If asked about China two and a half decades ago, the majority of investors and global powers would have simply shrugged their shoulders. However, as a result of the growth of China’s economy since the 1980s, its influence around the world has increased as well.
The inflow of foreign direct investment, new manufacturing facilities, the growth of a middle class, and membership in the WTO all mean that China has a global footprint that can no longer be ignored. For example, when Lenovo doled out $1.75 billion to purchase IBM’s PC unit in 2005, it did much more than become the third largest PC seller in the world. The deal effectively announced that China has arrived on the global scene, and that it is not only ready to be the largest recipient of foreign investment – it is also ready to invest elsewhere.
This month’s two week tour of Africa by a Chinese delegation headed by President Hu Jintao was another among an increasing number of signals that China’s global influence is growing strong. Cameroon, Liberia, Sudan, Zambia, Namibia, South Africa, Mozambique, and Seychelles aren’t global economic superpowers. So, although there is little talk about Lenovo-like deals, there are many discussions about the vast natural resources these countries have to offer – natural resources that China desperately needs to keep its booming economy going strong.
While much discussion about the trip has focused on China’s growing involvement in Africa, not much has been said about the tour from the perspective of the host nations. China’s growing influence on the continent deserves more attention because of what it means to Africa, not China itself.
The groundwork for the trip was laid during last November’s Forum on China-Africa Cooperation. Chinese and African leaders agreed to continue deepening ties in the political, economic, and social arenas, and the expansion of economic relationships, removal of trade barriers, and promotion of investment will be beneficial for both China and Africa. However, China’s commitment to contribute to resolving Africa’s development woes – by improving hospitals, providing medicines, building schools, writing off debt, and offering interest-free loans and development grants – presents a unique set of challenges.
The U.S. and E.U. aid flows have been increasingly linked to the development of democratic governance, reducing corruption, and protecting economic freedoms by the recipient countries. The Millennium Challenge Corporation’s (MCC’s) approach is one example. MCC is ready to give out billions of dollars in aid, yet it first wants to see that recipient countries are on the path to good governance and able to put those funds to good use. Tying aid to internal development helps to ensure that funds reach their intended recipients – the poor – and do not disappear into the pockets of corrupt officials and cronies.
It creates a set of incentives where aid funds are not taken for granted. Much like in the world of private sector investment, countries have to compete to get it and in the process strengthen their democratic institutions.
But if China is ready to offer an alternative – funds that come without good governance constraints – what does that mean for African countries?
In his latest work, The White Man’s Burden, Bill Easterly points to democratic governance failures as the key reason that aid has not worked in Africa thus far. His emphasis on home-grown development as a way to move forward is echoed by leading African reformers, such as James Shikwati of the Kenyan Inter Region Economic Network.
Let’s hope that China’s arrival does not distort incentives for African countries to develop on their own. As history clearly shows, countries that put in place institutions of democratic governance and nurture the entrepreneurial potential of their citizens can resolve poverty on their own and do not grow reliant on aid.
As such, if China’s involvement in the region continues to grow, and the majority of experts agree that it will, many of the African nations that have postponed real reform for decades will face a tough choice – turn East and continue corrupt governance practices or put aside the temptation of ‘easy’ money and concentrate on home-grown development. If Zimbabwe’s ongoing economic crisis is any indication, rejecting reform certainly signals a difficult road ahead.
For China, as it is now growing in the development donor capacity, it would be useful to become engaged with the OECD Development Assistance Committee to ensure that its development efforts are in line with other donors’ programs. The OECD has been working to improve the cooperation among donor countries and improve the effectiveness of aid programs, and China’s involvement in that process is in the interest of all.