Economic Strategies: China Lends While US Spends in Africa

While receiving minimal and often negative press, China is forging strong relationships with African countries, which will further its economic long game.

China could be putting the US in a corner by helping Africa to prosper.

January 7, 2019

By: Bobby Casey, GWP Managing Director

africa chinaWhatever your opinions are of China, no one can deny they might be the reigning champions of the economic long game. They aren’t without their misgivings and mistakes, but their evolution as a global player should not be underestimated.

China has been building economic bridges with America’s “outcasts”, such as Russia, Venezuela, and Iran. They have also been buying up gold, joined the IMF reserve basket, introduced the Petro-Yuan, and they are the largest foreign holder of American debt, to name a few milestones.

Where there is a will, there is a way, and I’m thinking China’s endgame is to ultimately prove that the world can go on and prosper without the United States.

The real battleground in modern warfare is the market; it is an ongoing series of battles and the win will come economically, not in lives lost in a field. The US hasn’t caught up to that idea, which is one of its more vulnerable points. While the US spends itself into oblivion on its precious Department of Defense, with billions unaccounted for, China is lending billions.

Who was the real winner in World War II? I’d argue Switzerland. Lending money and keeping their moral judgements to themselves, they aren’t still paying back debt like Germany or codependent on perpetual war like the US.

China is doing the same thing, in a way. While the US likes to write checks in the form of foreign aid, China likes to write checks in the form of a loan with a modest interest rates and reasonable payback period. And they have quietly been doing this in Africa.

The West in general is resented for its long history of bloody imperialism throughout developing countries. From Christopher Columbus of Portugal settling in the “West Indies” to Leopold II of Belgium and his reign from 1908 to 1960 in Congo, traditional colonialism connotes rivers of blood and an equal amount of pilfering.

But the East does not approach things the same way. It isn’t to say that subjugation and plunder won’t result from their methods, but it starts with a handshake rather than a gunshot.

The lead singer from U2, Bono, once observed that it was free market capitalism that would help Africa out of its circumstances, not aid. Africa is no better off from the billions in global aid its countries received over the past several decades.

Criticism of Chinese involvement in Africa from the US is bipartisan. Former Secretary of State, Hillary Clinton accuses China of “neo colonialism” while national security advisor, John Bolton has this to say:

The predatory practices pursued by China and Russia stunt economic growth in Africa; threaten the financial independence of African nations; inhibit opportunities for US investment; interfere with US military operations; and pose a significant threat to US national security interests.

Why so hostile, Mr. Bolton? Is it because US-China relations are in a tarpit and the US government HATES competition? Or is this some awkward manifestation of what Rudyard Kipling regarded as “the white man’s burden” or in this case the “Westerners’ Burden”?

  • First, position African countries as sad, pathetic, primitive, and underdeveloped. Sure, Africa has potential, but only the West can realize it for them with its sophistication and savvy.
  • Second, create a dependent relationship based on condescension and pity, often manifested as foreign aid.
  • Then, go in, pull all opportunities out from under them through altruistic NGOs or fanning the flames of civil unrest.
  • Finally, conclude that indeed were it not for the benevolent West, Africa would be less than it is now, but behold all the money the West has spent on these poor despondent people.

Perhaps it’s a little bit of both: insecurity and indignation toward those ungrateful Africans.

While the narrative in the West is skeptical if not outright critical of China’s involvement in Africa, African nations seem to be embracing this partnership, and perhaps for good reason.

Contrast the West’s historical approach above with how China approaches the matter. While the cynical narrative of the West is largely predicated on African nations being passive victims, China regards them as sovereign partners. A partnership entails responsibility be taken on both sides of the agreements. Each bloc or country that signs on with China would need to ensure that their own best interests are both met and served; and likewise that their own corruption and bureaucracies don’t sabotage the efforts.

President of Rwanda and African Union Chairman, Paul Kagame, recently endorsed Chinese investment in Africa at the Forum on Africa-China Cooperation in Beijing:

“Although President Kagame has been a relentless critic of foreign aid, he has held a soft stance towards China’s engagements in Africa because he considers it to be a ‘more respectful partner’ than Europe and America.

“’The relationship between Africa and China is based on equality, mutual respect and a commitment to a shared well-being. Working closely together to assess implementation will further enhance the quality of this process. It is time for Africa to step up as well,’ he said.”

China stands to gain quite a bit. This isn’t coming from a place of benevolence. Just like the baker didn’t open a bakery to create jobs and feed people. The baker opened a bakery to fill a perceived demand and make money. China is doing the same thing here. They need goods made cheaper than in China. They need raw materials.

By building a partnership, China stands to have incentivized allies, rather than disincentivized dependents. Both sides stand to gain a great deal economically in this alliance; but perhaps a bonus is that China is welcomed in, while the US is slowly being shunned.

Dr. Mehari Taddele Maru observes four unique but major offerings China brings to the table:

Unconditional soft loans and access to capital; quick delivery of services and cheap goods; funding of peacekeeping; and an alternative development model.”

That last item is notable because China isn’t offering anything to the African countries it wasn’t willing to do to itself. Converting sleepy fishing communities into large trading ports or investing heavily in infrastructure and education: both resulting in one of the most rapid successful economic expansions the world has witnessed in recent history. Pulling 800 million people out of poverty and expanding its middle class is commendable.

All of this while maintaining political sovereignty. African nations want that recipe. Can you blame them?

In addition to Dr. Mehari Taddele Maru’s observations, here are a few more offered by Dr. Debora Brautigam:

  • China is offering scholarships at Chinese universities to their partner countries.
  • Surveys of employment on Chinese projects in Africa repeatedly find that ¾ or more of the workers are, in fact, local.”
  • Of the $95.5 billion in loans offered between 2000 and 2015 from China to various countries in Africa, 70% of those funds went toward electric power generation and modernization of transportation infrastructure.

I don’t see how the US has any room to criticize what China is doing in Africa. US corporations did the exact same thing to China. It really is a win-win. Every civilization needs its industrial revolution.

There are constantly videos circulating on the internet of entrepreneurs throughout Africa making paper from discarded banana leaves, making bikes from bamboo, making shoes from discarded tires, or repurposing old discarded plastic bags into designer bags and accessories. Africa indeed has a tremendous amount of potential… but it is for them to realize for themselves on their own terms.

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Comments

  1. Scott J. Parker says

    Just wanted to point out that your graphic supports China’s reconquista ambitions toward Taiwan.

    Guess you’re in the “so much money to be made; what’s a little subjugation of free people between friends?” camp.

    • Kelly Diamond says

      Not sure what you mean about the graphic. It’s just two arrows between China and the African continent.

      I hear you on the subjugation, and I don’t think the article was glib toward that possibility, but if you were to look at the development of a nation and the phases it must undergo to break out from their 3rd world status as you would look at an 18 year old just forging out into the world, it’s really not that different.

      The 18 year old has no credit. No real experience or sophisticated skills to market. So what do they do? They bust their humps at an entry level position… learn as much as they can… put in all the overtime… and hustle. I worked 3 different jobs averaging about 60 hours per week between them when I first broke out on my own… all at minimum wage or less (food service).

      But that was a transient phase. I’m not still beholden to my first employers, and I have a lot more choices now that I have experience and knowledge.

      If you figure that a developing nation needs to go through a similar phase to grow into a more prosperous state, then that’s what this is. They are entry level. Will there be unethical players? Yes. But that’s really for the individual African countries to sort out in their terms with China.

      The subjugation part only comes into play if the recipients are irresponsible with their loans. The loans appear to be quite fair. The interest rates are on par with many other investment loans. The terms are much softer than anyone else is willing to offer. So if Africa takes their loans and properly invests those funds into building up their countries, there’s no reason why Africa can’t see the same kind of economic growth the China has. To have a significant middle class goes well beyond “so much money to be made; what’s a little subjugation of free people between friends”.

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