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China Impacts Developing World
Chinese entrepreneurs look to Africa for new markets
Bright B. Simons (baronsimon)     Print Article 
Published 2006-06-10 21:00 (KST)   
Consider the scene: a rapt audience, the understated elegance of an establishment boardroom, and two knowledgeable speakers contemplating China aloud for their entranced listeners.

Without a doubt, spectacles of this sort, even as I write, are being played out across the capitals and major cities of Europe and North America; for such is the allure of China these days for the chattering classes of the Western world.

The scene I described above however, refers to a particular event held last week in London, and a rather interesting one at that because of the audience and the setting.

The Commonwealth Club is nestled just around the corner from Charing Cross train station in Northumberland Avenue. A few meters away are Trafalgar Square, the Strand and several other London landmarks.

The Club is the social hub of the Royal Commonwealth Society and, as its head of Public Affairs intimated to me, aspires to become an intellectual focal point for the Commonwealth student community in London and the surrounding area.

This then was the setting on June 6 for a discussion about the rise of China and its implications for the Commonwealth.

You might think it odd that the Commonwealth, perhaps better known internationally for squabbling over Zimbabwe's human rights record than for being a forum for strategic geopolitical debate, should be jumping onto the bandwagon of rampant China-analysis.

Even more puzzling is the choice of theme for the lecture: "Doves & Dragons: Is China a threat or opportunity to the Commonwealth?"

China and the Commonwealth?

Threats and opportunities?

Pray, what are the connections?

In actual fact, the Commonwealth, with the exception of the U.N. and its subsidiary organs, represents a wider spectrum of national diversity than any other organization in the world.

Its 53 members include fabulously wealthy countries like Australia and Canada, global and regional powers like Britain and India, and tiny states like Tuvalu with its 12,000 citizens.

The organization thus provides a truly exceptional platform for the comprehensive discussion of the impact of China's rise on poor and non-strategic countries.

Considering that this kind of analysis has been missing from the glut of commentary about China's evolving role in the world, and has only recently begun to receive some attention in relation to wider international happenings, one can only be grateful for such an opportunity.

Even so, the outcome of what had been sold as something of a debate was puzzling.

It seemed both speakers, Duncan Innes-Kerr of the Economist Intelligence Unit and Jonathan Galea of the Commonwealth Secretariat, were fully agreed, broadly speaking, on China's evolving impact on the Commonwealth.

More surprisingly their assessment was, generally, positive. Not much of a debate then, you would say? But the real meat was not in their overall appraisal; it was to be found in between the lines of their argument.

The effects of China's high-growth economy on jobs and wallets in the West have been debated ad nauseum. It is generally accepted that lower inflationary pressures and the decline of manufacturing sectors across the industrialized world are both attributable to the economic processes underway in China.

When the discussion turns to developing countries, however, it begins to feel as if China's growth impinges on their economies only by proxy. For instance, China's huge appetite for raw materials indirectly benefits their producers in the developing world by raising prices in the commodity markets.

Even China's direct investments in oil installations in Nigeria, in textiles elsewhere in West Africa, and its deep involvement in the exploitation of Sudanese energy resources, are viewed almost exclusively within the context of strategic events on the global stage.

Poor developing nations, in these discussions, are thus treated as adornments to the real issue of competition for geoeconomic resources between the great powers and China.

Yet, evidence continues to mount that not all of the vast output of Chinese workshops ends up in the rich West.

Trade imbalances between China and countries such as Ghana, Senegal and Kenya, long ignored, are slowly receiving attention.

It appears that in a few years most West African countries will be running deficits with China rather than with Europe and America. Should this happen, the enduring paradigm long favored by African development activists will simply disintegrate.

It is much easier berating unfair trade when it is between a malnourished country and a well-fed one, than when both parties are manifestly engaged in life-and-death struggles against mortal hunger.

It will look indeed like a classic case of robbing Peter to pay Paul, as thousands of Chinese peasants are lifted up from poverty at the expense, supposedly, of young Burkinabes languishing in underemployment because their government's import-substitution policies, which would have seen basic industries spring up in Burkina Faso to produce primary consumables like sugar and matches, have been scuttled.

Africans may be able to compete on the basis of wage and production costs with German entrepreneurs, but definitely not with the folks in Guangdong, Fujian and Hainan.

Innes-Kerr stops short of reaching the harrowing conclusion drawn above, but it is evident from extrapolation that this may well happen in the not too distant future. I am personally aware that, increasingly, most of the items being sold on Ghanaian and Nigerian streets are from East Asia, mainly imported from China by way of Dubai.

The situation is even further complicated by another not often enough discussed dimension of China's success.

To be brief, we may describe it as the global production risk asymmetry. There are two facets to this phenomenon.

It is possible that so much foreign investment has now gone into China that proper risk management for new liabilities is being neglected. In effect, the country has become like a huge, bloated bank, too big to be allowed to fail (much like most of its state-owned banks, one would add), and investors are so overexposed that new risks seem only to represent marginal deterrence.

In such a situation it can be argued, albeit not absolutely convincingly, that even though capital efficiency may be falling in China, investors lack sufficient motivation to diversify into other, potentially higher-returning, emerging markets in the poorest regions of the world.

Recently Ernst and Young, one of the world's largest accountancy firms, was forced to recant in the face of hostile Chinese reaction after its audit reported that Chinese banks' bad debts may be much higher than popularly estimated.

Too many important institutions may have too many bets running on China's continued miraculous expansion to look too closely at what may really be happening.

The second facet is but only a consequence of the first.

Massive, non-uniform investment flows have resulted in global supply chains being densely tangled around the coastal strips of China and wound too tightly around the Taiwan and Malacca Straits. The problem is that this region is as volatile a nuclear hotspot and geopolitical flashpoint as any imaginable.

China may not be about to invade Taiwan, as Innes-Kerr assures us, and as Jonathan Galea concurs, but we cannot gloss over the fact that the country, when all is said and done, is a centralized state where too much power resides in too few corridors.

What about the possibility of renegade generals in the Chinese army? Would what happen if the North Korean government collapsed? Its consequences would definitely spill over the porous border with China.

There is also an under reported insurgency underway in the Muslim-dominated Uighur provinces of Western China.

People tend to forget that the country is largely desert and, as desertification intensifies, severe droughts could destabilize the rural agrarian economy before ongoing irrigation schemes have the chance to come into action.

In fact, like any country on Earth, even more so than many because it is so centralized, China could be struck by calamity any day.

The connection between global risk asymmetry, vis-a-vis China and the developing world, relates to the fact that few appreciate the risk environment in China and Asia better than the shrewd Chinese entrepreneur.

This helps to explain why Chinese entrepreneurs, unlike their Western counterparts, have been very eager to recycle some of the teeming risks away from the overheating Chinese economy and into places as obscure as Africa.

It must be asked, how does China intend to replicate the model that has worked so well in its own backyard to distant climes such as those in West Africa?

The enterprising Chinese, it will appear, are ready to act confidently in emerging markets outside Asia. They are not at all daunted by the absence of the overseas Chinese investors who have helped their cause in countries like Thailand and Indonesia.

Ghanaians were thoroughly bemused, and then aghast, to learn that a Chinese consortium, having landed contracts to build stadia for the 2008 African soccer tournament to be held in that country, had brought with it from China virtually all the workers it required for the project, including the manual laborers!

So much for investment being a source of employment-generation, someone muttered.

To the Ghanaians, and one cannot blame them, the whole episode seemed as if the Chinese had in mind the creation of a quasi-diaspora as a means of safeguarding their investments. This in fact probably was the intention, as similar events in other African countries in the wake of Chinese investments indicate.

It may seem crude, but it probably is very effective.

There is every indication that China will thrive in its new found enthusiasm for recycling risks abroad. The primary reason for this is obvious: the Chinese have a cannier feel for hostile terrain than Westerners can ever hope to match.

Better still, they are less vulnerable targets for social activists, and can thus wriggle out of nasty situations much more easily than their Western counterparts.

When news surfaced that the manual workers they brought with them to work on the stadia construction in Ghana could be Chinese convicts, the conventional expectation would have been a PR disaster; apparently not when the Chinese are involved.

The story fizzled out mysteriously. And not because the Ghanaian press is a deferential bunch, as the sitting President has been finding out to his chagrin.

So, three issues emerge.

Poor countries will face many of the challenges posed by trade imbalances usually associated with Western economies as a result of China's rise; except their plight will be aggravated by inflexibility due to shallower economies.

Western overexposure in Southeast Asia may well cause the stagnation of foreign investment flows to poorer countries.

For that reason, we may see a situation where China's somewhat brasher approach to operating in risk environments becomes the normative standard in the emerging markets at the bottom of the pile.

These at any rate are the insights I gleaned from the discussion at the Commonwealth Club.

Andrew Leung, a partner at International Consultants and a long-term observer of China, who was also present at the discussion, disagrees.

He reminded me of the ancient Chinese notion of the mandate of Heaven, in which the powerful derive their legitimacy solely through ensuring harmony by providing for those in need of sustenance and comfort, and argues that this has international applicability.

I want to defer to Leung's greater wisdom about these things, but an inner disquiet unsettles me. For, apart from the mandate of Heaven, there is also another ancient concept, that of the Middle Kingdom, in which China is held to lie at the center of Universe with vassal states orbiting her greatness, earning her regard only by learning to yield.

I wanted to direct Leung's attention to the events in the Solomon Islands, also a member of the Commonwealth, last April, when the Islanders turned on the ethnic Chinese establishment over fears that the latter may be unduly influencing the political process with its greater economic leverage, with fatal consequences.

Then the moment passed, and I changed my mind. The two Chinese diplomats who had attended the event slid quietly past us with demure smiles.

It hit me just then: they had never uttered a word from start to finish; just listened intently and made copious notes. It seems that while the world can't stop making a fuss about the Chinese dragon, he simply observes, and bides his time.
©2006 OhmyNews
Other articles by reporter Bright B. Simons

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