed world15. With regard to China’s involvement
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in the developing world, experts say that China’s current technology, know-how and
capabilities are more effective to compete in developing countries like those of Africa
compared industrialized countries16. Nonetheless, most published studies have focused on
trade and foreign direct investment (FDI) by Western and Japanese companies. These
traditional theories have limited applicability in explaining trade and investment
originated from developing countries in general and the South-South trade and
investment in particular17. We thus know very little about the exact nature of mechanisms
involved in the South-South trade and investment. What resources do developing
country-based firms possess to succeed in other developing countries? What are the
sources of legitimacy in the rapidly rising South-South trade? In particular, why are
African economies gravitating towards China?
To address these issues, we draw upon several works in economics, sociology,
anthropology and management to understand factors driving the Africa-China trade. The
remainder of the paper is structured as follows. We first briefly review the Africa-China
trade and investment. Next, we examine the strategic fit of China-originated resources to
African consumers, businesses and other key decision makers. Then, we employ
institutional theory as a lens to provide insights into how China fits in the macro-level
rules of games in Africa. Finally, we provide implications of rapidly rising Africa-China
trade and investment.
The Africa-China Trade and Investment Ties: A Brief Survey
The Africa-China trade grew by 700 percent during the 1990s18. During 1999-2005, trade
between the two economies rose from US$2 billion19 to US$40 billion20 (Table 1).
Nonetheless, China’s trade with Africa represents only a small proportion of its total
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trade. In 2005, Africa accounted for only 2.8 percent of China’s total foreign trade21. As
of 2005, China was Africa's third biggest trading partner, behind the U.S. and France.
China's overall trade with the region is growing at a faster rate than that of the U.S. China
is thus soon expected to be Africa’s biggest trading partner. China’s exports to Africa
began to exceed U.S. exports in 200322. Beijing has set a target of increasing its trade
with Africa to US$100 billion by 201023.
For some African economies, however, China is already the largest trading
partner and foreign investor. For instance, China is Sudan's biggest foreign investor and
accounts for 67 percent of the country’s exports24. In terms of contracted projects and
labor services, Sudan was China’s number five partner in 2002 after Hong Kong,
Singapore, Japan, and the U.S.25 South Africa, Sudan, Nigeria, Angola, and the Republic
of Congo are China’s major trading partners in Africa26.
By 2005, about 750 Chinese companies were operating in 49 African countries in
a range of industry sectors27 such as energy and extractive, mines, fishing, precious
woods and telecommunications. China has trade ties with all 53 African countries and
diplomatic relations with 47. China has signed investment protection agreements with 28
African countries, agreements on eliminating double taxation with eight28 and established
economic and trade mixed committee mechanisms with 3529.
China’s investment in Africa is also rising exponentially. Between 1990 and
1997, Chinese investment into Africa averaged US$20 million per year which increased
to US$120 million per year during 1998-2002. As of 2005, China's cumulative foreign
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direct investment in Africa reached US$1.25 billion30. China’s investment in Africa range
from massive state-funded projects to small private ventures31.
About 75 percent of Africa's exports to China are primary commodities32. They
include natural resources, primary goods and raw materials such as crude oil, natural gas,
precious and base metals, platinum, cotton, diamond, copper, tropical timber, iron ore and
agricultural products such as cocoa, coffee and tea.
Most Chinese multinationals active in Africa have resource-seeking as a
motivation. This can be attributed to China's industrial revolution and rapidly rising
domestic demand33. One estimate suggests that China sources 15-20 percent of its energy
requirement and 30 percent of hydrocarbon requirements to Africa. In 2005, China spent
about US$10 billion to import oil from Africa, which is twice as much as it imported
from Saudi Arabia, traditionally one of Beijing's biggest suppliers34. About one-third of
China’s oil imports currently come from Africa and China hopes to increase the
proportion in future.35 Angola accounts for 14 percent of Chinese oil imports36 and Sudan
accounts for about 7 percent. In 2004, 25 percent of oil imported by Beijing came from
Sudan, Chad, Libya, Algeria, Equatorial Guinea, Gabon and Angola. China imports a
quarter of Angola’s oil, Sudan’s 60 percent37.
In over a dozen African countries, Chinese firms have invested in oil and gas38.
Recently, China has signed new oil deals and expanded existing deals with Angola,
Algeria, Chad, Equatorial Guinea, Gabon, Nigeria and Sudan. China is involved in joint
ventures in Nigeria, Sudan and other economies in the region to develop oil fields, and
build a pipeline and refinery39. PetroChina signed its first significant oil deal in Nigeria in
summer 2005 and secured 30,000 barrels a day for the next five years. China's financed
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two power stations in return40. In the early 2006, China's offshore oil producer CNOOC
agreed to pay US$2.3 billion to acquire a Nigerian oil and gas field, the company’s
largest overseas investment.
Chinese firms are involved in Africa in consumer goods as well as capital goods,
infrastructure development and military equipment. About half of China’s exports to
Africa are high value added products such as machinery, electronic and high- technology
products. In 2005, machinery and electronic products accounted for 39-44 percent and
high-tech products10 percent41. These proportions are growing relatively fast42. Textile
products account for 16-19 percent. In recent years, Chinese auto makers are also
targeting low-end markets in Africa.
African countries appear to embrace Chinese technology and know-how
enthusiastically. Africans have adopted Chinese technologies in a range of industries
from agriculture to advanced telecommunications and satellite. With regard to
agricultural technology and know-how, China's African Policy states: “China will
intensify cooperation in agricultural technology, organize training programs, carry out
experimental and demonstrative agricultural technology projects in Africa and speed up
the formulation of China-Africa Agricultural Cooperation Program”43. An 11-member
Chinese delegation visited Zambia in March 2006 to further cooperation in the
agricultural sector. Zambia’s Minister of Agriculture said that China can help the African
economy build canals, dams and other irrigation projects with advanced Chinese
technologies. He also requested the Chinese to provide guidance in establishing farmer
training centers.
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Next, consider the technology industry. Chinese telecom equipment vendors
Huawei Technologies and ZTE, the Chinese white-goods manufacturer, Haier, and
handsets and electronics goods manufacturer TCL already have significant operations in
Africa. Similarly, Lenovo, the world’s third-biggest maker of computers behind Dell and
Hewlett-Packard, is active in South Africa. According to the Kenyan news paper Kenya
Press Club, Lenovo Group is looking to penetrate the laptop market in East Africa. TDSCDMA, China’s national third generation (3G) cellular standard, is planned for launch
in the late-2006 and analysts believe that it is likely to be adopted widely in Africa thanks
mainly to its potentially lower cost compared to competing standards44.
An illustrative example makes Chinese firms’ pervasiveness in Africa clearer.
Consider Huawei. The company has over 30 branch offices in Africa, and has deployed
products in 39 countries in the continent. In November 2004, the company won contracts
worth US$400 million to build mobile-phone networks in Kenya, Zimbabwe and
Nigeria45. Huawei is providing telecom equipment of all technological standards as well
as all levels of sophistication to African telecom companies. For instance, in 2005,
Huawei and Nigeria's Ministry of Communications signed a US$200 million agreement
to deploy a nation-wide CDMA450, a low-cost wireless standard. Similarly, the company
constructed the first African third generation (3G) commercial cellular network launched
by Mauritius’ EMTEL in October 2004. Africa accounted for about 22 percent of
Huwaei’s international revenue in 2004.
A communication satellite project with the Nigerian government is probably
China’s highest profile technology project in Africa. Beijing is expected to put a Chinesemade communication satellite into orbit for Nigeria by 2007. The Nigerian
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Communication Satellite package includes satellite, launch vehicle and launch service,
which passed preliminary design review in Beijing on July 1, 200546.
Next, consider China’s involvement in mining. In Zambia, China invested
US$170 million in 1999 to buy the Chambezi copper mine, which has become one of the
biggest Chinese mining operations in the continent47. It has also invested on copper and
cobalt mines in the Democratic Republic of Congo (DRC), diamonds in Sierra Leone,
and timber in Mozambique, Gabon, and Equatorial Guinea48.
During January-October 2005, Chinese won US $6.34 billion dollar-worth of
contracts in construction projects in the continent49 in hotel, road, electrical grids and
other public works (Quinn 2005). Chinese companies’ notable construction projects in
Africa include railways in Nigeria, roads in Rwanda50 and Kenya, the continent's biggest
dam in Ethiopia 51, government buildings in Gabon's capital, an airport terminal in
Algeria52, and a new ministry of foreign affairs and a convention centre in Rwanda's
capital53 and electrical power projects in Sudan54. In some economies such as Democratic
Republic of Congo and Sudan road infrastructures are also built to facilitate exports.
While most Western multinationals focus on low value added activities such as
production and export in Africa, some Chinese firms have also invested in high value
added R&D projects. For instance, Huawei has pledged to invest US$20 million in an
R&D center in the Nigeria. The company also has two local training centers in Nigeria
and Egypt and one under construction in Kenya.
By October 2005, 78,000 Chinese workers were staying in Africa for contracted
projects. In Sudan alone, more than 10,000 Chinese worked55. According to a Pentagon
study, the Chinese Army has also sent troops to protect its energy investments in Sudan56.
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China-Originated Resources’ Fit in the African Context: A
Resource Based View
The resource based theory provides a conceptual framework to assess the strategic fit of
China-originated resources in the African context. Originally proposed by Birger
Wernerfelt57 and later developed and refined by Jay B. Barney58 and other scholars, the
resource-based view of the firm has found considerable support in the business literature.
A major premise of the resource-based theory59 is that competitive advantage originates
at the firm (rather than industry) level and is a function of the resources and capabilities
of the firm60. Barney61 has listed four attributes of resources that can give rise to a firm’s
competitive advantage: value, rarity, imperfect imitability, and no substitutability62. In
this section, we mainly focus on the first dimension—value.
Valuable resources help a firm exploit opportunities and/or avoid threats in the
environment63 and enable it to develop and/or implement strategies to improve its
efficiency and effectiveness64. When we discuss the value of a resource, it is important to
ask, “valuable to whom”? As it will become clear shortly, value in the African context
should be assessed from the prospective of individual and industrial consumers and
governments.
First, consider the value of Chinese firms’ offerings to African consumers. Low
cost is Chinese products’ special virtue. China’s cheap labor and a giant pool of low-cost
engineers allow Chinese firms to lower production costs. Chinese companies have won
contracts in developing countries mainly by undercutting other multinationals’ and local
rivals' prices in a range of industries such as construction, telecommunications, textiles
and retail. For instance, Chinese manufacturers produce handsets at 15-30 percent
cheaper than the global benchmarks. Similarly, the Chinese equipment vendor, ZTE’s
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winning bids in an Indian tender in the early 2005 was about one-half of Motorola’s and
one-fifth of Ericsson’s. Likewise, Telecom Kenya reduced per fixed-line cost from
US$200 to US$70 by importing digital switching equipment manufactured in China65.
According to an Angolan parliament member, a 50 kilogram bag cement made in Angola
costs US$ 10, while China's imported cement costs US$ 4 and Chinese companies' cost
per square meter of construction is a quarter of that of European companies66.
Yet Chinese firms do not compete on cost alone. Thanks to their accelerated pace
of technological and scientific advances, Chinese companies have developed strong
prowess to compete globally in some technology sectors. These include nanotechnology,
open source software, cloning technology and cellular telecommunications. Chinese
technology firms are also developing technologies that fulfill needs specific to
developing countries. To take one example, researchers at China's Tsinghua University
are testing a nanotech bone scaffold in patients. Experts say that this application of
nanotechnology is especially relevant for developing countries, where the number of
skeletal injuries resulting from road traffic accidents is high67. In this context, it is
important to note that, in the number of nanotechnology patent applications, China
currently ranks third in the world-- only behind the U.S. and Japan.
Poor brand is among Chinese players’ major weaknesses thanks to a deep-rooted
perception of China as a technologically backward country. Nonetheless, compared to
developed countries, strong brand name has a relatively low degree of economic
legitimacy in the context of developing countries. Moreover, Chinese firms have
gradually built their brand images. For instance, Chinese technology firms such as
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Huawei and ZTE are perceived as cutting-edge high-tech companies among African
consumers and business.
Another source of value is related to extremely generous credit or other
arrangements such as soft loan support to potential contracts in Africa. For instance, in
April 2005, China Development Bank provided Nigeria with a loan of US$200 million to
deploy a nation-wide CDMA450 wireless access technology to be built by Huawei.
Still another source of value concerns appropriateness of Chinese technologies in
the African context. Compared to Western technologies, which are too advanced, Chinese
technologies are arguably more suited to African needs68. Moreover, while most Chinese
technologies may not be sophisticated, Chinese are more willing than Western firms to
share technologies and know-how and transfer them to local firms69. In the early April
2006, the Nigerian Minister of Science and Technology said that most of the 50,000
graduate engineers in the country are unemployable and requested China to train them on
Chinese technologies.
What we just discussed indicated that Chinese companies with the economic
legitimacy have increased their power in Africa. With respect to international trade with
mixed economies like those of Africa, what matters in foreign firms’ performance is not
simply how much value these firms deliver to local consumers but how key decision
makers perceive the value of their offerings and what degree of legitimacy they gain from
these powerful actors. Beijing has been very resourceful to African governments,
especially to the authoritarian regimes. China's “policy of non-interference” and no
strings-attached loans and investments are highly attractive to these governments. On the
contrary, Western governments and international agencies tend to tie trade and aid to
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human rights, democracy and fight against corruption. To take one example, when the
International Monetary Fund (IMF) announced that it had suspended aid to Angola
because of the Angolan Government's failure to manage oil money, China came to
rescue. In March 2004, China's state-owned Eximbank provided a US$2 billion soft loan
to Angola, in exchange for oil. IMF criticized the loan for the lack of transparency.
Next, consider Zimbabwe. On a July 2005 visit to Beijing, President Mugabe was
given an honorary professorship at the China Foreign Affaire University for his
“remarkable contribution in the work of diplomacy and international relations”.70 While
the West has imposed sanctions and arms embargo on Robert Mugabe’s government,
China delivered 12 fighter jets and 100 trucks to Zimbabwe’s army in 2004. Air
Zimbabwe has also received three Chinese MA-60 aircraft71. Beijing has also given
phone-tapping, radio-jamming and Internet-monitoring equipment to Harare. A radio
jamming device located at a military base outside Zimbabwe’s capital prevented
independent radio stations from broadcasting during the election campaign in 2004. The
shortwave station, SW Radio Africa, a Britain-based independent radio station which
employs Zimbabwean journalists living in exile, experienced jamming problems in 2004.
VOP, a shortwave station broadcast from Madagascar, experienced similar problems.
BBC reported that Chinese intelligence officers visited Harare in 2005 to give further
training in telecommunications and radio communications to Zimbabwean technicians.
Up to this point, we have concentrated on values delivered by Chinese firms and
Chinese government to African consumers, businesses and key decision makers. Chinese
resources discussed above also have other characteristics needed to give rise to
competitive advantage. Chinese resources are characterized by rarity, imperfect
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imitability and lack of substitutability, which can be attributed to organizational routines,
systems, and cultures of Chinese firms and the government72. For instance, many Chinese
companies operating in Africa are government-owned and less concerned with near-term
profits73. To take one example, to strengthen its ties with the Nigerian government, China
bade to buy one of Nigeria's old oil refineries, which was sure to make a loss74. Chinese
companies also receive direct and indirect benefits from the state. These include
subsidized loans and tax rebates, which allow them to make business decisions that
purely private companies cannot 75.
Western firms also have much higher production costs compared to Chinese
firms. For instance, in 2002, the UK based company Anglo American pulled out of
Konkola Copper Mines in Zambia. Anglo American argued that the relatively high
production costs made Konkola a difficult proposition76. Chinese firms can lower
production costs thanks mainly to much lower overhead costs compared to Western
firms.
Lastly, while political, legal and corporate social responsibility pressure from
consumers in their home countries have forced some Western companies to withdraw
from some African countries, Chinese firms do not face such pressures. In Sudan, for
instance, Western companies, mainly those from the U.S. and Canada, were pressured to
withdraw because of Sudan’s civil war and charges of the use of slavery77. For instance,
bad publicity forced Talisman, a Canadian oil firm, to withdraw from Sudan78. Chinese
firms moved into the country after Western investors left.
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The Africa-China Business Ties: An Institutional Perspective
What we just discussed indicates that African consumers and businesses have conferred
economic legitimacy on Chinese firms. In addition, China’s offerings are also valuable to
African policy makers. Valuable offerings and economic legitimacy are necessary but not
sufficient to succeed in international markets. It is critical to win social and political
legitimacy as well. An important question thus is: How are Chinese firms obtaining
legitimacy from African institutions?
An economic system can be considered as a “coordinated set of formal and
informal institutions”79 influencing economic agents’ behavior80. Put differently, all
economic phenomena arguably have institutional components and implications81.
Douglas North82 defines institutions as macro-level rules of the game. Institutions can be
better understood in the context of the tasks for which they were created83.
Approaching international business from the standpoint of institutions, we can
capture complex factors discussed above. Institutions define the parameters for business
operations and hence can help us understand complex causes and roots associated with
the Africa-China business ties. While the degree of fit between China-originated
resources in the African context as discussed in the previous section also entails some
institutional component, this section provides a deeper and richer understanding of the
institutional legitimacy in Africa-China trade.
We adopt W.R. Scott’s84 approach as the framework to analyze Africa-China
trade. Scott has conceptualized institutions as consisting of three pillars: regulative,
normative and cognitive. Scott’s pillar model is an umbrella concept and integrates
institutional theories and approaches from a wide variety of research disciplines such as
economics, sociology and anthropology. The approach to institution adopted in this paper
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also captures China’s strength stemming from its "soft power", which includes culture,
political values, foreign policies, and economic attraction needed to persuade other
nations to willingly adopt the same set of goals85.
At this point, it must be emphasized that each institutional pillar both reflects as
well as determines the nature of other pillars. For instance, political scientist Robert
Axelrod86 comments on the relationship between regulative and normative institutions:
Social norms and laws are often mutually supporting. This is true because social norms can become
formalized into laws and because laws provide external validation of norms 87.
Regulative institutions and Africa-China trade
Regulative institutions consist of "explicit regulative processes: rule setting, monitoring,
and sanctioning activities"88. They are related to regulatory bodies and the existing laws
and rules that influence international trade and investment. These institutions focus on
pragmatic legitimacy concerns in managing the demands of regulators and
governments89. For regulatory institutions, the basis of compliance is expedience and
noncompliance can result in regulatory sanctions. Individuals and organizations follow
them so that they would not suffer the penalty for noncompliance90.
It is widely recognized that when government policies play a role in international
business, it is important to understand and have ability to influence government
decisions91. Political or power environment and legal forces are critical components of
regulative institutions. A. Farazmand notes: “All organizations and institutions perform in
a political or power environment through which the broad parameters are more or less
defined, and any organizational action contradicting rather than enhancing, or conforming
to, that environmental power structure is sanctioned by institutional means of the state,
whether autonomous, dependent, mediating, or weak in dealing with powerful
transnational corporations”92. In most African countries, the government’s relatively
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stronger position and control over strategic national resources have facilitated China’s
access to such resources.
Before proceeding, we briefly review the power structure in African economies
and the influence on business parameters. Compared to other countries in the world, in
most African countries, governments control significantly higher proportion of national
resources. Virtually all African countries are characterized by mixed economies. Like in
many developing countries, a number of firms were nationalized in Africa. Private and
public firms function side by side in these economies. In some African countries, the
nationalization process is still going on and large firms that are economically central are
particularly attractive for the national take over. For instance, in 2004, Zimbabwe's
President Mugabe announced his government’s plan to demand half-ownership of all
privately owned mine in the country in order to stay in control of its natural resources93.
In Africa, the commercial class and the national elite have a high degree of
complementary characteristics. For instance, African commercial class lacks financial
and managerial ability to run “high markets” such as a copper mining company or an
automobile assembly plants94. State elite, on the other hand, see professional and personal
rewards in nationalizing such markets.
According to Freedom House’s Freedom in the World- 2006 report, only 11 out
of 48 countries in Sub-Saharan Africa are in the “free category”, while 23 are “partly
free” and 14 are “not free”95. According to the Council on Foreign Relations, 40 percent
of African countries are electoral democracies96. Especially, China has been able to
secure political influence rapidly in countries that are avoided by Western nations
because of poor governance and opaque political systems and the lack of civil liberty,
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political freedom97. For instance, Nigeria is fighting a continuous struggle with rebels
who regularly disrupt oil production. The Nigerian government thus prefers to have a
business partner that is indifferent of human rights. In October 2004, the governor of
Nigeria's Kaduna Province, which was involved in sectarian killings and adopted a
Shariah-based criminal law98, invited Chinese investors to set up businesses99.
At this point, it must be emphasized that government purchases account for a
significant proportion of imports in developing countries. For instance, in all developing
countries, the government is the single biggest user of technology products100. In
Ethiopia, government purchases account for 40 percent of total imports, with loans by
international financial institutions such as the World Bank and the African Development
Bank101. Beijing’s influence on many African governments has thus helped trigger
China’s exports to Africa.
Normative institutions and Africa-China trade
While the political and power environment just discussed and regulative rules are parts of
regulative institutions, social rules are components of normative institutions. Normative
components introduce "a prescriptive, evaluative, and obligatory dimension into social
life"102. Practices that are consistent with and take into account different assumptions and
value systems of national cultures tend to be successful103. Elements of normative
institutions also include trade associations or professional associations that can use social
obligation as a tool to induce certain behavior in parties involved in the international
business.
Normative institutions are concerned with procedural legitimacy and require
parties related with international business to embrace socially accepted norms and
behaviors104. The basis of compliance in this case derives from social obligations and
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non-adherence can lead to societal and professional sanctions105. The standards set by
these institutions are separate from the laws and regulations set forth by local, federal and
supranational agencies.
China has established normative legitimacy through a number of new sources. In
2000, China established the pro- business China-Africa Cooperation Forum with 44
African nations, which has eased the way for free-trade and investment with the
region106. China is also teaming up with supranational agencies to win further legitimacy
for its trade and investment in Africa. Under the auspices of the UN Development
Program (UNDP), China-Africa Business Council was opened in March 2005 and is
headquartered in China. Its goal is to boost China’s private sector investment and
development with the continent under the South-South Cooperation (SSC) Framework107.
It is a joint initiative between the UNDP, the Chinese government and the private-sector
China Guangcai Program. Similarly, Asia-Africa Summit, another multilateral forum, is a
joint initiative with the UNDP.
China has created a sense of common membership in the developing world to win
normative legitimacy and has emphasized on the need for developing nations to unite
together against the industrialized West. During a 2003 speech in Ethiopia, Chinese
Premier Wen Jiabao said "China is ready to coordinate its positions with African
countries...with a view to safeguarding the legitimate rights and interests of developing
countries"108. In a keynote address at a summit of Asian and African business leaders in
Jakarta, Chinese President Hu Jintao said: "Faced with both opportunities and challenges,
we Asian and African countries must seize opportunities, strengthen cooperation to cope
with challenges and seek common development."109 . The South-South connections have
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thus offered an alternative source of legitimacy, which has made Chinese much more
persuasive in their efforts to secure business deals in Africa.
Cognitive institutions and Africa-China trade
Although all components of institutions are intertwined with culture110, cognitive
institutions are arguably most closely associated with culture111. These components
represent culturally supported habits that influence the pattern of international trade. In
most cases, they are associated with cognitive legitimacy concerns that are based on
subconsciously accepted rules and customs as well as some taken-for-granted cultural
account related to international trade112. Cognitive programs affect the way people notice,
categorize, and interpret stimuli from the environment.
W.R. Scott113 suggests that "cognitive elements constitute the nature of reality and
the frames through which meaning is made". Although carried by individual members,
cognitive programs are elements of the social environment and are thus social in
nature114. Various stakeholders related to international trade, however, have varied
cognitive programs that influence the lens through which they view international trade
and investment. Compliance in the case of cognitive legitimacy concerns is due to habits;
businesses and consumers may not even be aware that they are complying.
An important dimension of Africa-China ties is a wide range of aids, concessions,
assistances and technologies provided by China to African countries. In this way,
Chinese have been able to win hearts and minds of millions of Africans. During the
second China-Africa trade summit held in Addis Ababa in 2003, Beijing wrote off
US$1.3 billion in debt owed by 31 heavily indebted countries in Africa. In an effort to
boost trading links, China has provided 28 most underdeveloped African countries with
zero tariff treatment and special preferential tariff rate for exports of about 190 products
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to China. These range from food, mineral product and textile, to machinery and
electronics.
Some African economies seem to benefit from China’s preferential treatment.
Ethiopia’s trade volume with China increased from US$150 million in 2003 to US$250
million during the first nine months of 2005115. Likewise, by the end of July 2004, China
had sent 1,401 peacekeeping troops to take part in nine UN missions in Africa. Similarly,
by the end of 2004, there were 840 Chinese peacekeepers participating in seven UN
missions in Africa116. In the same vein, since 1964, China has sent over 15,000 doctors to
over 47 African countries and treated approximately 180 million African patients117.
While China's relation with Africa in the 1960s and 1970s was rooted in political
and ideological solidarity, it is much more economic driven these days. Nonetheless,
continuation of activities that were originally designed to spread Chinese-style
communism in the 1960s and 1970s have helped to strengthen China’s economic and
business ties with Africa. Beijing is intensifying such activities in recent years. There are
about a thousand Chinese doctors working with HIV/Aids patients in Africa and over
10,000 agricultural engineers working in Africa. These factors have influenced the lens
through which Africans view China.
To gather cognitive legitimacy from African institutions, China is also
strengthening cultural ties with Africa. China International Radio, the voice of Beijing,
launched a new FM station in Nairobi, Kenya, which broadcasts 19 hours a day in
English, Chinese and Kiswahili. The voice of Beijing is thus competing with the BBC
World Service and Voice of America. Similarly, in 2003, more than 6,000 African
students received technical training in Chinese universities. It is also important to note
21
that China’s early relations with the continent included large number of scholarships for
African elites to study in China.
Beijing’s policy has been to respect other nations’ sovereignty without being
involved in the internal affairs. In direct contrast, the U.S. has requested African leaders
to host U.S. military bases, battle terrorism, and emphasize human rights118. Beijing has
thus earned the respect of leaders who do not want to implement economic or political
reforms119. China thus has become an attractive partner for many African leaders120.
Jane’s Intelligence Review noted that “China is able to expand its influence in Africa
partly because it is viewed with more credibility than Western states with imperialist
legacies”121. For instance, Gabonese President Omar Bongo comments that China's
cooperation comes with mutual respect and regard for diversity122.
Africans also regard China as a model of modernization and more responsive to
African needs and wants than Western partners. Most African governments perceive
China’s fast-growing involvement overwhelmingly positive. They view China as a more
cooperative partner than the West. Beijing also actively promotes its development model,
based on a limited market economy controlled by an authoritarian government. Many
authoritarian African regimes find China's modernization model preferable to free-market
and democratic reforms advocated by the U.S. and the European Union123.
The challenge of institutional change
Up to this point, we have concentrated on how institutions affect international trade and
investment with illustrations from the Africa-China business ties. We discussed how
different sources of legitimacy relate to the effectiveness of Africa-China trade. These
sources of legitimacy and their importance, however, are not static.
22
Following the analogy of social ecosystem, we can argue that international trade
and investments also influence institutions. Notwithstanding their connotation of
persistence124, durability125 and stability126, institutions are subject to change in
evolutionary time127. L.G. Zucker128 draws an analogy from physics to describe
institutional changes mechanisms. He argues that institutions continuously undergo
change due to entropy, a tendency toward disorder or disorganization. An implication of
the entropy-like characteristics is that people and organizations can modify and reproduce
institutions129. Institutional changes take place incrementally130 as well as in
discontinuous fashions131. The pattern of international trade and investment is thus likely
to change institutional structure of involved trade partners. Such changes, in turn, are
likely to affect International trade and investment.
With respect to the Africa-China business ties, not all stakeholders view China’s
involvement in Africa positively. Many African manufacturers and trade unions have
criticized China’s increasing involvement in Africa. Some have branded China’s
involvement in Africa as a new form of imperialism as well as threats to domestic
industries. South Africa's trade unions, for instance, have complained that the country’s
imports of cheap hi-tech products such as computers and telecoms equipment from China
are ravaging domestic technology industries. In South Africa, there was a threat of a
boycott of stores that carried Chinese goods in the last quarter of 2004. Some local
activists want local stores to agree to a 75 percent-25 percent balance of locally-made to
imported goods132. Similarly, Zimbabwean manufacturers and retailers have complained
that Chinese imports have forced them out of business. Likewise, competition from
23
Chinese firms forced over 10 textile factories in Lesotho to close in 2005 alone leaving
10,000 employees jobless.
Some African economies are experiencing trade deficit with China, which is
likely to fuel opposition to trade with China. For instance, South Africa’s trade deficit
with China went from US$24 million in 1992 to US$400 in 2004133.
China’s African involvement has also been criticized by some environmentalists.
A July 2005 report of the International Rivers Network and Friends of the Earth accused
China’s Exim Bank for funding environmental unfriendly projects such as the Merowe
Dam in Sudan.
Institutional changes taking place in China are also likely to alter the landscape of
Africa-China trade and investment. For instance, China is undergoing a rapid
privatization of its economy. Currently, China’s state-owned enterprises, which are less
concerned with near-term profits, account for a considerable share of Chinese investment
in Africa134. Chinese private firms may not necessarily follow the same modus operandi.
Moreover, as noted above, China’s health diplomacy has played a critical role in winning
cognitive legitimacy in Africa. Like other sectors of the Chinese economy, the medical
system is also being privatized. Chinese doctors are less willing to accept postings in
Africa, particularly because of a low level of current government stipend135.
Finally, there is also some movement toward democracy in Africa136, albeit very
slow. A stride toward democracy and Africa's changing attitude towards issues such as
humanitarian intervention137 may also weaken the Africa-China business ties.
24
Implications for Western Powers
Some experts have warned about the possibility that China’s rise carries an element of
confrontation with Western powers. John Mearsheimer in a Foreign Policy article “Clash
of the Titans” (January/February 2005) noted: “China cannot rise peacefully, and if it
continues its dramatic economic growth over the next few decades, the United States and
China are likely to engage in an intense security competition with considerable potential
for war”. Early evidence indicates that China has posed a unique challenge to the U.S.
While Russia posed only military threat and Japan was only an economic competitor,
China is growing “strong both economically and militarily, and increasingly using its
"soft power" for its own geostrategic goals”. 138
Some Western leaders have openly expressed their fear of China’s rapid rise,
which is weakening Western influence in developing countries. In February 2006,
Belgian Foreign Minister Karel De Gucht said that increasing Chinese presence in Africa
and other developing countries could be against Belgian priorities such as "respect for
human rights, the rule-of-law state, good governance, and the combating of corruption
and the illegal exploitation of raw materials."139
The facts brought to light make it clear that China’s increasing economic and
political ties with developing countries and nature of its orientation towards human rights
and democracy is rapidly transforming the global political and economic order.
Especially, the emerging Africa-China ties have a good deal to say about the degree of
military, economic and ideological threats the U.S. is facing.
25
Early evidence is pointing towards a sign of confrontation. For instance, in 2005,
China used its permanent seat on the UN Security Council to block genocide charges
against Sudan. There are also reports that China has built an arms factory for Sudan, and
supplied Namibia and Sierra Leone with arms and Mozambique with army uniforms140.
Another estimate suggests that Chinese arms sales to Ethiopia and Eritrea amounted
US$1 billion from 1998 to 2000141. Beijing has recently issued a new white paper on
Africa, which promises to intensify arms sales and military training in Africa and expand
intelligence sharing. The proposed Chinese communications satellite in Nigeria, Africa's
most populous country, is further paving the way for the exchange of Chinese
intelligence with Africa.
26
Table 1: A comparison of Africa-China and Africa-U.S. trade (in million dollars)
2002
2003
2004
2005
Export to
Africa
6,026
6,871
8,439
10,315
USA
Import
from
Africa
17,891
25,633
35,880
50,290
Total two—
way trade
23,917
32,504
44,319
60,605
Export to
Africa
10,140
13,800
18,680
China
Import
from
Africa
8,360
15,700
21,060
Total
two—way
trade
12,000
18,500
29,500
39,740
27
Notes
S. Panitchpakdi, “What's good for China is good for the world,” Global Agenda, 4/1: (2006).
The Economist, “Business: A new scramble; China's business links with Africa,”, 373(8403) (November
27, 2004): 87.
3
Fishman, T. C., “Waking to China,” World Almanac & Book of Facts, 2006: 10-11.
4
Panitchpakdi, op. cit.
5
Panitchpakdi, op. cit.
6
E. Pan, “China, Africa, and Oil,” http://www.cfr.org/publication/9557, January 12, 2006
7
“China vows to tie up with Asia, Africa,” April 21 2005, http://business.iafrica.com/news/434784.htm
8
D.C. Jones, “U.S. - African Trade Examined,” Washington Informer, Oct 13-Oct 19, 42/1 (2005): 14.
9
“Future Causes of Conflict,” http://www.ppu.org.uk/war/future_wars.html
10
G. Bell, “US, China to spur massive Africa oil growth,” Reuters, March 23, 2006,
http://www.watchermagazine.com/?cat=98
11
J. Donnelly, “China scooping up deals in Africa as US firms hesitate,” Boston Globe, December 24, 2005
12
US, China to spur massive Africa oil growth By Gordon Bell, Reuters
Posted at Reuters.com March 23, 2006, http://www.watchermagazine.com/?cat=98
13
“A serious problem.(Leader)," Petroleum Economist, 73/3 (March 2006): 2(1).
14
New York Amsterdam News, January 26, 2006, 97(5): 2.
15
The Economist, “Finance And Economics: Globalisation with a third-world face; Economics focus,”
375/8421 (April 9, 2005): 70
16
Comment of Kobus Van Der Wath, Founder & Managing Director of the Beijing Axis, quoted in K.
Laschinger, “Enter the dragon,” Finance Week, January 17, 2005: 8-10.
17
Y. Park, “Korean Multinationals in Europe,” The Journal of Asian Studies, 60/3 (August 2001): 882-885.
18
Pan, op. cit.
19
“Business Council to Promote Sino-African Ties,”
http://www.china.org.cn/english/2005/Mar/123206.htm.
20
Beijing Review, “Extending a Hand,” http://www.bjreview.com.cn/06-08-e/w-2.htm
21
“Africa-China Trade Deepens,” March 16, 2006, http://www.graphicghana.info/article.asp?artid=11058
22
R.W. Copson, “China branches out; Beijing's aggressive courting of African states is a direct challenge to
U.S. interests,” Los Angeles Times, April 13, 2006: B.13
23
“China to triple trade volume with Africa, double investment,” http://bw.chinaembassy.org/eng/xwdt/t223119.htm
24
V. Robson, "A blessing or a curse? Oil has helped fuel a devastating civil war in Sudan, but it could also
be used to help pay for the peace. And Khartoum believes foreign investors have a key role to play in
rebuilding the country" MEED Middle East Economic Digest 50/8 (Feb 24, 2006): 4(2).
25
Y. Shichor, “Sudan: China's outpost in Africa,” The Jamestown Foundation, China Brief, November 4,
2005, http://www.asianresearch.org/articles/2754.html
26
SinoCast, “China's Export to Africa Grew by over 35% for 3 Years,” March 3, 2006.
27
D. Borak, “Analysis: China's Africa expansion,” UPI, January 17, 2006.
28
BBC Monitoring International Reports, “Estimated Value Of China, Africa Trade 37bn Us Dollars,”
January 5, 2006.
29
“China-Africa Trade Surges 39 Pct in Jan-Oct 2005,” January 10, 2006
30
Africa-China Trade Deepens, March 2006, http://www.graphicghana.info/article.asp?artid=11058
31
Butler, op. cit.
1
22
28
32
M. Siddiqi "Is Africa a poor trader? Just why is Africa's international--and internal--trade at such a
dismally low level? Is market access the problem or is it what we take (or don't take) to market that is the
real culprit?." African Business 318 (March 2006): 24(2).
33
D. Steinbock, “The Rise of the Chinese Multinationals,” The National Interest, Fall (2005).
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U.S.-African Trade Profile, United States Department of Commerce http://www.agoa.gov/resources/USAfrican%20Trade%20Profile%202006.pdf
35
Statement of M. E. Ranneberger before The House International Relations Subcommittee on Africa,
Global Human Rights, And International Operations, July 28, 2005
http://wwwa.house.gov/international_relations/109/ran072805.pdf
36
Statement of M. E. Ranneberger, op. cit.
37
“China-Africa ties grow and tip global balance,” January 3, 2006,
http://www.asianews.it/view.php?l=en&art=5023.
38
T. Butler, “Growing Pains and Growing Alliances: China, Timber and Africa
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40
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41
SinoCast March 3, 2006 Friday 11:36 AM Eastern Time China's Export to Africa Grew by over 35% for
3 Years
42
SinoCast March 3, 2006 China's Export to Africa Grew by over 35% for 3 Years
43
See http://www.fmprc.gov.cn/eng/zxxx/t230615.htm.
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The Economist, “Business: A new scramble; China's business links with Africa,” 373/8403 (November
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46
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50
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51
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32
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33