[Senate Hearing 112-203]
[From the U.S. Government Printing Office]
S. Hrg. 112-203
CHINA'S ROLE IN AFRICA: IMPLICATIONS FOR U.S. POLICY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON AFRICAN AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 1, 2011
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.gpo.gov/fdsys/
U.S. GOVERNMENT PRINTING OFFICE
72-397 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office, http://bookstore.gpo.gov. For more information, contact the
GPO Customer Contact Center, U.S. Government Printing Office.
Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, gpo@custhelp.com.
COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
------------
SUBCOMMITTEE ON AFRICAN AFFAIRS
CHRISTOPHER A. COONS, Delaware, Chairman
BENJAMIN L. CARDIN, Maryland JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
RICHARD J. DURBIN, Illinois MIKE LEE, Utah
TOM UDALL, New Mexico BOB CORKER, Tennessee
(ii)
C O N T E N T S
----------
Page
Brautigam, Deborah, Ph.D., professor, American University and
senior research fellow, International Food Policy Research
Institute, Washington, DC...................................... 13
Prepared statement........................................... 15
Coons, Hon. Christopher A., U.S. Senator from Delaware, opening
statement...................................................... 1
Durbin, Hon. Richard J., U.S. Senator from Illinois, opening
statement...................................................... 5
Hayes, Stephen, president and CEO, The Corporate Council on
Africa, Washington, DC......................................... 24
Prepared statement........................................... 26
Isakson, Hon. Johnny, U.S. Senator from Georgia, opening
statement...................................................... 3
Shinn, Hon. David, adjunct professor, George Washington
University, Washington, DC..................................... 5
Prepared statement........................................... 7
(iii)
CHINA'S ROLE IN AFRICA: IMPLICATIONS FOR U.S. POLICY
----------
TUESDAY, NOVEMBER 1, 2011
U.S. Senate,
Subcommittee on African Affairs,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:17 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Christopher
A. Coons, chairman of the subcommittee, presiding.
Present: Senators Coons, Cardin, Durbin, Udall, Lugar, and
Isakson.
OPENING STATEMENT OF HON. CHRISTOPHER A. COONS,
U.S. SENATOR FROM DELAWARE
Senator Coons. I am pleased to convene today's hearing of
the African Affairs Subcommittee, and I am honored to be joined
with my friend and partner, the ranking minority member of the
subcommittee, Senator Isakson, and the ranking minority member
of the full committee, Senator Lugar.
I thank them both for joining me today. I would also like
to thank our distinguished witnesses, Ambassador David Shinn,
adjunct professor at George Washington University and former
U.S. Ambassador to both Ethiopia and Burkina Faso; Professor
Deborah Brautigam, professor at American University and senior
fellow at the International Food Policy Research Institute; and
Mr. Stephen Hayes, president and CEO of the Corporate Council
on Africa.
Today's hearing will take a hard look at China's rapidly
expanding role on the African Continent and consider how it is
affecting American interests. In my view, the United States
isn't just ceding its potential economic leadership in Africa
to China, it may be ceding its political and moral leadership
there as well.
We will discuss today whether China's expanded reach should
serve as a wakeup call for enhanced United States trade and
investment, and we will take a close look at whether China's
growing influence in Africa may counter or even possibly
undermine United States development, diplomacy, and other
values-driven goals in the region.
Finally, we will also consider areas of common interest
between the United States and China in Africa that could
provide the basis for enhanced bilateral and multilateral
cooperation.
China's reach in Africa has grown dramatically in the past
decade, and the rate of increased Chinese trade and investment
in Africa is truly staggering. Between 2000 and 2010, trade
between China and African nations grew by more than 1,000
percent.
As you can see in our first chart here today, U.S. trade
with Africa grew during this period as well, partly due to the
passage of the Africa Growth and Opportunity Act, or AGOA. But
the average rate of growth in China's trade with Africa
outpaced that of the United States by 100 percent.
China clearly sees Africa for what it is, a continent of
immense opportunity. Africa is home to 6 of the world's 10
fastest-growing economies over the past decade. Increased rates
of return on foreign investment, vast natural resources, and a
rapidly growing middle class have all made Africa an
increasingly important player in the global economy.
But as the continent has grown economically, it has
continued to also have significant development needs. The
United States and China are both investing in that development,
but doing so in very different ways. While we share some common
interests in Africa that are at times complementary we should
be clear-eyed about the very different nature of our
engagement.
First, our structures of government spending are different.
The United States clearly distinguishes between Government
assistance and private investment, while the line between
public and private sectors in China is often blurred and
involves many state-owned enterprises.
The Chinese Government can offer financing and
concessionary loans to African governments to build large
infrastructure projects, in some cases with no interest
required for up to 20 years and, at the same time, negotiate
contracts with those same governments for mineral and oil
extraction.
While the United States invests diplomatic capital in the
promotion of democracy, freedom of expression, and human
rights, our leverage on African officials and governments is
significantly weakened when those regimes can simply turn to
China for support with essentially no value strings attached.
If there is one message I wish to convey in this hearing,
it is that the long-term American objective of promoting open
societies in Africa--countries that embrace transparency and
democracy, respect the environment, and protect human rights--
is being challenged in some ways by China's approach to Africa.
By offering an alternative source of investment and
development, China offers African regimes economic opportunity
at times at the expense of government reform and in a manner
that may not directly benefit the average African.
This highlights a second key distinction. In my view, the
U.S. Government has been investing in the people of Africa,
while the Chinese Government has been investing in the
infrastructure of Africa. It is tough to say precisely, given a
real lack of transparency, but experts estimate roughly 70
percent of Chinese assistance to Africa comes in the form of
financing for roads, stadiums, and government buildings, often
built with Chinese materials and often by Chinese laborers.
China is rarely transferring significant technology to
Africa, nor employing many Africans. In contrast, more than 70
percent, as this chart shows, of U.S. Government spending is
directed toward investment in the African people, primarily
through health programs to combat HIV/AIDS, malaria,
tuberculosis, and other diseases. These programs build upon the
strong legacy of U.S. investment in global health established
by former Presidents Clinton and Bush.
America's extensive public sector investments in Africa are
often not as visible as those of China. Many Africans can point
proudly to Chinese-built roads, buildings, or hospitals in
their capital without realizing that many of the doctors or
nurses there have been trained by Americans, medical supplies
were provided by the U.S. Government, and that many rural
health clinics that are lowering maternal mortality rates,
vaccinating children, and donating mosquito nets across Africa
are, in fact, often United States funded. We may be, in sum,
winning the war on disease while losing the battle for hearts
and minds.
As we think about next steps for United States public and
private sectors, we must gain, I believe, a better
understanding of China's role and motives and take steps to
ensure the United States is not missing out on critical
opportunities in Africa.
Senator Durbin, who I am pleased has joined us here today,
is proposing legislation to do just that. It aims to create
jobs in America by increasing United States exports to Africa
by at least 200 percent in the next 10 years. This is
absolutely critical because China has outpaced the United
States in growth of exports over the last decade by nearly 3-
to-1, as shown by our last chart.
I want to thank Senator Durbin for initiating this
legislation. I believe we need a comprehensive United States
trade strategy for Africa, and we must work with existing
resources--with the Ex-Im Bank, with OPIC, and USTR--to find
ways to expand bilateral, regional, and multilateral trade
opportunities. More United States companies selling their goods
in Africa translates to more American jobs.
There are many tools by which we can and should take a more
assertive approach to expanding the scope of United States
investment in Africa, and in my view, the U.S. Government must
pursue an assertive strategy that aims to capitalize on the
vast array of opportunities in Africa. We cannot simply afford
to lose out to China in the private sector, while in the public
sector we must ensure our values are not undermined by an
expansive political and economic agenda by China.
I look forward to hearing from our distinguished witnesses
how the United States can achieve these objectives, but first,
I would like to turn to Senator Isakson for his opening
statement.
Senator Isakson.
OPENING STATEMENT OF HON. JOHNNY ISAKSON,
U.S. SENATOR FROM GEORGIA
Senator Isakson. Well, thanks, Chairman Coons, for calling
this hearing, particularly with regard to the role of China in
Africa.
I had the pleasure of traveling with Senator Coons to West
Africa earlier this year, where we went to Ghana, Benin, and
Nigeria and saw firsthand the benefits of United States
investment and the Millennium Challenge Compact in particular
in Ghana, where we actually saw the execution of that compact.
They will be coming back for a second compact. And as
President Mills told us in his office that the focus on lack of
corruption, the focus on better governance, the focus on
democracy, which was a quid pro quo for the Millennium
Challenge investment, has, in fact, made Ghana a better
country.
And I commend President Mills on his movement toward
democracy. I hope Goodluck Jonathan in Nigeria, who is the
first successfully democratically elected Nigerian President
with somewhat minimal violence taking place, will follow the
role of President Mills and President Yayi in Cotonou. Benin is
also moving forward. Their port project, which is also an MCC
compact, is in its final year, and it has been an excellent
example of the MCC challenge investment in Africa.
But there is no question that the Chinese have a
significant role in Africa, and I think the chairman has done a
good job of outlining the role that they are taking, which is
more in their own self-interest than in the interest of the
African people.
And while their investment level may be higher in dollars,
I think our investment level in the rights, the health, and the
safety and security of the African people is greater. And it is
my hope that over time that will win the hearts of the African
Continent because I do think Africa is the continent of the
21st century for the United States of America.
They could be a great energy partner, a great consumer of
our goods and services, and we could have a great partnership
to grow and prosper together. Hopefully, what was started out
in the Bush administration in terms of PEPFAR and MCC compacts
will continue, and I certainly intend to support both of them,
as I have in the past.
As well as I want to acknowledge what the chairman referred
to obliquely, and that is the private sector investment by
Americans compassionately in the continent of Africa. Malaria
now doesn't exist on Zanzibar. And even though it is an island,
it is a little easier to control, thanks to the Rotary Clubs
International and the investment they are making in bed nets
throughout that continent, it is amazing the effect we are
having on that.
The same thing is true with measles and polio. The same
thing is also true in many other areas. Kiwanis International
has adopted as its No. 1 national project the eradication of
tetanus in Africa, which is also critically important.
And the Coca-Cola Company--that is a hometown company of
mine, so I will brag about the home front for a second--is
investing $30 million a year in clean water projects. And
Senator Coons and I drank clean water out of a Coca-Cola-
provided treatment facility in a village that had never had
clean water before.
And the great thing they are doing is they are charging
them 7 cents a day for 5 gallons of water to teach them that it
takes money to keep the plant running. They are going to turn
the plant over for nothing to the African people, but they will
pay for its continued maintenance and upkeep by their paying
for the water they get every day.
So a lot of the basic principles of our competitive free
enterprise system and the compassion of the American people are
paying great benefits. But it should not go unnoted that some
African leaders prefer no-strings-attached investment, and they
like China for that reason.
There is no question that China is abusing some of its
interests. And this week, Human Rights Watch will issue a
report that alleges the Chinese routinely bribe or threaten
miners to keep them from reporting accidents and problems in
Zambian-operated mines, which is just one example of how they
are looking the other way on the best interests of the human
rights of those people.
I think, in the end, our investment in the health, safety,
and welfare of folks is important and can win the hearts of the
Africans over, but we cannot allow China to buy away that
friendship from the United States.
Thank you, Mr. Chairman.
Senator Coons. Thank you, Senator Isakson.
Senator Lugar, did you want to make an opening statement?
Senator Lugar. No.
Senator Coons. Senator Durbin.
OPENING STATEMENT OF HON. RICHARD J. DURBIN,
U.S. SENATOR FROM ILLINOIS
Senator Durbin. Thank you for this hearing.
And I want to thank the witnesses who are here, and many of
them have worked with our office on this issue. And I think
that we are finally identifying in the Foreign Relations
Committee an issue which could have grave consequences in the
future.
I believe Africa is an emerging continent with an emerging
middle class and holds great economic significance in the 21st
century. China obviously discovered that quite a few years ago.
And the question now is what we will do as a nation to compete
on the continent of Africa, and I know that there will be some
discussion here about particulars.
And I thank you, Mr. Chairman, for bringing us together.
Senator Coons. Thank you.
We will now turn to our witnesses, starting with Ambassador
Shinn, followed by Dr. Brautigam, and finally by Mr. Hayes.
I would appreciate it if you could condense your remarks to
no more than 5 minutes. Your full testimony will be placed in
the record where it will be available to other members of the
committee, and in the record.
So, if you would, please, Ambassador Shinn.
STATEMENT OF HON. DAVID SHINN, ADJUNCT PROFESSOR, GEORGE
WASHINGTON UNIVERSITY, WASHINGTON, DC
Ambassador Shinn. Thank you very much, Chairman Coons, for
inviting me, and I also thank the committee.
China has essentially four hard interests in Africa. First
is maintaining or increasing access to energy, minerals,
timber, and agricultural products; second, developing good
relations with all African countries so that China can count on
their support in regional and international forums; third,
increasing significantly China's exports to Africa; and last,
ending Taiwan's official diplomatic presence in Africa and
replacing it with recognition of Beijing.
The magnitude of China's involvement in Africa since the
mid 1990s has grown exponentially. China has diplomatic
relations with 50 of the 54 African countries today. Beijing
has an Embassy in every one of those countries except one,
Somalia.
China has particularly developed an effective state-to-
state relationship with African leaders. Hu Jintao has made six
trips to multiple African countries--two as Vice President,
four as President.
Each year since 1991, China's Foreign Minister has made his
first visit abroad anywhere in the world, usually in January,
to an African country. China has a layer of high-level contact,
the Communist Party of China, that frequently interacts with
African officials. This is a layer, of course, the United
States doesn't have a counterpart for.
China has no military bases in Africa but has some security
interaction with all 50 countries on the continent with which
it has diplomatic relations. China has passed the United States
and has become Africa's most important trade partner since
2009. China imports about one-third of all of its oil imports
from Africa. China also imports huge quantities of cobalt,
manganese, tantalum, copper, iron ore, and other minerals.
There is a lot of confusion surrounding China's investment
in Africa in terms of the numbers and in terms of the
definition. Suffice it to say that it is probably somewhere in
the vicinity of almost $40 billion. It is possible that today
China is investing more in Africa than any other single
country.
Large Chinese loans, often with concessionary terms, are
grabbing a lot of the headlines about China-Africa interaction.
In the case of Angola, China has signed about 14.5 billion
dollars' worth of these concessionary loans. With Ghana,
recently $13 billion. China has also stepped up its efforts on
soft power in Africa.
Now what are the implications for the United States? I
think the heightened engagement in Africa by China since the
mid-1990s has very important implications for the United
States.
Certainly, if you look at relationships with countries like
Zimbabwe and Sudan, it provides a real option for China that
did not previously exist. But even countries that have good
relations with the United States find themselves in a position
where they can be a lot more selective in terms of the advice
that they accept from the United States because they might be
able to obtain support from China.
On the commercial side, a company like Boeing continues to
do well in Africa. It also has no Chinese competition. On the
other hand, electronic giants like Hewlett-Packard, Motorola,
Siemens, and Ericsson are increasingly losing business to
Chinese companies such as Huawei and ZTE.
The easy financing offered by Chinese state banks, lower
bids on projects by Chinese state-controlled construction
companies, and the fact that these companies have a ubiquitous
presence on the African Continent make it difficult for
American and Western companies to compete.
China's growing interest in African raw materials should
not pose a problem for the United States, except to the extent
that Chinese demand pushes up global commodity prices.
China's growing use of soft power in Africa should prod the
United States to do better. For the time being, China poses no
security threat to the United States in Africa and probably
will not do so for at least the next 5 years.
Other emerging powers are also playing a great role in
Africa, and attention needs to be given to them. There has been
the return of Russia. India is becoming a significant
competitor of China on the continent. But Brazil, Iran, Turkey,
Saudi Arabia, United Arab Emirates, Vietnam, Thailand,
Indonesia, Malaysia, Singapore, and Cuba are all returning or
engaging for the first time in a major way.
Areas for cooperation with China include the health sector,
particularly, antimalarial programs, also neglected tropical
diseases like hookworm and schistosomiasis; the agricultural
sector; and U.N. peacekeeping operations.
In terms of coordinated diplomatic engagement, I think
there are areas where the two countries can collaborate and in
even controversial places like South Sudan and Sudan, where
there today are some mutual interests. While the United States
and China will continue to have important differences in their
approach to Africa, it is in the interest of both governments
to seek out those areas where they can cooperate.
I thank you very much for your time, Mr. Chairman.
[The prepared statement of Ambassador Shinn follows:]
Prepared Statement of Hon. David H. Shinn
I thank Chairman Kerry of the Senate Foreign Relations Committee
and Chairman Coons of the Subcommittee on African Affairs for inviting
me to participate in this hearing. I have been researching China-Africa
relations intensively over the past 5 years in connection with a book
scheduled for publication next spring. Unless noted otherwise, the
statistics and analysis contained in this testimony refer to all 54
countries in Africa. China tends not to make a distinction between sub-
Saharan Africa and North Africa as the U.S. Government often does.
CHINA'S INTERESTS IN AFRICA
China generally does not discuss its ``hard'' interests in Africa.
Rather, it emphasizes several general themes such as respect for
African countries' sovereignty and development policies, support for
African development, cooperation with Africa in the United Nations and
multilateral forums, and learning from each other. China also urges
African countries to accept the ``one China'' principle by recognizing
Beijing.
Based on my analysis, China has four ``hard'' interests in Africa:
Maintaining or increasing access to energy, minerals,
timber, and agricultural products.
Developing good relations with all African countries so that
China can count on their support in regional and international
forums.
Increasing significantly China's exports to Africa,
especially as the economies of African states become more
robust and Africans increase their disposable income.
Ending Taiwan's official diplomatic presence in Africa and
replacing it with recognition of Beijing.
I should point out that you can substitute the United States for
China in each of the first three interests; they apply as much to the
United States as they do to China. I would argue that the United States
has several additional interests that do not yet apply in a meaningful
way to China. First, the United States has an interest in military
aircraft over flight and landing in African countries and access to
their ports by U.S. naval vessels. Second, the United States puts a
high priority on countering a series of issues--terrorism, piracy, drug
trafficking, money laundering, etc.--that pose a threat to American
interests. While these issues may eventually become important Chinese
interests, they have not yet reached that level.
CURRENT DIMENSIONS OF CHINESE ENGAGEMENT IN AFRICA
While China is not new to Africa, the magnitude of its engagement
with the continent has grown exponentially since the mid-1990s. This
period has coincided with enormous industrial growth in China, the need
to import increasing quantities of raw materials to support China's
manufacturing sector, and China's ability to export significantly more
competitively priced products to Africa. China's interest in access to
raw materials reinforced its longstanding policy of developing strong
political relations with as many countries as possible in Africa.
China has diplomatic relations with 50 of the 54 African countries.
Four--Burkina Faso, Swaziland, Gambia, and Sao Tome and Principe--
recognize Taipei. Beijing has an embassy in all but one of the 50
countries. The exception is Somalia where the security situation in
Mogadishu precludes a physical presence. All 50 African countries that
recognize China except the Comoro Islands and recently independent
South Sudan have embassies in Beijing. Although the United States has
diplomatic relations with all 54 African countries, it too has
embassies in only 50. It closed embassies in the Seychelles and Comoro
Islands to save money and never opened in Sao Tome and Principe. Like
China, it is not in Somalia for security reasons. China has more
consulates in Africa than does the United States.
China is especially effective at state-to-state relations and
attaches particular importance to high-level personal contact. Hu
Jintao has made six trips to multiple African countries--two as Vice
President and four as President. China's Premier is a frequent visitor
to Africa. Each year since 1991, China's Foreign Minister has made his
first visit abroad, usually in January, to an African country. China
has a layer of high-level contact--senior Communist Party of China
officials--that frequently visits Africa to expand relations with
African party and executive branch officials. The United States has no
similar counterpart nor does it rely as heavily on Presidential and
Vice Presidential visits to Africa. If you exclude annual visits to the
United Nations' headquarters in New York by African leaders, where some
do have meetings with the American President, Chinese leaders extend
more invitations to African leaders to visit China than the United
States extends to visit Washington. The Communist Party of China
frequently invites leaders of African political parties to visit China.
China has no military bases in Africa but has some security
interaction, however modest, with all 50 countries that recognize
Beijing. China's share of the conventional arms market in sub-Saharan
Africa is about 15 percent. The percentage is higher for small arms and
light weapons. High-level military visits are an important part of the
security relationship. Twenty-eight African countries have defense
attaches in Beijing while 16 Chinese defense attache offices in Africa
are accredited to some 30 African countries. China has about 1,600
military/police personnel serving in six of the United Nation's
peacekeeping operations in Africa. Most of the personnel are in Darfur,
South Sudan, Liberia, and the Democratic Republic of the Congo. It has
small numbers in Cote d'Ivoire and the Western Sahara. Since 2008,
China has positioned two frigates and a tender in the Gulf of Aden to
combat Somali piracy. Following a lapse in naval visits to African
ports since 2002, this engagement in the Gulf of Aden has led to a
recent increase in Chinese visits to African ports.
By contrast, the United States has a designated military command--
AFRICOM--for Africa located in Germany, a base with about 3,000
military and civilian personnel in Djibouti for countering terrorism, a
new facility in Ethiopia for operating drones and significantly more
defense attache offices than does China. While the United States pays a
higher proportion of U.N. peacekeeping costs in Africa than does China,
it has less than 30 personnel assigned to the six operations in Africa.
The United States has played a leading role in the antipiracy operation
in the Gulf of Aden and western Indian Ocean. U.S. military ships and
airplanes regularly visit African cities and ports. The United States
also engages in far more training of African military forces than does
China.
China passed the United States and became Africa's most important
trade partner in 2009. It continues to hold that position. China-Africa
trade (exports and imports) totaled $127 billion in 2010 compared to
$113 billion for United States-Africa trade. While China's trade with
Africa has been growing at a rapid pace since the turn of the century,
it constitutes only about 4 percent of China's global trade. China's
trade is, however, proportionally more important for Africa and makes
up about 13 percent of the continent's total trade. Except for 2009,
when Africa collectively had a large trade deficit with China, its
trade has been roughly in balance. This is in sharp contrast with U.S.-
Africa trade, which has witnessed a large U.S. trade deficit over the
past decade, primarily due to large oil imports from Africa. In 2010,
the United States imported 85 billion dollars' worth of goods from
Africa and exported $28 billion to Africa. There are huge differences
in China's trade balance with individual African countries. Some 11
African oil and mineral exporters have major surpluses with China,
while the remainder, which includes the poorer countries, has
significant trade deficits with China or the trade is roughly in
balance.
China imports about one-third of its total oil imports from Africa.
Of China's 10 most important trading partners in Africa, 6 (Angola,
Sudan, Nigeria, Algeria, Libya, and the Republic of Congo) export large
quantities of oil to China. In 2009, oil and gas accounted for 64
percent of all African exports to China. While that constitutes a lot
of oil, it is only about 13 percent of total African oil exports. The
United States and EEC countries each import almost one-third of
Africa's total oil exports, significantly more than China imports. On
the other hand, the United States imports relatively modest quantities
of African mineral products while China imports huge quantities of
cobalt, manganese, tantalum, copper, iron ore, and other minerals. In
2009, iron ore and metals accounted for 24 percent of all African
exports to China. It also imports timber and may look increasingly to
Africa for agricultural products. Without these raw materials from
Africa and other parts of the world, China would be unable to sustain
its manufacturing capacity and maintain its high GDP growth rate. A
sharp decrease in China's economic growth would be a direct threat to
the current leadership of the Communist Party of China. Access to
African raw materials is a long-term strategic interest.
While China continues to increase significantly its imports from
Africa, it is also increasing its total exports and the value added
component to Africa. In 2000, China's exports to Africa consisted
largely of textiles and clothing (28 percent), machinery and
transportation equipment (27 percent), and other manufactured goods (26
percent). By 2009, Chinese exports to Africa shifted to high-end
capital goods, especially communications equipment (20 percent), road
transport vehicles (19 percent), and electronic machinery (18 percent).
China's State Council issued a white paper in December 2010 that
stated China's direct investment in Africa reached $9.33 billion by the
end of 2009. There is considerable confusion surrounding this figure
and on China's definition of direct investment. For reasons that are
not clear, I believe most official Chinese figures for investment
totals in Africa significantly understate the real amount. Even Chinese
sources cannot agree on the amount of FDI that has gone into Africa.
The official Xinhua News Agency reported last month that by the end of
2010, China had invested about $40 billion in more than 2,000
enterprises in 50 African countries. This figure included investments
of $2.1 billion in 2010 alone. While the correct total FDI figure is
probably much closer to $40 billion than to $9.33 billion, Western
countries collectively have invested much more in Africa, primarily
because they started earlier. By the end of 2008, for example, the
United States had invested a cumulative total of $37 billion in sub-
Saharan Africa alone.
It is possible that today China is investing more in Africa than
any other single country. The primary recipients of Chinese FDI have
been South Africa, Nigeria, Zambia, Sudan, Algeria, and Egypt, all
major oil or mineral exporters except for Egypt. Interestingly, the
State Council's December 2010 white paper reported that by the end of
2009, African countries had invested $9.93 billion in China; i.e., more
than the paper reported China had invested in Africa! It is difficult
to document where this much African money has been invested.
One of the other persons testifying today is far more knowledgeable
than I on China's aid to Africa. I will describe this component of
China's engagement.
The headline grabbing stories of Chinese engagement in Africa
rarely involve investment or aid. More often, they concern large
Chinese loans, often with concessionary financing, used by African
countries to finance infrastructure projects. In recent years, China
has signed loan agreements, for example, with Angola for about $14.5
billion, Ghana for $13 billion, and the Democratic Republic of the
Congo for $6.5 billion. Most of this money will be used to finance
roads, dams, refineries, buildings, railways, etc., by Chinese
construction companies and be repaid in oil or minerals. China has
become the major builder in Africa.
China has also stepped up its soft power efforts in Africa. The
Xinhua news service has more than 20 bureaus in Africa and regional
offices in Cairo and Nairobi. Xinhua competes directly with Reuters,
AP, and Bloomberg for reporting on events in Africa. There are at last
22 Confucius Institutes in Africa that focus on teaching Chinese
language, culture, and history and the number continues to grow. China
is increasing its radio transmission to Africa in various languages,
has a transmitting facility in Kenya, and has rebroadcast arrangements
with countries around the continent. It trains a variety of Africans,
including diplomats and journalists, and in 2009 increased to 4,000 the
number of full scholarships it offers to African students each year.
IMPLICATIONS FOR U.S. POLICY AND INTERESTS
This heightened engagement in Africa by China since the mid-1990s
has important implications for the United States. China now offers
African countries another political and especially economic alternative
to the United States and the West generally. Countries such as Zimbabwe
and Sudan, which have poor relations with the United States and the
West, have taken maximum advantage of this situation. China does not
engage in conditionality, except for the ``one China'' principle and
tying its aid and loans to Chinese companies and materials. As a
result, China (and a number of other countries) ignores Western
sanctions against Zimbabwe and Sudan and continues to be one of the
most important suppliers of military equipment to both countries. As a
major supplier of small arms and light weapons across the continent,
Chinese weapons are increasingly showing up in conflict zones. There is
no evidence China is selling weapons to rebel groups, but as more
weapons appear in Africa, the greater is the chance they find their way
into conflicts. In fairness, weapons from all major arms manufacturing
countries, including the United States, are making their way into these
conflicts.
Even countries that have good relations with the United States,
such as Ethiopia, Kenya, Angola, Ghana, and South Africa, find
themselves in a position where they can be much more selective in
taking advice from the United States. African states under pressure
from the United States and the West to improve their human rights and
governance practices are less likely to do so when they know they can
rely on China for support. China holds a veto power in the U.N.
Security Council and Africa has three nonpermanent seats on the
Council. Africa is well represented in organizations of interest to
China such as the U.N. Human Rights Council and the World Trade
Organization. China makes every effort to cultivate the maximum number
of African countries on all issues of interest to Beijing that arise in
international forums. In some cases, like-minded African governments
use the Chinese just as the Chinese use them, for example when
contentious issues affecting China or a particular African nation arise
in the Human Rights Council. When Tibet became an issue in 2008, China
leaned on the Africans to remain silent or even make supportive
statements. They did. African countries can depend on China to avoid
raising controversial African human rights issues in the U.N. Human
Rights Council and perhaps even to support them when they are
criticized by Western countries.
China does not have a good record in Africa for worker safety and
labor practices. It also receives criticism for allowing harmful and
counterfeit products manufactured by private Chinese companies into
African countries. The same is true for engaging in corruption although
there are a few indications that China is beginning to see corruption
as a negative factor for doing business in Africa. The United States
generally has a good record in these areas and would prefer to see
improvements in Africa. Sensitive to all of these criticisms, China is
seeking ways to deal with these problems but is slow to find solutions.
China's relations with strong, independent African labor unions are not
cordial and labor standards in China are sometimes less stringent than
in some African countries. African nations do not have the institutions
to keep harmful and counterfeit products from entering and China has
either not figured out or is not interested in preventing these
problems at the source.
The United States and the West had a major headstart over China on
investment and commercial engagement with Africa. This is especially
true in the energy and mineral sector where so much Western investment
has gone over the years. As a result, there has not yet been much head-
to-head competition except in the case of winning large commercial
contracts where China is pulling ahead in many sectors. A company like
Boeing continues to do well in Africa and has no Chinese competition.
On the other hand, electronic giants such as Hewlett-Packard, Motorola,
Siemens, and Ericsson are increasingly losing business to Chinese
companies such as Huawei and ZTE. The Chinese companies offer much
lower prices for products that many Africans believe are of adequate,
if somewhat lower, quality compared to their Western alternatives. In
addition, Huawei and ZTE are creating large sales and marketing offices
in Africa.
The easy financing offered by Chinese state banks, lower bids on
projects by Chinese state-controlled construction companies and the
fact that the companies now have a ubiquitous presence on the ground
throughout much of Africa, make it difficult for American and Western
companies to compete. Private Western companies generally function
independently of their governments and often find it hard to compete
with the package proposals presented by the Chinese Government and
their state-owned or controlled companies. This is, however, a
structural issue that the United States and the West will have to work
around or simply become more competitive.
China's growing interest in African raw materials should not pose a
problem for the United States except to the extent that Chinese demand
pushes up global commodity prices. This could lead to higher prices
paid by the United States and the rest of the world. So long as
American companies and consumers have the money to pay for the product,
African countries will continue to sell to the U.S. market. The problem
is on the U.S. export side. It is not competing well against China in
Africa. This is a problem that American companies will have to solve,
although agencies like the Export-Import Bank can help. In some cases,
American companies just have to take more interest in African markets
and accept more risk.
China's growing use of soft power in Africa should prod the United
States to respond. Security concerns and fortress embassies in many
African countries make outreach difficult. Numerous American libraries
have been shut down. The Voice of America and government-sponsored
programs for sending future African leaders to the United States are
under budgetary pressure. All of these trends are in the wrong
direction. This is the time to reach out on all fronts and be more
accessible to African publics. These programs are not expensive and
they have the potential to achieve an enormous amount of good will.
For the time being, China poses no security threat to the United
States in Africa and probably will not do so over the next 5 years or
so. China is, however, expanding its naval capacity. This year it held
sea trials for its first aircraft carrier. It has significantly
expanded its submarine fleet and clearly intends to build a carrier
force. One reason for building this capacity is to make China less
reliant on the U.S. Navy for protection of Chinese vessels in the
Indian Ocean. Some 80 percent of China's imported oil comes from Africa
and the Middle East and passes through the Strait of Malacca. Once
China has a major naval presence in the Indian Ocean, it will bump up
against the U.S. Navy and, more importantly, the Indian Navy.
OTHER EMERGING POWERS IN AFRICA
China is only one, albeit the most important, of the emerging
powers to assert itself in Africa. The European countries, Japan, South
Korea, Canada, and Australia continue their longstanding engagement in
Africa, but together with the United States have been somewhat more
reserved since the end of the cold war. Russia has recently returned to
Africa in a major way following its retreat from the continent after
the breakup of the Soviet Union. China and other emerging powers have
been the big story in Africa over the past decade.
Only India approaches the ability of China to compete in Africa and
it is probably a decade behind China. China's trade with Africa is 2\1/
2\ times that of India. China has almost twice as many embassies in
Africa as India. Its investment and aid are much higher. On the other
hand, India is physically closer, has a language advantage, and has
stronger cultural links. India also has 7,000 U.N. military and police
peacekeepers in Africa compared to China's 1,600. India's naval
presence in the western Indian Ocean is much stronger than China's and
India has been developing security agreements with countries in the
Indian Ocean and along the East African coast.
Although well behind China and India, Brazil has made its presence
felt throughout much of Africa, not just the Lusophone countries. Iran
has focused its attention on northeastern Africa but is expanding its
relations throughout the continent in an effort to escape isolation.
Turkey stepped up its engagement in Africa beginning in 2005 and is an
important player in North Africa and the Horn of Africa. Its engagement
is heavily business-based but also has a strong cultural, religious,
and educational component. Other emerging countries that are either
reengaging in Africa or arriving for the first time include Saudi
Arabia, United Arab Emirates, Vietnam, Thailand, Indonesia, Malaysia,
Singapore, and Cuba.
This situation is resulting in a much more crowded diplomatic
playing field. While it provides more opportunities for African
countries to obtain aid, investment, and trade, it complicates American
diplomacy. It argues for greater understanding about the meaning of
these developments and, in some cases, a reassessment of U.S. policies
toward Africa and the coalitions needed for diplomatic successes.
AREAS FOR COOPERATION WITH CHINA
There are several inherent challenges for U.S.-China cooperation in
Africa. It is necessary to overcome longstanding suspicions between the
two countries, fostered in part by different philosophies toward
governance. Perhaps more important, it is necessary to convince the
African countries that the United States and China are not trying to
gang up on them. There is a tendency in many African countries to want
to play China off against the United States in order to obtain an
advantage. They often fail to distinguish that there are areas where
China and the United States can cooperate and, at the same time,
benefit the African country in question.
If these two concerns can be overcome, and they have been in
several cases, there are areas when China and the United States can
work together for the mutual benefit of African countries. This
occurred in Liberia, for example, where China and the United States
collaborated in construction of the military barracks at Bonga for a
U.N. peacekeeping operation and the two countries agreed to join forces
to combat malaria. Successful cooperation depends heavily on the active
engagement of the American and Chinese Ambassadors and key Embassy
staff on the ground. If they do not support the proposed collaboration,
it probably will not happen. At the same time, there must be signals
from Washington and Beijing that both governments are fully behind the
cooperative endeavor.
The United States and China have particular strengths in the health
sector that can collaboratively improve the situation in Africa. This
is especially true in antimalarial programs where China is constructing
30 malaria treatment centers in Africa and providing antimalarial drugs
such as artemisinin. USAID supports a holistic program that includes
insecticide-treated bed nets and the President's Malaria Initiative has
a goal of reducing mortality by half in target countries. Other areas
for cooperation are neglected tropical diseases, especially hookworm
and schistosomiasis, where each country has important expertise to
reduce the threat. Improvement in nutrition and pandemic preparedness
are other possible problems for collaboration. Both China and the
United States have considerable experience with African agriculture,
another area where they could combine their experience and lessons
learned.
While the United States and China want to export more to Africa,
they could also work to build the export capacity of African countries
by building their competitiveness in global markets. Both countries
could provide technical assistance for this purpose. China has shown a
growing interest in improved corporate social responsibility in China
and in the context of Chinese companies operating in Africa. This is
also a priority goal for the United States and one where American
companies have considerable experience. Both countries have
demonstrated their concern in recent years over the negative impact of
climate change and environmental degradation. African countries are
deeply concerned about climate change's impact on the continent and
might welcome a joint approach from China and the United States.
The United States provides the single largest amount of funding for
U.N. and African Union peacekeeping operations. Washington welcomes the
assignment of Chinese soldiers, mostly engineering, transportation, and
medical personnel, to U.N. peacekeeping operations in Africa. U.S. and
China's interests generally overlap when it comes to African
peacekeeping operations; specific projects for collaboration should be
identified. Similarly, the two countries generally have common
interests in helping African coastal states to reduce piracy,
smuggling, illegal fishing, drug trafficking, and threats to offshore
oil facilities. Although Chinese ships operate independently in the
Gulf of Aden antipiracy operation, the United States Navy and China's
Navy have a good working relationship. The U.S. Coast Guard has been
particularly successful in cooperating with Chinese counterpart
organizations. There may be an opportunity for extending this
cooperation to Africa. Countering drug smuggling across Africa and
improving disaster relief are additional areas that lend themselves to
U.S.-China cooperation for the mutual benefit of Africans.
COORDINATED DIPLOMATIC ENGAGEMENT IN AFRICA
There are a number of conflicts and crises where the interests of
the United States and China are similar. Both countries usually seek
stability in Africa. China normally supports whatever government is in
power irrespective of its pedigree or ideology. While China is quick to
shift its allegiance to a new regime as occurred in recent years in
Niger and Guinea, it does not want to be seen as behind regime change.
As a result, China has no inclination to encourage governmental change
in places such as Harare or Khartoum. If it suspects the United States
is seeking regime change in any particular country, China will keep its
distance. Coordinated diplomatic engagement also tends to raise
suspicions among some African parties that the United States and China
are ganging up against them. China is especially sensitive to this
charge and will be reluctant to work with the United States on any
issue where this is the perception by one or more of the African
parties involved in the conflict.
On the other hand, here has been little difference in the U.S. and
China's policies toward Somalia. Both countries support the
Transitional Federal Government and want to counter terrorism, although
China is probably not prepared to accept some of Washington's tactics.
Nevertheless, Somalia is a conflict that lends itself to continuing
quiet collaboration. The United States encouraged China to play a more
active role in resolving the conflict in Darfur. Eventually it did but
only after some difficult episodes in U.S.-China interaction. Today,
China has an interest in maintaining close ties to the Bashir
government in Khartoum and the new government in South Sudan. It owns
much of the oil infrastructure in the Republic of Sudan while 75
percent of the oil now originates in South Sudan. China has been
surprisingly successful in building a good relationship with Salva
Kiir's government in Juba. There may well be ways for China and the
United States to coordinate diplomacy as they help to resolve the
enormous challenges facing both countries. China will consider such
collaboration, however, only if it is convinced that the United States
is not seeking regime change in Khartoum.
Other troubled parts of Africa where there are no obvious
differences in U.S. or China's policy include Cote d'Ivoire,
Madagascar, and Guinea. They are candidates for coordinated diplomatic
engagement. More complicated conflicts that might lend themselves to
coordinated diplomatic engagement include the Democratic Republic of
the Congo and Libya. China has or is developing significant interests
in both countries and may be reluctant to team up with the United
States and other Western countries, but it is worth exploring.
While the United States and China will continue to have important
differences in their approach to Africa, it is in the interest of both
governments to seek out those areas where they can cooperate.
Senator Coons. Thank you, Ambassador Shinn.
Dr. Brautigam.
STATEMENT OF DEBORAH BRAUTIGAM, PH.D., PROFESSOR, AMERICAN
UNIVERSITY AND SENIOR RESEARCH FELLOW, INTERNATIONAL FOOD
POLICY RESEARCH INSTITUTE, WASHINGTON, DC
Dr. Brautigam. Thank you very much for this opportunity to
speak with you today. I appreciate it very much, and I am going
to start by telling you a story.
Once upon a time, there was a very large, poor, resource-
rich country, just emerging from a period of intense conflict.
And that country decided to focus on development. ``We need to
modernize our infrastructure,'' they said. ``We need to develop
our ports.'' And soon, they had a visit from a wealthy Asian
country that had already become a major consumer of their oil.
And that country said to them, ``We will make you a
bargain. We will give you a line of credit worth $10 billion,
and you can use that credit to develop your ports. Our
companies can help you develop your power plants and modernize
your mines. And you can repay us with your oil.''
Now, many in this poor country were very suspicious of this
Asian power. But nonetheless, they agreed to this bargain, and
the work began. Now, as you are listening to this story, you
are probably thinking which two countries--China and Angola,
China-Sudan, China and the DRC?
Well, actually, China was one of these countries. It was
the large, poor country with oil. And the line of credit to be
repaid with oil was offered by Japan in the late 1970s.
Now why am I telling you this story today? I am telling you
this story for several different reasons. One is this
arrangement was not based on aid. It was a market-rate line of
credit that Japan offered to China. And the second is that
China saw this as something that could be used for its benefit,
for its development.
This was something that benefited Japan. They could sell
goods and services to China, and it also benefited China
because they could finance imports even though they didn't have
an international credit rating.
Now China is operating in Africa using the frameworks that
it has learned by being an Asian power, and some of those come
from its relationship with Japan. And it is a very different
model of engagement. And much of this does not actually involve
official development aid. It is much closer to Japan's pattern
of engagement in Asian countries.
So what does this involve? There are a lot of different
tools and instruments that the Chinese have to engage in Africa
that we don't have or that we have at a much smaller level. So,
for example, they have resource-backed infrastructure loans.
I would argue that these are not concessional loans because
the very large ones are all based on London Interbank Offered
Rate. They are LIBOR plus margin-rate loans. These allow
countries with poor credit ratings to borrow today and pay with
tomorrow's exports.
They are setting up overseas economic zones that are
attracting Chinese companies to come and set up manufacturing
in Africa as costs become expensive in China. They have a $5
billion equity fund to encourage Chinese investment and joint
ventures in Africa, and they have a $1 billion fund for small
and medium enterprises. They are setting up agricultural
demonstration centers that are trying to get Chinese
agribusinesses involved in Africa.
So most of these are not about official aid, but they are
about development. And more importantly, they are responding to
the request by African leaders over and over again with
assistance for help in building infrastructure and creating
jobs in Africa.
Let me give you two quick stories. In Liberia, when Liberia
emerged from war, Ellen Johnson Sirleaf said her main priority
was roads and infrastructure. But the international donors were
not providing roads and infrastructure. Then the Chinese
stepped up and said, ``We will build roads.'' And suddenly, the
other donors became interested in roads.
When we look at what the Millennium Challenge Account is
funding in Africa for African governments that are doing well
and want to make their own decisions about how to spend their
money, they are investing in infrastructure. So this is an
important sector for Africans.
Now, China is not a new actor in Africa. Their presence is
growing, as Ambassador Shinn has told us. Many of the things
they are doing in Africa are nontransparent. We do not have
information about them. That is a legacy of many things, partly
because it is mainly business. We don't know a lot about how
our own companies operate in Africa, even though we do have
better data on that.
But the figures--I can talk about more in the question-and-
answer period about what we know about the actual dimensions of
engagement. But I want to make three final points. One is about
realism versus alarmism.
China's rise in Africa should be seen in context. China is
still a developing country. It has the norms and standards of a
developing country and has much more in common with other
developing countries than it has with us.
That means that it presents a lot of challenges. India,
Brazil, and the other countries that Ambassador Shinn has just
mentioned present the same kinds of challenges. They have the
same levels of corruption. They operate in very similar kinds
of ways. So this is a broader challenge, and it shouldn't be
seen out of context.
The second is that we need much better information to make
good policy. Our information about China in Africa is not good,
and we are not doing a very good job of collecting better
information.
And finally, we need to engage China multilaterally. We
have a problem in that the arena for engagement that sets the
rules and norms for how to engage internationally is the OECD,
and China is not a member. We have to figure out a way to deal
with this.
Thank you.
[The prepared statement of Dr. Brautigam follows:]
Prepared Statement Dr. Deborah Brautigam\1\
China is not a new actor in Africa. Yet over the past decade,
China's presence in Africa has grown remarkably, a reflection of
China's rapid transformation as a global actor. This presents
opportunities and challenges for Africa and its traditional development
partners, including the United States. China's motives in Africa are
twofold: diplomacy and business. There are more countries in Africa
than in any other continent. Each has a vote in the United Nations, and
many are also members of the World Trade Organization. Warm diplomatic
ties are important for Chinese foreign policy goals, including
competition with Taiwan, the effort to obtain market economy status at
the United Nations, and Chinese efforts to emphasize sovereignty as a
core foreign policy principle. On the other hand, Africa is an
important source of raw materials and business opportunities for
China's companies as they become global corporations.
CURRENT DIMENSIONS OF CHINESE ENGAGEMENT IN AFRICA
Current dimensions of Chinese engagement in Africa include trade,
foreign direct investment, engineering contracts, development finance,
development and humanitarian assistance, and military cooperation. I
will focus here on the economic aspects. China's total trade with
Africa in 2010 was $120.9 billion, about 4 percent of China's total
trade with the world ($2972.7 billion). Chinese official figures for
FDI in Africa 2007-2010 show an average of about $1.5 billion per year
if one discounts the exceptional year 2008 when Industrial and
Commercial Bank of China purchased 20 percent of South Africa's
Standard Bank for around $5 billion. FDI in 2010 was reported to be
$2.1 billion, with a stock of FDI at $13 billion.
Engineering contracts are enormous. In 2008, Chinese companies had
nearly 3000 engineering contracts in Africa, valued at close to $40
billion (in 2008, Chinese companies had 180 separate engineering
contracts in Libya, for example, valued at $10 billion, while earlier
this year, the total in Libya had risen to $18 billion).\2\ Some
187,396 Chinese were officially working in Africa in 2009, most on the
large engineering contracts in Algeria, Libya, and Angola. Although
there are exceptions, such as Angola, most of China's engineering
business in Africa is not financed by the Chinese, but by African
governments, development banks, bilateral banks, and private companies
contracting with Chinese firms.
Some believe that the China is a bigger donor than the United
States or the World Bank. This is far from the case. The United States
disbursed a total of $29.7 billion (gross) in official development
assistance in 2009, with $8 billion going to Africa, about 27
percent.\3\ In 2010, the United States again budgeted $8 billion in aid
for sub-Saharan Africa; global health and child survival came to $4.7
billion (57 percent).\4\ The top five recipients of U.S. bilateral
health assistance in sub-Saharan Africa in fiscal year 2012 were
projected to be Kenya ($545 million), South Africa ($510 million),
Nigeria ($471 million), Tanzania ($346 million), and Uganda ($323
million).\5\ In the equivalent categories, China probably disbursed aid
of about $3.1 billion (gross), with Africa receiving 45.7 percent,
about $1.4 billion.\6\ In 2010 alone, according to its annual report,
the World Bank committed US$14.5 billion to 66 countries in IDA grants
and soft loans, with cumulative commitments of US$222 billion since
1960. These differences are also reflected in staffing levels. USAID
has a global staff of more than 8,000, of which almost 5,000 are host-
country nationals; overseas projects employ considerable local
personnel.\7\ MOFCOM's Department of Foreign Aid has about 100 staff,
and the Export-Import Bank of China's Concessional Loan Department has
another 100. The economic sections of Chinese embassies will also
assign one or two people to manage the aid program locally (no host-
country nationals appear to be employed).
In April 2011 the Chinese provided some of the first official
figures on China's aid program: cumulative commitments of close to
US$38 billion since the early 1950s and the end of 2009, broken down as
follows (for all regions): \8\
MOFCOM: cumulative US$16 bn in grants (not including debt
relief), and US$11 bn in interest-free loans, some of which
have been cancelled;
China Eximbank: cumulative US$11 bn in concessional foreign
aid loans
Africa has traditionally received between 40 and 50 percent of
China's total aid annually. My estimates of Chinese aid disbursements
suggest that on an annual basis, (Figure 1) China disbursed about
US$1.3 billion in 2008, making it a mid-sized donor in Africa. (Chinese
aid to Africa is growing rapidly; annual commitments could be more than
30 percent higher than disbursements.)
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Source: Brautigam, The Dragon's Gift, 2011 (2009).
In figuring out how to react to the rise of China in Africa, the
United States first needs to understand how Chinese engagement works.
For too long we have been trying to force the square pegs of Chinese
engagement into the round holes of familiar Western patterns. Because
we think of official development assistance (ODA) as the main currency
for relations between Africa and the more developed world, we think
this is what China is doing, instead of seeing their aid as a
relatively small part of a far broader and more strategic engagement.
One of the major misconceptions of Chinese engagement in Africa is
that it is largely financed by ``concessional'' loans, implying that it
is a type of ODA (official development assistance). A 2010 background
paper written for the OECD, for example, used the adjective
``concessional'' at least 27 times while writing in often general terms
about the Chinese financing model in Africa.\9\ Yet loose terminology
like this is unhelpful for our understanding of how China operates
overseas.
Most Chinese finance in Africa is not concessional. Indeed, Chinese
banks reserve the term ``concessional loan'' only for the foreign aid
loans issued by China Eximbank, with, as noted, a cumulative total of
US$11 billion committed between 1995 and 2009. The term ``concessional
financing'' should be reserved for ``loans made by a government at an
interest rate below the market rate as an indirect method of providing
a subsidy.'' \10\
How much finance has China provided through other, nonconcessional
instruments? The figures here are very approximate:
China Development Bank. In September 2010, China Development Bank
said that it had made commitments of over US$10 billion to projects in
Africa, and already disbursed US$5.6 billion to 35 projects in more
than 30 African countries (People's Daily, 2010). This can be compared
with an earlier announcement in March 2007, when CDB reported that it
had financed 30 projects in Africa, for a total of about US$1 billion
(Xinhua 2007).
China Eximbank. At the end of 2010, China Eximbank's outstanding
loans in support of China's ``Going Global'' program totaled some US$41
bn worldwide.\11\ In the year 2010, China Eximbank disbursed about
US$7.6 bn in export sellers' credits for Chinese overseas investment
and about US$1.3 bn to finance construction projects being implemented
by Chinese firms. It is not clear how much of this was directed to
Africa. China Eximbank president Li Ruogu said that his bank had
committed over US$13 bn to Africa as of June 2007, and planned to
extend up to US$20 bn in loans to Africa over the next 3 years.\12\
GOING OUT: INSTITUTIONS AND INSTRUMENTS IN CHINA'S
OVERSEAS DEVELOPMENT FINANCE
China's long history in Africa stretches over the Maoist period,
(1949-1976), and the reform period, (1978-present). In the early 1980s,
Chinese leaders reevaluated their aid program in view of its poor
results, their limited funds and the need to focus more on their own
development.\13\ They announced to their African partners that China
would need to ``do more with less,'' focusing more on ``mutually
beneficial'' cooperation rather than ``one-way'' aid.
At home, economist Chen Yun advised China to move toward the market
cautiously, experimentally: ``feeling for stones while crossing the
stream.'' For the next decade, the Chinese experimented with ways to
combine aid, trade, and investment in Africa. By the mid-1990s, the
instruments were largely in place, although new experiments continue to
be launched.
One of the changes was institutional. From the 1960s until 1995,
Beijing financed its projects in Africa solely through an evolving set
of departments and ministries that all focused on foreign economic
cooperation (including aid) and trade. In 1994, as China continued to
reform its economy in a market direction, Beijing established three
policy banks.\14\ Today, in the state-directed finance model that is
common in East Asia's ``developmental states'' (Japan, Korea, Taiwan),
China's Ministry of Commerce directly controls most of the instruments
that provide actual government subsidies abroad.
Ministry of Commerce (MOFCOM). China's traditional aid instruments,
zero-interest loans and grants, are financed directly out of China's
budget for external assistance and are overseen by MOFCOM's Department
of Aid to Foreign Countries, in cooperation with the respective
regional departments of the Ministry of Foreign Affairs.
MOFCOM also has a variety of other funds, including the Special
Fund for Foreign Economic and Technical Cooperation that can be used to
support Chinese businesses, as long as they are carrying out the needs
of China's economic diplomacy. One fund, for example, is used to
support Chinese companies building six overseas special trade and
economic cooperation zones in Africa.\15\ These funds can be used for
the partial reimbursement of preinvestment costs (feasibility studies,
documents and consulting services, etc.) and some interest rate
subsidies for bank loans.\16\ They are not financed out of the external
assistance budget.
China's Policy Banks. Two of China's policy banks (China
Development Bank and China Eximbank) also operate overseas. Loans from
policy banks are, as a Chinese analyst put it ``heavily influenced by
government policies and are not to operate in full compliance with
market rules.'' \17\ This does not mean that CDB and China Eximbank are
allowed to be unprofitable or that they are directly subsidized by the
government. Rather, as a recent study of CDB explains, with the Chinese
Government standing behind them, policy banks have the same credit-
rating as the Chinese Government, can raise funds by issuing bonds with
that rating, and can take a longer term view with their loan
investments.\18\
In 1995, China Eximbank was given sole responsibility for a new
foreign aid instrument--concessional loans (you hui dai kuan). These
are provided with a fixed interest rate, usually 2 or 3 percent, a
grace period of 5 years, and a long repayment term (20 years). China's
budget for foreign assistance subsidized the difference between the
Eximbank's costs and the fixed interest rate. This allowed the Chinese
Government to dramatically expand its resources for development
assistance, but it also required more careful use of these resources,
as the new loans were to be more carefully appraised for their
financial feasibility. The Eximbank fully intended to be repaid. As the
Eximbank's chief economist told an audience at a World Bank retreat:
``it's the new lenders' problem if countries can't repay, not the Paris
Club. We know we need a good, strong balance sheet.'' Although some
Eximbank concessional loans have been rescheduled, there are no reports
of any being canceled.
The majority of China Eximbank's lending instruments do not qualify
as foreign aid. In 1998, they began offering export sellers credits
(usually short to medium term) to Chinese firms to boost their ability
to invest overseas and finance construction contracts.\19\ In 2000, the
bank launched export buyer's credits, rolling them out in Africa in
2005. These are usually issued in dollars, at London Interbank Offered
Rate (LIBOR) or the Commercial Interest Rate of Reference (CIRR) rates
prevailing in global markets. Preferential export buyer's credits (you
hui mai fan xin dai) also exist. These are very similar to concessional
loans, but are subsidized from a different budget.
Commercial Banks. In the past decade, several Chinese commercial
banks--China Construction Bank, Industrial and Commercial Bank of China
(ICBC), and Bank of China--have also set up offices in Africa to
support Chinese companies' business. One, ICBC, purchased 20 percent of
South Africa's Standard Bank for around US$5 billion, and has since
embarked on a number of joint projects across the continent.
China Africa Development Fund. The China Africa Development Fund
(CAD Fund), overseen by CDB, provides equity capital. CDB provided the
initial US$1 billion investment, and the CAD Fund was expected to raise
finance for successive phases from other investors, with the goal of
reaching US$5 billion. The fund's managers have stressed that this
equity finance is not aid, and not loans, but medium-term investment
that expects a return.\20\ A similar instrument, China Asia Fund, was
set up by China Eximbank in Asia.
IMPACT ON THE LIVES OF AFRICANS
China's approach to development cooperation clearly offers
opportunities, but also entails some risks. The benefits include
greater ownership, and more equal partnerships, lower transaction
costs, a new emphasis on infrastructure and productive activities,
``agency of restraint,'' and policy space. The risks include the
potential for higher costs when contracts are signed without
competitive tenders, as well as the lower labor, social, and
environmental standards that come with a middle-income developing
country partner, as opposed to one at a high level of development.
Ownership. Countries across the developing world have been pressing
for more ownership over their aid and development finance. The Chinese
have neither the expertise, nor the inclination, nor the personnel to
engage in development strategy planning or write country assistance
strategies, for any of the countries where they engage. In fact, such
an activity would probably never occur to them.
For the Chinese, ownership starts (and sometimes ends) at the top.
In cases where leaders do not coordinate with ministries, this can
cause problems, as in Liberia where a President asked the Chinese to
build a hospital upcountry, leaving the Liberian health ministry
scrambling to figure out staffing for the remote location. But
governments who do have well thought out development plans appreciate
the Chinese willingness to follow their lead. They also appreciate that
the Chinese principle of noninterference in internal affairs allows
them to maintain sovereignty over their development strategy.
Partnership. The language of ``donor'' and ``recipient'' remains
widespread in the West, despite the efforts of the Paris Declaration to
shift to partnership. As the West has found, it is difficult to have
real partnerships when one partner is wealthy and autonomous and the
other is poor and dependent. As a Chinese researcher once asked me,
``how can you fight poverty and stay in a five star hotel?''
Skilled Africans can't help but wonder why foreign experts who work
beside them are earning 10 or 20 times their salaries, all paid out of
a foreign aid budget (or even worse, financed by a loan that will later
be paid out of African Government workers' taxes). The Chinese live far
more simply in Africa, often in group housing or compounds, and share a
frugal mentality. The managing director of the Bank of China branch in
Lusaka is authorized to fly business class, his assistant told me, but
he flies economy class instead ``to save the bank money.'' It is hard
to imagine a similar gesture from a World Bank employee.
Lower Transaction Costs. China's tiny aid bureaucracy (70
professionals in MOFCOM's Department of Aid to Foreign Countries, 100
in China Eximbank's Concessional Loan Department) means that the
Chinese rarely participate in the stream of donor missions that occupy
the time of so many African ministries. China's aid program offers a
relatively limited menu of turnkey projects, mainly focused on
infrastructure: roads and bridges, telecoms and power plants,
sanitation and water systems. Once a project is initiated or requested,
all important decisions are made in Beijing, not by the Chinese mission
in the host country. Contrary to conventional wisdom, Chinese banks do
require environmental impact assessments, but will often accept those
prepared by their borrowers. In recent years Chinese banks have begun
to require more elaborate environmental impact appraisals for loans.
Increasingly, these are contracted out to European firms.
New Emphasis on Infrastructure and Production. Chinese companies
and banks appear to be far more open to financing and investing in
infrastructure, resource processing activities and industrial projects
than their peers coming from Western countries. ``Donors have neglected
power since the 1990s,'' a recent study noted, pointing to an
infrastructure financing gap of some US$93 billion in Africa.\21\
African countries themselves spend some US$45 billion a year on
infrastructure; and Chinese companies have been building much of this,
earning revenues of over US$20 billion annually from construction and
engineering contracts on the continent. Worldwide, over 60 percent of
China Eximbank's concessional loans have been committed to
infrastructure projects.\22\
After Liberia's war ended, President Johnson Sirleaf repeatedly
said that her number one priority was getting roads financed. According
to adviser Steven Radelet, ``No one was doing it. They all said `we
don't do roads. But the Chinese Ambassador said: `we'll do roads.' And
things changed.'' \23\
In Ghana, the China Africa Development Fund is one of the equity
investors in a joint venture with the Government of Ghana and Bosai
Minerals Group in a Sekondi industrial estate that will be anchored by
a proposed alumina refinery. Ghana has long been a producer of bauxite,
mined by large western firms--Rio Tinto (now merged with Canada-based
Alcan), and the U.S. company Alcoa--who refined the bauxite into
aluminum ingots which were then shipped out. But none of these partners
was willing to invest in building an aluminium industry.
As Ghana's Minister of Trade and Industry put it, the Chinese
project ``will allow our country to finally achieve our long-term
objective of establishing an integrated aluminium industry and make the
most of our resources.'' \24\ Business Monitor International predicted
that the Sekondi Industrial Freezone would ``create a major growth area
in West Ghana.'' \25\
Another Chinese company is building Chad's first petroleum refinery
in a 60:40 joint venture. The Chadian Government applied for a
preferential export credit to help finance its share of the venture.
Although the famous Chad-Cameroon pipeline project supported by the
World Bank originally envisaged building a small refinery, this did not
happen, and the pipeline instead transferred Chad's crude oil outside,
while Chad continued to import all its refined petroleum products.
Ngata Ngoulou, Chadian Finance and Budget Minister, said: ``If we had
made this request to our traditional partners, they would have
certainly told us to give up the idea.'' \26\
Likewise, in Niger, the Chinese approach contrasted with that of
earlier Western companies. Some Africans believe that ``China's efforts
offer opportunity for industrialization on a scale never countenanced
by the colonizers of old.'' \27\ Ibrahim Ango, president of Niger's
Chamber of Commerce, told a reporter that French oil firm Total and the
U.S. firm ExxonMobil both held oil concessions in Niger's Agadem
region, but refused to consider refining oil. ``East time the
government said, `build a refinery,' they said: `it's impossible.' The
Chinese came and said: `A refinery? What size?' '' \28\
Agency of Restraint. China's system of resource-backed
infrastructure loans is a way for countries with weak governance,
unable to access global finance, and prone to the ``resource curse,''
to opt for an agency of restraint. With multiple competing demands for
access to the revenue streams from their natural resources, leaders
find it hard to say no. Commodity-backed loans are a precommitment
technique. They allow a government to have public works expenditures
today, paying for them with future exports. In weak governments, rather
than trying directly to improve the host government's accountability
mechanisms, or forcing improvements through conditionality, the Chinese
accept that institutional development is a long-term process. They
manage their fiduciary responsibility by keeping control over the
finances and almost never giving cash. As one African official told me:
``with China you never see that money.''
Debt Sustainability. China's new ability to offer large-scale
finance arrived just as African countries were finally successful in
getting multilateral debt relief through the Highly Indebted Poor
Countries (HIPC) program. Paris Club and multilateral creditors have
worried about a new debt burden. In the DRC, for example, China's
initial offer of a credit line of US$6 billion for infrastructure and
another US$3 billion or so to finance the copper mine appeared certain
to sink the war-ravaged country beneath towering waves of debt just
when the government was negotiating with the Paris Club for debt
forgiveness on the cold war era loans racked up under Mobutu.
Yet a different way of looking at this package suggests that while
the Chinese financing model involves large sums of credit, it also
frequently creates new cash flows to finance the investments. When
asked about Western criticism of China's African engagement during a
press conference at the World Bank/IMF Spring Meetings in April 2011,
Ngata Ngoulou, Chad's Finance and Budget Minister, said, regarding
debt: ``it is more important that the debt burden of African countries
is manageable. For us, this is a big difference. Even if the some of
the Western critique of China makes sense, I still do not think it a
bad thing for Africa. We borrow for our industrialization projects and
the debt will be repaid from their profits.'' \29\ This also creates
incentives for the Chinese companies and banks to do what they can to
ensure that their investments are financially sustainable, an incentive
that was often missing in past multilateral debt.
Impact on Local Firms and Workers. Chinese imports, particularly of
textiles, have been devastating competition for African firms using
outdated technologies to produce for local markets. At the same time,
some African entrepreneurs are partnering with Chinese companies or
using new Chinese machinery and technical assistance, and competing
successfully with Chinese imports into their regions.\30\ Indeed, World
Bank data shows that between 2004 and 2009, although Chinese imports
were rising dramatically, sub-Saharan African countries experienced
average annual increases of 3 to 5 percent in manufacturing for every
year except 2008, the first year of the global financial crisis.\31\ In
Ethiopia, Senegal, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe, all
large importers of Chinese goods, manufacturing grew by an average of 9
percent in 2009.
In the construction industry, Chinese companies clearly benefit
from contracts tied to Chinese finance. When these contracts are
delivered without competitive bidding, as in many export credit
arrangements, countries may find themselves paying higher costs than
would otherwise be the case. Yet even when they have no financial
support, Chinese companies are winning a large share of the small and
medium construction contracts that might have gone to local firms in
the past.
Chinese companies do have low costs but construction firms in
Zambia and Namibia have documented unfair Chinese business practices:
collusive bidding, low wages, and a tendency to hire contract workers
in order to get around mandated labor benefits (paid holidays, sick
leave, etc.) for permanent staff. A study by Namibian labor unions
pointed out that the Chinese were following the same practices as local
African firms. European-owned firms that adhered to local labor laws
and regulations suffered most.\32\
Chinese companies do bring a larger proportion of their workforce
from home than Western firms, but this is the case mainly for
construction projects in oil-rich countries like Algeria, Libya, or
Angola where local labor is expensive. In other places, with few
exceptions, Chinese projects have a majority of Africans in their
workforce. Those who do fieldwork regularly report this reality. For
example, a researcher who recently visited Cameroon expecting to find
large groups of Chinese workers found instead that every construction
site she visited had Cameroonian workers under Chinese managers.\33\ It
is the poor conditions of this employment, and not its absence, that is
a constant complaint among African workers.
Policy Space. Decades of advice and conditionality imposed by the
West have pushed African governments to rely on the magic of the
marketplace, develop by opening their markets and exporting according
to their comparative advantage in raw commodities. While the Washington
Consensus usefully stressed key macroeconomic fundamentals--low
inflation and adequate foreign reserves--it was skeptical of the kind
of industrial policy and targeted intervention practiced across East
Asia, and it had little to say about strategic development policy.
The achievements of the Chinese in moving millions out of poverty
are recognized as a significant success. But like other East Asian
countries, although China moved toward the market, they did it
gradually, and in particular, they did not begin by liberalizing trade,
as recommended by the Washington Consensus. Their model emphasizes
fiscal stability and macroeconomic balance, but also learning and
experimentation. The enormity of this example provides policy space for
African governments to experiment with other approaches to fostering
development.
AFRICAN REACTIONS TO CHINA'S APPROACH
Africans have reacted to China's approach in different ways.
Government officials and leaders have largely been very positive, with
some exceptions, such as Zambian opposition politician and, now, new
President, Michael Sata. Civil society, trade unions, and some sectors
of local business have been more wary. This is particularly the case
with regard to Chinese labor practices, the influx of small-scale
traders, the impact of Chinese goods on local manufacturing, and the
fact that by engaging primarily with governments, Chinese aid and
export credits reinforce incumbent leaders. Concerns have also been
raised about the high levels of counterfeiting and substandard goods
coming into Africa from China.
Opposition politicians have sometimes found that Chinese engagement
can provide ample fodder for political capital. Writing an op-ed about
a large Chinese economic zone planned for Mauritius, Anil Gayan, an
opposition member of Parliament, wrote: ``It is a voluntary
colonization . . . a danger for our security.'' \34\ Michael Sata, a
perennial Presidential candidate in Zambia, famously dismissed the
Chinese in his country as ``infesters'' not investors.
Public opinion polls in Africa show that populations there are
generally even-handed about Chinese engagement. In Cameroon, for
example:
. . . 70 percent of the respondents in one poll were
``disturbed by the Chinese influx'' while at the same time 92
percent in the same survey admitted that China is good for
Cameroon's economy. Also, 81 percent welcomed Chinese products,
which benefited poorer parts of the population.\35\
A study analyzing Afrobarometer's public opinion surveys in 20
countries found that while most Africans expressed positive views of
China's role, Africans who rank human rights as high in importance were
more likely to have an unfavorable opinion. Views on the importance of
democracy were not correlated with negative opinions of China,
however.\36\
Government officials generally express positive views. Speaking at
the World Bank/IMF Annual Meeting in April 2011, Dr. Situmbeko
Musokotwane, the Zambian Minister of Finance, compared China's business
and aid model with that of the West. China used aid and other tools
vigorously to encourage its companies to invest in Africa, he said, but
that did not seem to be the case for Europe and America, whose aid
programs were more paternalistic, and seemed to be designed as charity:
``at least help them not to suffer, we can't do much more than that.
They're not ready for investment.'' \37\
Mthuli Ncube, chief economist at the Africa Development Bank,
commented in Tunis that the Chinese model ``is a fascinating and new
model in terms of how aid is flowing into Africa and how infrastructure
investment is being conducted and supported.'' China, he said, is
``posing a challenge and making us think about aid architecture, this
kind of governance-neutral approach to aid engagement and investment in
Africa.'' China's approach might even be more sustainable, he said.
``We can talk forever about Millennium Development Goals but my view is
you can only pay for MDGs targets and progress not through aid but
through growth.'' \38\
A survey of African stakeholders carried out in 40 African
countries by the OECD for the African Economic Outlook 2011 found that
emerging partners such as China were ranked as having a comparative
advantage for cooperation in infrastructure, innovation, and even
health compared with Africa's traditional bilateral and multilateral
partners. Economist Helmut Reisen, head of research at the OECD's
Development Center commented: ``these results are striking considering
all the effort traditional donors have put into these sectors.'' \39\
STEPS THAT CAN BE TAKEN TO IMPROVE COOPERATION WITH CHINA
First, invest some effort in getting behind the headlines and
seeing what China is actually doing. The Chinese have six decades of
experience with aid in Africa. They've spent time analyzing their own
past failed aid projects, and they've come up with a different model of
engagement, much of which does not actually involve official
development aid. It's much closer to Japan's pattern of engagement with
other Asian countries.
Through diplomatic processes like the Forum on China-Africa
Cooperation (FOCAC), initiated in 2000, China has increasingly
coordinated its development engagement with Africa on a ``whole of
government'' basis, with involvement by the line ministries
(agriculture, health, education, science and technology), universities
and think-tanks, policy banks, as well as the ministries of commerce
and foreign affairs. This synergy has led to practical experiments
based on China's own experience:
Resource-backed infrastructure loans. Credits that allow
countries with poor credit ratings to borrow today and pay with
tomorrow's exports.
Overseas economic zones that encourage Chinese companies to
move their labor, energy, and resource-intensive manufacturing
offshore.
A US$5 billion equity fund provides additional capital
investment options for suitable Chinese companies in Africa who
plan invest in public-private partnerships, joint ventures, and
manufacturing.
A US$1 billion fund to provide loans to African small and
medium enterprises, channeled through African countries'
national development banks.
Twenty agro-technology demonstration centers that ask
Chinese institutes and agribusinesses to build sustainable
business models that can cross-subsidize development outreach
with profitable income opportunities.
These tools are for the most part not funded by China's official
aid, but they are about development. More importantly, they respond to
the requests of Africans for assistance that will help in building
infrastructure and creating new jobs. The Chinese approach to
development finance in poorer countries demands that we reconsider our
assumptions and our neat categories that separate ``aid'' from business
support.
THE EXAMPLE OF HEALTH
China has hosted two International Roundtables on China-Africa
Health Collaboration, on December 4-5, 2009, and on February 11-12,
2011, respectively, organized by the Chinese Alliance for South-South
Health Cooperation Research, the Peking University Institute for Global
Health, and the China Institute of International Studies, and
cosponsored by the World Bank Institute, China's MOH, WHO, and the Bill
& Melinda Gates Foundation. Interest in collaboration appears to be
growing.
However, the lack of understanding and, sometimes, the
misrepresentation of the nature of Chinese engagement overseas, have
created a challenge for United States-China collaboration. For example,
one analyst writes: ``More than 2,000 Chinese medical personnel have
been sent to Yemen during the past 40 years to assist with Yemen's
health and medical programs and responses to disasters. In exchange,
China has received access to Yemen's markets and energy resources''
(emphasis added).\40\ Another argues, without evidence, that ``Health
diplomacy helps pave the way for Chinese oil companies [sic] to win
mining rights for oil, platinum, and other natural resources, . . . one
part of the quid pro quo that encourages African states to make these
concessions and provide Chinese companies access to these resources.''
\41\ It is more accurate and useful to see China's health diplomacy as
a broad-based strategy aimed at building goodwill across the continent,
no more an ``exchange'' or ''quid pro quo'' than U.S. health
engagement. To encourage official collaboration between the United
States and China in health, high-level support by political leaders on
both sides will be necessary to build trust and overcome suspicions
like those noted above.
Operationally, the Chinese concern about not intervening in the
internal affairs of their partners means that they operate with a great
deal of regard for local ownership of their assistance efforts.
Therefore, a key step in collaboration requires genuine buy-in by an
interested African partner. The stars need to be aligned further: In
the partner country, it will be essential to have constructive
commitment by both the Chinese and American ambassadors.
A parallel track should involve building relationships by working
together in multilateral settings, particularly those endorsed by the
U.N. or WHO, or in private or more decentralized settings, for example,
foundations with health-related programs in China as well as Africa--
the Rockefeller, Ford, or the Gates Foundations. With a ``green light''
from political officials, experiments in cooperation can be started
between organizations such as the Centers for Disease Control in China
and in the United States.
Possible areas for collaboration could include not only malaria but
also sanitation and rural and urban water supply efforts. The Chinese
have extensive experience in building low-cost water supply systems in
Africa, whereas the United States could focus on public health
education (e.g., promoting hand washing). Some American officials have
expressed interest in purchasing more Chinese antimalarial medicines
for use in Africa, as long as they are certified by WHO. Assisting
Chinese firms to gain WHO certification could be mutually beneficial.
Building up the capacity of African governments to test and monitor
imported medical products in order to fight substandard and counterfeit
drugs would also be useful.\42\
FINAL POINTS
In conclusion let me stress three points: realism versus alarmism;
good policy needs good information; engage China multilaterally.
Realism versus Alarmism. China's rise in Africa should be seen in
context. China is still a far smaller player than the West. The Chinese
Government has much in common with other rising economic powers: Brazil
and India, for example. Brazil is also expanding on the continent. The
Economist recently reported that Brazil has more embassies in Africa
than the U.K., for example. Lack of transparency is also a common
pattern for these emerging powers. Brazil, India, and China are alike
in not being members of the OECD and in not reporting their aid and
development finance flows to the OECD's Development Assistance
Committee, which tracks these things on behalf of its members and
others. Brazil, India, and China also have similar levels of
corruption, according to Transparency International.
Good Policy Needs Good Information. Pushing China to be more
transparent about aid and official finance may eventually yield
results, and this would be helpful for us in reacting to China's rise.
But in the meantime, it is possible to gather better information and to
publish that information. In the 1970s, the CIA gathered information on
China's aid program and published this information regularly. Today, it
appears that no one in the U.S. Government is gathering and sifting
through the volumes of information on Chinese engagement. The
information that is sometimes made available to Congress, for example,
a report on Chinese ``aid'' written by the Congressional Research
Service that estimated annual aid flows from China of some $18 billion
in 2007 alone, is not always as careful or accurate as it could be.\43\
As a Washington Post article said not long ago, ``China is no enemy,
but inflating the challenge from China could be just as dangerous as
underestimating it.'' \44\
Engage China Multilaterally. China is a member of the United
Nations, World Trade Organization, and the World Bank and International
Monetary Fund, the World Health Organization. All of these have rules
and norms on global engagement that China has pledged to uphold: rules
on export credit subsidies, for example, or on debt sustainability and
reporting of international credits. At the same time, China is not a
member of the OECD, where many of our rules on trade, investment,
export credits and official finance are made. The OECD sets the
standard for being a responsible global player (even if the standard is
not followed consistently by OECD members). The Chinese by and large
are familiar with these rules. We need to think about ways in which we
can make actually joining the club--as South Korea and Mexico have
recently done--both feasible and attractive to the Chinese.
----------------
End Notes
1. This testimony draws on Deborah Brautigam, ``The Dragon's Gift:
The Real Story of China in Africa,'' Oxford: Oxford University Press,
2011 (2009) and Deborah Brautigam, ``China in Africa: What Can Western
Donors Learn?'' Norfund, August 2011, http://norfund.no/images/stories/
publikasjoner/andre_publikasjoner/Norfund_China_in_Africa.pdf.
2. Ministry of Commerce, ``China Commerce Yearbook,'' Beijing,
2009.
3. OECD, ``Development Assistance Committee (DAC) Statistics,''
http://stats.oecd.org/.
4. USAID, ``Congressional Budget Justifications, Foreign
Operations, Annex on Regional Operations, Budget Year 2012,'' http://
www.usaid.gov/performance/cbj/158268.pdf.
5. ``Global Health Initiative,'' http://foreignassistance.gov/
Initiative_GH_2012.aspx?FY=2012.
6. Brautigam, ``Dragon's Gift,'' 317. The percentage of aid going
to Africa is adjusted slightly (from my estimate of 43 percent to the
actual figure of 45.7 percent, revealed in State Council, ``China's
Foreign Aid,'' Beijing, April 2011. Rapid increases mean annual aid
commitments are higher than disbursements.
7. USAID, ``USAID Primer: What We Do and How We Do It,''
Washington, DC, revised January 2006, http://www.usaid.gov/about_usaid/
PDACG100.pdf. A small number of additional personnel are seconded from
other agencies or institutions.
8. Information Office, ``China's Foreign Aid,'' Beijing, People's
Republic of China, State Council, April 2011, 4. Currency conversions
are on the basis of the exchange rate in 2009. These totals are not
very meaningful, however, as the Chinese figures in RMB yuan were
simply aggregated, without accounting for inflation.
9. Martyn Davies, ``How China is Influencing Africa's
Development,'' background paper for the ``Perspectives on Global
Development 2010: Shifting Wealth,'' April 2010.
10. ``Concessional financing,'' http://www.economics-
dictionary.com/definition/concessional-financing.html [accessed June
15, 2011]. Although market rates vary strikingly around the world, this
clear, standard definition suggests that the label ``concessional''
should be applied only for finance that is given below the benchmark
rate for the currency in which the loan is issued.
11. China Eximbank, ``Annual Report 2010,'' p. 22. The Chinese
figures were RMB 278 billion.
12. China Eximbank, ``The Export-Import Bank of China Hosted a
Symposium on Financing and Project Cooperation in Africa,'' news
release, July 25, 2007.
13. Deborah Brautigam, ``Chinese Aid and African Development,'' New
York: St. Martin's Press, 1998.
14. The United States has the government-owned Export-Import Bank.
Germany has a publicly owned bank: KfW, or Kreditanstalt fur
Wiederaufbau to support exports. Brazil owns BNDES, Banco Nacional de
Desenvolvimento Economico e Social (Brazil National Social and Economic
Development Bank). China's three policy banks are China Development
Bank, China Export Import Bank, and the Agricultural Development Bank
of China.
15. Deborah Brautigam and Tang Xiaoyang, ``African Shenzhen:
China's Special Economic Zones in Africa,'' Journal of Modern African
Studies, 49, 1 (2011): 27-54.
16. For an excellent overview of the various types of financial
support available to China's enterprises under ``Going Global'' see
Duncan Freeman, ``China's Outward Investments: Challenges and
Opportunities for the EU,'' Brussels Institute of Contemporary China
Studies Policy Paper (no date).
17. Institute of Economic and Resource Management, ``A Report on
the Development of China's Market Economy,'' Beijing: China Foreign
Economic Relations and Trade Publishing House, 2003, 129.
18. Erica Downs, ``Inside China, Inc: China Development Bank's
Cross-Border Energy Deals,'' Washington, DC, Brookings, March 2011.
19. People's Daily, April 9, 2000.
20. China-Africa Development Fund, ``Online Q & A,'' http://
www.cadfund.com/en/ques_on
line.asp?Id=9 [accessed June 29, 2011].
21. Vivien Foster and Cecilia Briceno-Garmendia, eds. ``Africa's
Infrastructure: A Time for Transformation,'' Agence Francaise de
Developpement and the World Bank, 2010, p. 8.
22. Information Office of the State Council, ``China's Foreign
Aid,'' Beijing, China, April 2011, p. 6.
23. Steve Radelet, Meeting at Center for Global Development,
October 9, 2007.
24. Hanna S. Tetteh, Statement Read on Behalf of Government at a
Press Conference,'' October 26, 2011.
25. ``Oil Exports to Propel Growth Boom,'' Africa Monitor, v. 12,
n. 8, August 2011, p. 7.
26. ``CNPC and Chadian government sign MOU on financing for
N'Djamena Refinery,'' Press Release China National Petroleum Company,
August 25, 2009, http://www.cnpc.com.cn/en/press/newsreleases/
CNPCandChadiangovernmentsignMOUonfinancingforNDjamenaRefinery_.htm
[accessed July 15, 2011].
27. Burgis, ``A Richer Seam.''
28. Burgis, ``A Richer Seam.''
29. IMF, Video of Press Briefing, African Ministers, World Bank/IMF
Spring Meetings, April 16, 2011, http://www.imf.org/external/mmedia/
view.aspx?vid=907396692001 [accessed July 30, 2011].
30. See Brautigam, ``The Dragon's Gift,'' for the success stories
of several African entrepreneurs.
31. World Bank, World Development Indicators. Analysis covers all
sub-Saharan African countries with data between 2004-2009.
32. J. Anthony Yaw Baah and Herbert Jauch (ed.), ``Chinese
Investments in Africa: A Labour Perspective,'' African Labour Research
Network, Windhoek, Namibia, May 2009.
33. Lisa Sodalo, ``China in Cameroon's Construction Sector: Towards
Enforcement of Higher Labour Standards Than Local Regulation?,'' China
Monitor, May 2011, http://www.ccs.org.za/wp-content/uploads/2011/06/
China_Monitor_MAY_2011SG1.pdf [accessed June 28, 2011].
34. Brautigam, ``The Dragon's Gift.''
35. Max Rebol, ``Alternatives: Turkish Journal of International
Relations,'' Vol. 9, No. 4, Winter 2010.
36. Aleksandra Gadzala and Marek Hanusch, ``African Perspectives on
China in Africa: Gauging Popular Perceptions and Their Economic and
Political Determinants,'' Afrobarometer Working Paper No. 117, January
2010.
37. Comments at a panel, Washington, DC, April 15, 2011.
38. Ndamu Sandu, ``Chinese Aid to Africa in the Spotlight,'' The
Standard, November 29, 2010.
39. Helmut Reisen, ``Emerging Partners Create Policy Space for
Africa,'' Shifting Wealth Blog, June 6, 2011. The traditional partners
were thought to have a comparative advantage for exports and for
governance.
40. Denise Zheng, ``China's Use of Self Power,'' in Chinese Soft
Power, ed. McGiffert, 4.
41. Jeremy Youde, ``China's Health Diplomacy in Africa,'' China: An
International Journal 9, no. 1 (2011): 159, 160.
42. See the discussion by Liu Youfa, ``Responsibilities of China
and the United States in Promoting Global Health Programs in Africa,''
paper presented at CSIS-China Institute of International Studies
Conference Conference, Beijing, May 24, 2011.
43. See, for example, http://www.fas.org/sgp/crs/row/R40361.pdf and
my comments on it on my blog: http://www.chinaafricarealstory.com/2010/
02/billions-in-aid.html.
44. http://www.washingtonpost.com/wp-dyn/content/article/2010/02/
26/AR2010022602601.html
?sub=AR.
Senator Coons. Thank you very much, Dr. Brautigam.
Mr. Hayes, if you would.
STATEMENT OF STEPHEN HAYES, PRESIDENT AND CEO, THE CORPORATE
COUNCIL ON AFRICA, WASHINGTON, DC
Mr. Hayes. Thank you.
It is very good to see all four of you.
Senator Coons. Turn your mike on.
Mr. Hayes. Sorry. Good to see all four of you. And
certainly, Senator Lugar, it is great to see you again as well.
I would like to speak really more from the private sector
point of view, of course, and as I noted in my written
testimony, I am honored to be invited to provide testimony.
Much of my life has been built around both China and Africa
relations with the United States, and certainly, currently, the
status as president of the Corporate Council on Africa has
brought together my interest in both regions of the world.
For the Corporate Council on Africa, this issue is of high
urgency. It is nearly 200 companies represent about 85 percent
of all United States foreign direct investment in Africa. As we
attempt to expand United States trade with and investment in
Africa, the relationship with China becomes increasingly
important to the American economy.
China's interests in Africa do go beyond economic and
include wider political influence on a global scale, as does
ours. In the global marketplace, China is and will continue to
be an aggressive competitor to the United States and other
nations, including those in Africa.
They have every right to be such. No one should challenge
China's right to be engaged in Africa. Both China and the
nations of Africa are free to seek any and all trading
partners.
Neither is China alone in increasing its investment in
Africa. The emerging economies of Brazil, Russia, India, South
Africa as a group are outpacing United States investment in
Africa.
However, China does enjoy certain advantages over the
United States and other nations, particularly following rules
and practices of the OECD. Those rules forbid bribery of public
officials in any form, as well as eliminating predatory
practices on export credit financing.
Chinese counterfeit goods have flooded African markets, not
only undercutting United States companies who have created the
products--some of the products--driving them out of the market,
but also creating health risk with counterfeit medicines.
International patent rights are ignored, and this has
implications for supporting development of new products and
manufacturing in Africa, as well as exporting nations.
Chinese populations are also increasing throughout Africa,
with major socioeconomic implications for the continent. While
this is the business of African host nations and China, it does
bring up questions of future stability of nations, as well as
create questions around the use of local versus imported labor.
The United States strategy toward China should be twofold.
The U.S. Government should do more to help American companies
compete in Africa. Far greater United States private sector
engagement in Africa will not only help African development but
will also help rebuild the manufacturing base in America.
Our aid program should be shifted toward building a vibrant
private sector throughout Africa, and USAID should recognize
the United States private sector as a partner in African
development. I think our competitive advantage in this regard
will be if we can compete and work with a vibrant private
sector in Africa, then private sector to private sector is more
in our line, and we can develop that. I think that is one of
the emphasis that we should be placing.
In this regard, many of our members' experiences and
insights are reflected in legislation being developed by
Senator Durbin that may make it possible for U.S. companies to
compete on a more even playing field. We should recognize,
however, that China will be a long-term player in Africa and
that China offers an opportunity also for America in terms of
economic partnerships.
Cooperation will require time and the establishment of
trust, but there are some business partnerships already between
the United States and China in Africa. But there are also areas
that Professor Shinn rightly noted that we can now cooperate
in, such as South Sudan and the Horn of Africa.
Much of this cooperation, though, will be built through
joint ventures in the United States. If the United States and
China can find common ground in Africa, not only will the
United States-China relationship strengthen but so, too, will
the benefit to Africa. In this regard, the Corporate Council on
Africa will be leading a delegation of businesses to China in
February to meet on possible cooperation in Africa.
Thank you.
[The prepared statement of Mr. Hayes follows:]
Prepared Statement of Stephen Hayes
Senator Kerry and other members of the Foreign Relations
Subcommittee on African Affairs, I am honored to be asked to testify
before you on China's role in Africa. I have worked for some years with
Chinese emerging leaders before I became President of the Corporate
Council on Africa more than 12 years ago. Much of my life has been
engaged in China and African affairs.
The Corporate Council on Africa, whom I proudly serve, is a
membership organization of more than 180 companies. Collectively the
members represent more than 85 percent of all U.S. private sector
direct investment in Africa. Probably no organization in America is
more engaged in the economic and political landscape of Africa. As such
we are a nonprofit, nonlobbying organization committed to increasing
U.S.-Africa trade and investment. We are engaged in different ways in
most issues affecting the economic relationship. Certainly, the Chinese
engagement with Africa is one of those key issues.
A great deal has been said about China's perceived domination of
the African market. Clearly China has long-term aims, both economic and
political, through its heightened involvement in Africa. Given their
needs for the development of their own nation coupled with the fact
that so much of the world's strategic resources are to be found in
Africa this should not be surprising. I think it wise to presume that
their interests go beyond just economic, however, and they seek wider
political influence than they have had in the past. They are, after
all, one of the principal bankers for the world right now, and their
planning, unlike most countries today, is cohesive, coherent, and long-
term, both in economics and politics.
In global business, contracts are completed when three basic
dynamics are realized: capacity to deliver, decisionmaking and
execution of the contract itself. In capacity to deliver and in
execution of the contract, that is the completion of the product, the
United States can evenly compete with China or any other nation in the
world. However, the decisionmaking process, which affects the time that
a contract can be completed, is far less cumbersome in China than it is
in the USA. Nearly every U.S. deal relies on private investors, and on
this matter China has a distinct advantage.
The decisionmaking process in China is far more efficient than it
is in the United States. Decisions and recommendations for investment
are often directed by the government, or at the very least, and they
are able to meet requests from African governments far more quickly
than we can in this country. There are far more checks and balances
that most business deals must meet in our own system. We also operate
our economic models on business-to-business contracts, while many
African countries, especially those with weak private sectors, operate
on Government-to-business model, more similar to the Chinese model than
to the American model. The competitive advantage clearly goes to China
under these circumstances.
It is not necessarily China's capacity, or even its ability to
execute/complete contracts quickly that defines its competitive
advantage in Africa. The West still holds key advantages in both
technological and scientific capacity, as well as in management skills
and probably quality of workmanship. Rather it is the Chinese ability
to forge consensus and mobilize resources quickly that gives them a
distinct advantage in the African marketplace.
No one should challenge China's right to be engaged in Africa.
Their involvement has helped Africa perhaps more than any nation has
helped Africa in any 10-year period directly and indirectly. Certainly,
the China engagement with Africa has brought about heightened interest
in Africa. Infrastructure has expanded in many countries thanks to
Chinese investment and political interests. More productive agriculture
has been developed in some countries where China is active, and
certainly the increased competition for strategic minerals has driven
up the price of commodities and raised national incomes for many
African countries.
It is not China alone, however, that is increasing its investment
in Africa. While it can be debated whether the increased interest of
China in Africa has spurred on other nations to become more engaged
economically in Africa, the combined investment of the so-called BRICS
(Brazil, Russia, India, China, and South Africa) has surpassed all U.S.
investment in Africa. As a result, the economies of these countries
have also shown greater strength and stability in these times than most
developed nations. There are growing investment flows into Africa from
the Middle East, ranging from Turkey to the nations of Arabian
Peninsula and to Iran. We also see growing interest in Africa from
Japan, particularly since its recent nuclear disaster, but also because
of the growing influence of China. China's interest and growing
involvement in Africa is perhaps one of the most important political
and economic phenomena in the world right now, and in my view, the
United States has been very slow to either understand its meaning and
ramifications for our own country and its own economic and political
future.
It is difficult to know exactly how much China is investing in
Africa, and it is just as difficult to pin down exactly how they are
winning the competition. Their currency is artificially pegged so exact
values are almost impossible to determine. Certainly, their government
and their private sector are working closely together, and the Chinese
Government appears to help its private sector investing in Africa as no
other government helps its own private sector. Some of this is due to
the history of China, particularly over the last 30 years, and some is
simply due to the fact that China can underbid most projects through
lower labor costs and through government-subsidized assistance to
Chinese companies. While Chinese companies win infrastructure contracts
with low bids and subsidized financing, they also have developed a
reputation for limited employment for Africans, limited technological
transfer, and in some cases, uneven workmanship. If Chinese companies
do not correct these practices, it presents an opportunity for American
companies to win contracts and train Africans during project
implementation, which is in Africa's long-term benefit. One American
company, Symbion Power, has done exactly that in winning an MCC-funded
contract for power transmission in Tanzania. It also partnered with CCA
to develop an HIV/AIDS prevention campaign for its employees in
Tanzania.
What is also obvious is that the Chinese population on the African
Continent is increasing in nearly every nation. Chinese businesses are
sprouting up in not only the major cities of Africa but in smaller
urban areas as well. Chinese laborers are brought in with Chinese
construction projects, and it is difficult to determine if the laborers
return to China after the projects are completed. In many areas, the
Chinese appear to be permanent immigrants. Again, exact figures are
difficult to obtain, but I have traveled to no African country where
some citizens of the country did not express concern about the growing
Chinese domination of the local markets and their influence in
displacing African workers on construction projects and in new
businesses. In the recent Presidential elections in Zambia, the growing
Chinese influence over the economy was the key political issue. One
should not be surprised if similar issues develop in other countries on
the continent.
Clearly, the Chinese have no interest in following OECD rules. They
are not members of OECD and therefore are not constrained by the rules
in their negotiations with the governments and businesses of Africa.
They are, in many ways, at a distinct competitive advantage over its
Western counterparts, as are other countries not bound by OECD rules
and regulations. However, again, exactly how the Chinese compete for
contracts is not easily verified. There is no requirement for
transparency in negotiations and the terms of the contracts are often
held privately by the governments and companies involved in the
negotiations. I do not think this likely to change in the near future.
What is clear, however, is that such tactics have slowed the pace of
reform in Africa and strengthened the intransigence of those resisting
democratic reform for the benefit of the people.
For U.S. companies, as well as those of other nations, counterfeit
goods have flooded the African markets, not only undercutting those who
have created the original products, and driving them out of the market,
but also creating health risks with counterfeit medicines and false
products, with the Africans once again the victims of this
exploitation. International patent rights are ignored.
The question before this body is whether China will become so
dominant in its control of the African market that this dominance will
significantly impair our own policies toward Africa, and whether, in
fact, our own need for strategic resources, including fuel, will be
threatened. After all, countries will necessarily gravitate toward
those countries who are most heavily and directly invested in them. If
the United States continues to fail to develop private sector-led
growth, can we realistically expect to maintain the same respect and
relationships with the African people and the nations of Africa?
Perhaps an even more salient question is what opportunities for
jobs in America are never created because American business may be more
a spectator than an actor in the African marketplace. It is not a
matter of how many jobs are lost, but how many are never created
because we have failed to engage in Africa to the same extent others
have, particularly as China makes Africa in its highest strategic
interests? China's engagement in Africa puts them at the planning
tables for nearly all new projects and opportunities. How many jobs are
we not creating by not being engaged in Africa?
There are some in this country, (and I hear this from some of our
member companies involved in Africa), who believe that it is almost
impossible to compete with the Chinese. I do not accept this and think
that if we do not compete more effectively in Africa our long-term
interests and hopes, as well as our national economy, will suffer
sufficiently as to render us a mid-level economy over this century. I
believe that our political and economic engagement with Africa is in
our highest national interests.
Our strategy as it regards China in Africa should be twofold: we
need to find ways to compete, certainly, and I also believe it is in
the interests of China, the United States, and the nations of Africa
that we find ways to more effectively cooperate.
First, in terms of competition, we should not isolate China as the
primary competitor. It is certainly the largest, but as I noted
earlier, many other nations are now becoming far more engaged in China,
and the economic environment is becoming increasingly competitive. We
need to look at our own economic stance toward Africa, regardless of
whom we perceive as primary competition. The fact is that we have not
shown the same competitive strengths as others, and we need to ask
ourselves what needs to be done.
We need to expand and strengthen the ability of American companies
to make investment decisions. We need to engage our university systems
in more economic research in Africa. Our business schools need to focus
more on developing markets globally, just as American companies need to
conduct more on-the-ground research in Africa. A company will not
invest in Africa if they doubt their ability to recover their
investment. Therefore, making investment decisions rests with the
quality and the research that provides confidence in long-term
sustainability and profitability of investment.
We should recognize that the development goals of Africa do not
simply benefit Africa, but are essential to our own national economic
security. Private sector-led development throughout Africa will bring
about a growing middle class, create greater stability throughout the
continent, and provide for U.S. businesses stronger and more reliable
business partners. Our traditional approach to development needs to be
reexamined and altered to make private sector economic development
among our highest priorities.
Second, we need to examine specific barriers to U.S. companies
ability to compete more effectively in Africa. There are several
serious barriers, largely self-imposed, that hamper our ability to
compete.
One such barrier is access to financial markets. Few U.S. banks
will finance U.S. companies seeking to do business in Africa, and our
own agencies designed to mitigate such risks, such as the Ex-Im Bank
have fallen woefully short in addressing the problem. We can provide
one example after another of good U.S. projects in Africa failing to
get necessary government support. While I think Ex-Im is attempting to
address the problem, as is OPIC, the support provided U.S. companies is
far below the level of support that the Chinese counterparts provide
for their private sector companies seeking to do business in Africa.
A second impediment for U.S. companies doing business in Africa is
the necessity to find partnerships. One simply cannot do business
easily in Africa without having a reliable partner on the ground. There
is no mechanism set up that allows us to easily find a partner. We have
a limited number of U.S. Commercial offices in Africa and under budget
constraints those that we do have are being closed. These closures are
coming at exactly the wrong time. They come when China and others are
increasing their commercial government presence throughout the
continent. Among the highest priorities of Chinese Embassies is to
support its business development in Africa.
At the Corporate Council on Africa we have developed through the
support of the U.S. Agency for International Development a U.S.-Africa
Business Center whose primary purpose is to identify business partners
in Africa for U.S. companies, especially small and medium-sized
businesses wishing to do business. It is the only such organization in
America and it can only meet a small proportion of the need. This
operation needs to be significantly expanded and duplicated in other
parts of the country. China provides support for its small businesses
investing in Africa. We do very little of this, and as a result hurt
our own economy as well as fail to help develop the private sector in
Africa.
Diplomatically, I believe that our current Assistant Secretary of
State, Johnnie Carson, deserves a great deal of praise for insisting
that many of our new ambassadors selected for African posts have
significant economic experience. The challenges in Africa are now as
much economic as they are political, and traditional diplomacy is no
longer applicable to this rapidly changing economic environment.
To his credit, he is also working with U.S. companies to see that
they win contracts in Africa. The Department of State and the Corporate
Council on Africa are jointly working together now to take a delegation
of U.S. power companies to Africa in the first quarter of 2012. The
delegation may be lead by Assistant Secretary Carson. The purpose of
the mission will be to significantly increase the involvement of U.S.
power companies in the development of the power sector in Africa. Few
projects could be more important to Africa, as there is not a country
on the continent that is meeting its current power needs, and until
they do we cannot expect rapid economic development in Africa. This is
but one example of how U.S. companies can make a difference to Africa
as well as buttress the economy of the United States of America.
At the same time as we increase our competiveness for a share of
the African market, I also strongly believe that we must find ways to
cooperate with China in Africa. The stakes for humanity are too high
for us not to cooperate. While we must recognize that we must compete
internationally with China and others if we are to heal our own
economic wounds, we must also recognize that partnerships globally must
be developed.
In a world facing growing food shortages, water scarcity, climate
change, and the social instabilities they cause, any responsible path
forward must rely on international cooperation. Yet today we find the
United States and China, competitors at the best of times, struggling
to resolve how to address their common interests in Africa, a continent
that has suffered more than any other in recent centuries from
disasters both natural and man-made.
If the United States and China can find common ground in Africa,
both Africa and U.S-China relations can make dramatic strides forward.
But the challenge is to convince all the actors to put the health and
wealth of the global community above national interests, a difficult
and rare endeavor.
It is ironic that as we face new global crises, the competition for
economic and political advantage is occurring, as it has throughout
human history, in Africa, where mankind's struggle for survival first
began. Africa offers the arable land needed to provide food for a
hungry world; it offers the water to feed the world and quench the
thirst of billions, and it offers the remaining minerals necessary to
maintain a modern global society. And the primary players competing
over African hearts, minds, and resources today are the Americans and
the Chinese, with China having the early advantage of money for
investment and a plentiful worker supply for export to the continent.
But it is not just the United States and China with an interest in
Africa. The Gulf States, Russia, India, and Europe are all looking to
Africa as well to feed their people, with the African peoples
themselves struggling to control their own destinies and put food on
their tables. Africa matters, and the United States and China are going
to play an outsized role in Africa's future. But they need to find
common ground and lead together. Partnerships of all kinds are needed
for Africa's development, and our own economic self-interests.
There can be better days ahead for Africa. Infrastructure
development is moving at a rate unseen before, but the needs are still
great. No African country has a sufficient power supply to meet current
needs, let alone the projected needs of the future. Famine has
returned, if it ever really left, to the Horn of Africa, and water is
scarce for a large percentage of the continent's population.
Together, the United States and China can lead the world into a
more cooperative arrangement, beginning in Africa. They cannot do so
without the support of Africans, but they remain, at this moment in
history, the two nations most able to develop a stronger Africa, and a
more harmonious world. It is not a case for bipolarity. It is simply
recognition of history at this particular moment. Someone must lead and
right now, the United States cannot lead alone.
Cooperation comes a step at a time. There must be some confidence
and trust-building. A project or projects will need to be agreed upon
and the host country must be a party to all agreements.
There are several opportunities for the United States and China to
cooperate economically in support of both mutual and continental
benefit. For example, economic cooperation in South Sudan is to the
advantage of both the United States and China. A peaceful and developed
South Sudan clearly benefits the interests of China, which has made
enormous investments into the oil sector, and would build up a pocket
of political stability in an otherwise very tough neighborhood for the
United States. The United States and China both have interests in
promoting stability in the Horn of Africa. Consistent supply lines and
agriculture development is important to both nations, and the Horn of
Africa could be one of several future global breadbaskets providing
Africa with increased economic power and a better quality-of-life.
Closer cooperation between China and the United States is not
something to be feared, but welcomed, by Africa. Such cooperation would
bring about greater stability in reality and perception, and would lead
to the opening of new markets and a faster influx of new investment
into Africa. The sign of two great nations cooperating in and with
Africa would be a very positive and welcoming sign of stability and
promise for new investors.
Competition is inevitable, but competition does not preclude
cooperation. Instead, a cooperative effort to build Africa through
amicable competition and cooperation can lead to improved development
across the continent, and can lead to far greater understanding for all
parties. If the United States and China choose to cooperate in their
efforts in Africa, and always include African leaders and the African
peoples in the process, they will set the tone for every other nation,
and point Africa toward a brighter future.
What we need now is for the leaders in the United States and China
to find the courage necessary to seek common ground and elevate
international development among its highest priorities.
Senator Coons. I would like to thank all three of our
witnesses. And I will begin a first round of 7-minute
questions, if I might.
First, Mr. Hayes, let me just follow up on your concluding
point. Given the trends shown in the charts and in your
testimony, all three of you, what specific policy
recommendations would you make for U.S. Government action that
would make American business more competitive with regard to
China, and what are the areas that you see we might really have
some potential for cooperation?
Mr. Hayes. I think there are several areas. One is the
Export-Import Bank. I think it has played a less than stellar
role in supporting United States business in Africa. I think
there are attempts to change that, but certainly, legislation
as well as a cultural change within Ex-Im Bank, I think, is
required.
The amount that the Chinese Ex-Im Bank supports its own
businesses--and China does have a private sector--is
phenomenally higher by many times than the United States
support of its businesses. It can make decisions quickly.
Ex-Im Bank, as is well documented, takes a long time to
make decisions. It hurts American business. We can give you one
horror story after another. I won't go into that unless
pressed.
I think USAID should shift its development toward the
private sector and, again, toward developing the private sector
in Africa. Most of its work is in other areas. I think that it
could help a great deal in developing the private sector.
If we can develop a middle class, these countries are going
to be far more stable. We are going to have more reliable
business partners. I also think that we ought to be linking
more with business organizations in Africa.
In terms of cooperation, certainly China and the United
States has common interest in seeing South Sudan as a stable
area. So, certainly, that is one area.
The second area is those areas where our companies can
cooperate, where China may be lacking certain areas--we have
seen General Electric cooperate with Chinese companies in
Africa. So there are those areas of cooperation, particularly
on infrastructure.
The reality is that it is to our advantage to work with
Chinese companies, as well as others, because they have an
advantage already, and it is a way of getting more active in
China and Africa.
Senator Coons. Thank you.
Ambassador Shinn, you mentioned in your testimony that
African states under pressure from the United States and from
the West to improve their governance practices or their human
rights record are less likely to do so when they know they can
rely on China for support, and you cited, I think, Zimbabwe and
Sudan, among others.
Has China's economically driven aid policy undermined
United States policy goals in terms of promoting democracy and
human rights and good governance? And is there any evidence
that China's increased investment in political engagement may
empower or entrench undemocratic or repressive regimes, first?
And then, second, what do you see as the long-term benefit
broadly for the average African of the increased Chinese
investment engagement in Africa? Has it succeeded in fighting
poverty? What is its impact on the ground?
And then, Dr. Brautigam, if you would address those same
two questions, please?
Ambassador Shinn. I think the short answer to your
question, Senator, is that, yes, Chinese involvement in Africa
has, to some degree, undermined Western goals generally of
trying to improve democratization, good governance, and human
rights.
I don't think that was the intention of Chinese policy. It
is just that they have a different philosophical approach to
dealing with countries around the world than does the United
States.
And having said that, there are sometimes inconsistencies
with U.S. policies. I could identify a couple of African
countries that are very autocratic, while the United States has
not done much in order to try to improve the human rights
situation.
But in terms of Chinese policy, it is across the board. It
is a policy of aid without political conditions, investment
without political conditions, other than the One China
Principle, and that is just not the way the United States
approaches the situation.
The two major examples are those that I cited earlier,
Zimbabwe and Sudan. There are others that don't stand out quite
as much as those two countries. But even a country like
Ethiopia, for example, where the United States has very good
relations, on the one hand would like at the same time to see
better human rights practices.
And because Ethiopia has a very strong relationship with
China, it is fairly easy for Ethiopia to say, wait a minute, we
know where we can get additional help if we need it. Of course,
the United States also has other concerns in Ethiopia in terms
of its policy. But it does certainly complicate the ability of
the United States to pursue an improvement in human rights
policies and practices and good governance.
In terms of China's investment in the continent and its
impact on the long term, I think I would have to basically give
them a positive response to that. They have, indeed, gone
heavily into infrastructure, but they have done that because
that is precisely what the Africans have requested.
The Africans were requesting an improvement in
infrastructure at a time when the West had basically opted out.
Angola is a classic example. Following the civil war in Angola
at the beginning of this century, when it came to an end, the
Angolans wanted the West to come in, invest a lot of money,
rebuild their infrastructure. And the West essentially said,
no, we are really not that interested.
They went to China, and China said it would be more than
happy to do it. Of course, China expected Angola to pay back
these loans by sending oil to China. And by the way, China said
it has some really good Chinese companies that will build all
of these projects for you, and it even has a component of
Chinese labor that will come and help to construct the
projects.
So it was certainly a good deal for China, but China was
the only country that was offering to do this sort of thing.
And in the final analysis, if the African countries don't have
much improved infrastructure, they are never going to improve
their economies. They cannot continue at the level that they
were at, say, 10 years ago in terms of infrastructure.
In that sense, China has done them a favor. I think across
the board, the effort that China has done to invest on the
continent, with some exceptions, has generally been a plus.
Senator Coons. Dr. Brautigam.
And I am about out of time for my first round. So what
impact has it had on the United States sort of values agenda to
have an expansive Chinese presence on the continent?
Dr. Brautigam. Thank you.
I just did a paper on this recently, and I actually looked
empirically at this. And there is no evidence across the
continent that political rights and freedoms have declined in
general between 2000 and the present. And in countries where
Chinese engagement is larger, there is also no evidence that
there has been any systematic impact on human rights or
political liberties and freedoms.
So we have an impression that there has been a negative
impact, and I think it largely comes from the case of Sudan and
Zimbabwe, where the impact has been negative. But by and large,
I don't think we see that it has been negative across the
continent.
And we can see this with examples that are quite recent. In
Sudan, when the countries negotiated a breakup and they had a
referendum to enshrine that in law, the Chinese sent referendum
monitors rather than trying to fight to keep the two parts of
Sudan together.
We can see this in Guinea, where there was a coup and
people thought that the Chinese presence there was going to
make it so that they wouldn't have a new election to bring in a
new government. And that didn't happen. So they had an
election, the most free election they have had in their
history--although it wasn't perfect.
So we can see this in Zambia, where the leader that was
quite heavily favored by the Chinese did not win the election,
and they have moved smoothly into a relationship with someone
that was quite opposed to their presence. So I think, by and
large, they are moving in a less negative direction than we
usually think.
In terms of impact, I would add to what Professor Shinn
said that I see a lot of interest in manufacturing investment
and a lot of people being employed by Chinese companies. This
is, again, counter to the conventional wisdom that they don't
hire Africans.
The longer a Chinese company is present in Africa, the more
the proportion of labor they hire tends to be African, and this
makes economic sense for them. And so, what we can find is that
the problem is not that they do not hire local people, but
treating them well. And they do not generally treat them at the
level an American company would. Labor standards, protection
and safety standards, all of these are generally abysmal by our
standards, and they are roughly at the level that they are in
China.
Senator Coons. Thank you very much, Doctor.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman.
I think Ambassador Shinn's last comments regarding China
making the investment and infrastructure and the West backing
away from a lot of that points me to what Stephen Hayes said,
which I have observed. We need to do a better job as a
government of facilitating United States competitive business
investing in Africa.
China and business--the line between business with China
and China's businesses are kind of blurred, but they are quite
clear in the United States. And I know I have been to
Equatorial Guinea, where Marathon built the gas liquification
facility, which really has transformed economic development in
that country.
What kind of things do we need to do, from your
perspective, Mr. Hayes, to more facilitate United States
business investment from our government's standpoint in Africa?
Mr. Hayes. In addition to what I already said in response
to Senator Coons is I also think that we need a far stronger
commercial presence among our embassies and our government on
Africa. We are cutting back our commercial offices now, at
exactly the wrong time. We are actually diminishing our
presence on Africa and our commercial offices.
Second, as I mentioned in my paper, the written testimony,
I think at least Johnnie Carson should be praised by putting
more emphasis on economic knowledge by ambassadors because we
are beyond traditional diplomacy. If we are going to be able to
compete and strengthen our own political interest in Africa,
our embassies here are going to have to be far more attuned to
economic realities.
So I think that there needs to be far greater emphasis on
that. Those are two things that I think could be done right
away.
Senator Isakson. In other words, do a better job through
our embassies and our ambassadors of promoting U.S. investment
by private sector companies.
Mr. Hayes. Certainly that and certainly a greater support
of the private sector nationally. We need national leadership
to tell the American people why Africa is important. I don't
think that has been explained.
Senator Isakson. Very good.
Dr. Brautigam, I want you to--you were talking so quickly.
I can't write as fast as you were talking, and you made a great
statement about realism versus alarmism with regard to China
and America's perspective. And I think what I heard you say is
we should be realistic to understand China is a lot like
Africa. It is still a developing country. Did I hear that
right?
Dr. Brautigam. Yes.
Senator Isakson. And so, we should not be alarmed by what
they are trying to do. Tell me what the alarmism part was.
Dr. Brautigam. Thank you for your question.
The alarmism--the realism is that China's rise in Africa
needs to be seen in context, that it is a far smaller player
than the West. Although some dimensions of engagement, such as
investment or trade, can be quite large compared to any one
Western country,
by and large, China's engagement is far smaller than the West
combined.
And they have a lot in common with other rising economic
powers. So I think it is unhelpful sometimes to single them out
as ``the Chinese have low labor standards'' or ``the Chinese
have a lot of corruption.'' This is true in general of India,
Brazil, and the other emerging market players that are also
operating in Africa and also a challenge to us.
So this is a common set of problems, and I think it is
helpful to address them in common. I think this would be
helpful for our diplomacy as well.
Senator Isakson. Both you and Ambassador Shinn referred to
China vis-a-vis the Sudan, and I don't know which one of you
said it. One of you said that Sudan is a real option for China.
Whoever said that, would you amplify on that?
Ambassador Shinn. Sure, I would be happy to, Senator.
I think that you have a situation in Sudan today, both
North Sudan, the Khartoum Government, and South Sudan, or the
Juba Government, where both of these regimes, if they don't
make a lot of changes for the positive soon, are on track for
becoming failed states. That is often said about North Sudan,
which is the case. It is not often said about South Sudan.
Neither country wants that to happen, and neither China nor
the United States wants that to happen. There is a mutual
interest in both China and the United States to see the
comprehensive peace agreement achieve success, to ensure that
there is a good relationship between the north and the south.
All of the oil infrastructure for exporting and refining
oil is located in the north. Seventy-five percent of the oil is
now in the south, and probably most new finds of oil are in the
south.
For the time being, the south has no option other than
sending that oil out through the north and using northern
refineries. Therefore, they are still basically joined at the
hip, and they cannot allow--and China and the United States
cannot allow them to let this situation break down into some
sort of conflict again.
I think it is an ideal situation for the two countries and
others, not just China and the United States, to try to work
with both Juba and Khartoum to ensure that the CPA works. In a
sense, you could argue that China has even greater interest
here than the United States does because China built and owns
much of the oil infrastructure in the northern part of Sudan.
Senator Isakson. Well, you have made a critical point. The
CPA is critical in the short-term interest of the United
States, and I am glad to hear your observation about China as
well, making sure the comprehensive peace agreement works and
these countries don't separate.
Not only is it critical on the oil infrastructure, but they
border close to proximity to Kenya and Somalia. And you just
have an expansion of what is already a bad situation in Somalia
and in Northern Kenya, and it could blow up like a powder keg
if you got back in a civil war situation again.
Do you know if our Embassy and our State Department are
doing enough to reach out to the Chinese to try and partner in
ways to keep the CPA together?
Ambassador Shinn. I don't know, Senator. I am not in
Government now. So I am not privy to that kind of information.
I have no doubt that there are contacts. I have visited
Khartoum in the last 5 years, met with both the Chinese and the
American Embassies. At that time, there was some contact. It
was not as great as I would have liked to have seen, but that
was a number of years ago.
Mr. Hayes. Just to add to that because it is germane.
Princeton Lyman, our emissary, has been to China to discuss
Sudan, recently. In fact, I talked to him while he was in China
on South Sudan.
Senator Isakson. This is one of the great points to come
from this hearing. I think it would be incumbent on Senator
Coons and myself to engage Princeton or the State Department at
a meeting to make sure we are following up on this because I
think it is a very cogent point.
Thank you all for your testimony.
Senator Coons. Thank you, Senator Isakson.
Senator Cardin.
Senator Cardin. Well, first, Mr. Chairman, thank you very
much for holding this hearing.
I think this is an extremely important area for us to
explore. Obviously, we need to do a better job ourselves in our
relationships with Africa on trade. I am proud of my own State
of Maryland,
that we have established an African trade office with the help,
by
the way, of the Federal Government and the Small Business
Administration.
We have natural ties between many of the countries in
Africa and the business community, particularly in the
Washington suburban areas. And we have built on that and have
built relationships that I think will be very beneficial for
business growth here in America but also will help develop the
African economy, which is so critically important for stability
and for a market for United States goods.
I think that is the most important thing we can do is
enhance our own relationship with the continent of Africa.
I want to ask a question, though, of concern to me about
China and Africa. China is interested in their own goals and
has very little concern about the governance issues in the
countries that they deal with, at least that is the impressions
that I have.
When we deal with particularly foreign assistance, we deal
with issues such as conditionality, making sure that women's
rights are protected, dealing with transparency. And with
Senator Lugar, we worked on the extractive industries
transparency, which is a big issue with dealing with the
resource not being a curse, but an advantage to a country. And
Africa certainly is a continent that is very much involved in
those issues. We deal with anticorruption issues.
And I guess my question to you is, Is there an indication
that China's participation in Africa has been a negative
influence on those issues, such as advancement of women's
rights, transparency, anticorruption, those types of issues?
Have we seen any indication that China's involvement offers an
avenue for some of the repressive regimes to get the type of
commerce they need without having to deal with the
conditionality of Western powers?
Ambassador Shinn. Senator, I would be happy to respond to
that. I addressed--it might have been just before you arrived--
the connection between human rights and democratization and the
Chinese impact. My take on it is that although not
intentionally, it does have a negative influence on the
American desire to see better human rights practices on the
continent.
If you take specifically, however, women's rights and
corruption--in fact, if you break this down into various
topics--it becomes a more nuanced situation. I don't see any
negative impact in Africa of China's activities on women's
rights, for example. If it is there, I just haven't observed
it.
Corruption traditionally has been a problem. I also see
some changes in how China deals with corruption. I think,
increasingly, China is finding that that is not the best way to
do business around the world and that it is costing them, too.
And I see a willingness to rethink the whole concept of
engaging in corruption.
So China is not there yet, but at least I think the trend
is in the right direction. I think you have to break these all
down into their individual issues, and there will be some areas
where Chinese influence is not helpful. There will be others
where it is essentially neutral and even a couple where it
might be helpful.
Corporate social responsibility is one where China is
beginning to show an interest in improving its policies in
Africa and around the world, as it is doing in China. I think
that is a potential cooperative area with the United States,
where we have a much better record on corporate social
responsibility. I think China is willing to be more helpful on
that issue.
Senator Cardin. Do you see any indication that China is
importing technology into Africa that could be used to repress
human rights advances, such as cell phone jamming or Internet
access or that type of technology, which China certainly has
used in its own country? Is that being exported to Africa by
repressive regimes?
Ambassador Shinn. There is some indication of that. It
definitely occurred in Zimbabwe a number of years ago. Even in
Ethiopia, where China has been deeply involved in the
communications sector, Ethiopia has a very restrictive policy
on the handling of the Internet. It is a government-controlled
Internet.
At least until very recently, in fact, when I was in Addis
Ababa in July of last year, I tried to access my own blog at
the Hilton Hotel, and I couldn't access it. I asked some of my
Ethiopian friends, ``What's going on here? I can't even get to
my own blog.'' They just laughed, and said, ``Oh, you didn't
know that anything on blogspot is blocked in Ethiopia?'' That
is thanks to the technical assistance of the Chinese.
In the last several months, the counts on my blog suggest
that Ethiopians are now accessing it. Something apparently has
changed. But there has been some evidence of Chinese assisting
certain governments in restricting information flow.
Senator Cardin. Do you have any suggestions how the
international community could try to counter those types of
activities?
Ambassador Shinn. There probably are some technical ways to
do it. I am just not knowledgeable about it. The only other way
to approach it is simply continuing to raise these issues with
China and with the African governments.
In the first instance, this is a problem for the African
Governments because they are the ones that are authorizing
these restrictive practices. I am sure we do have these talks
with the Africans. I don't know whether we are having the
discussions with the Chinese.
Senator Cardin. And of course, it also says that we should
be more aggressive in Africa. If we had more ties and there
were more avenues for us to be able to exercise our influence,
then we could have a better way of dealing with the type of
relationships with China that are counterproductive with good
governance.
Ambassador Shinn. I would certainly agree that we should be
more aggressive in Africa, but not to the point where we are
pushy. I think there is a fine line that one has to draw
between being aggressive on policy and overstepping those
bounds and looking like we are trying to boss everyone around.
Senator Cardin. I agree with that, but we have had many
hearings on this. But the United States, particularly in the
AID programs, has to have a very strong position on
anticorruption, women's rights, those issues. Because if not,
then what do we stand for?
Ambassador Shinn. I would agree.
Senator Cardin. Thank you.
Thank you, Mr. Chairman.
Senator Coons. Thank you, Senator Cardin.
Senator Lugar.
Senator Lugar. Well, thank you very much, Mr. Chairman.
I thank you and Senator Isakson again for bringing about
this hearing with three great witnesses. I think it is so
important in terms of what you have pointed out subtly to all
of us, which is that the degree of knowledge on the part of the
Congress and our constituents about Africa certainly needs
great improvement.
And the extent to which we have improvement with investment
in Africa on the part of American businesses will largely come
about because of support among the American business community
for making the investments and taking the prudent risks, in
addition to informed support from their stockholders and their
constituencies. Transparency is important because people will
say, ``Why Africa? Why that market?''
And the fact is that we perhaps, as a nation, have not been
as attentive or as competitive as we might be because we don't
know a great deal about Africa. The basic facts of life about
the 54 countries and much of the information you have given us
today will be news to many people and, hopefully, will be
conveyed by the media.
What I am hearing, however, and this oversimplifies, but we
do have, as Senator Cardin was pointing out, very strong ideas,
and they are good ones, about human rights and that we tend to
approach foreign policy with these ideas in mind, and we
should. Now contrast that with the Chinese, who have a very
business-
like attitude. That their priority and continuity across the
region hinges upon having energy resources in particular at
this stage for their growth and the continued improvement of
their material conditions.
Likewise, increasingly, we have reports about the amount of
farming, agriculture and food literally coming out of Africa to
feed the people of China. In other words, there are existential
problems in China with regard to the continuity of their nation
state. So, as a result, the Chinese may or may not care for any
of the governments there, but these are the people with whom
they do business.
Now we look at many of Africa's governments and we find
corruption, lack of democracy, and what have you. Our tendency
is to want to fix it, to try to move people and other resources
around in response to the governance challenges, and remain
much less attentive maybe to the business aspects of our
bilateral relationships in Africa. I am not suggesting we
follow the Chinese model, but currently the United States and
China are carrying out two different policies on the same
continent. And we should not be surprised, I think, at the
testimony that you are giving.
What I am curious about down the trail, however, is, are
there reasonable estimates as to how much oil and natural gas
are in reserve in Africa? This is a great problem always asked
around the world. And again and again, the time of reckoning is
pushed back to a later date because more is found.
But I am curious literally as to what happens at the end of
the trail when these resources diminish and become more dear,
they are more expensive to whoever is going after them. Or as a
matter of fact, in some African countries where they--if they
are sufficiently developed--might have used some of these
resources themselves, and this is no longer an option given
inadequate technology or the premium on export.
Likewise, with agriculture, it would appear that we have
been inhibited--that is, the United States--by European ideas
on genetically modified seed, and therefore African countries
still have very low production rates. Whatever the Chinese are
taking out and whatever method they use notwithstanding, the
fact is that Africans are going to find it increasingly
difficult to feed themselves, quite apart from exporting to
China.
Just from the standpoint of Africa, what are the mineral
resources in reserve? Are they boundless? Does it depend upon
the degree of development by a country, or how would you
predict the future of these markets, however the United States
or China approach them?
Dr. Brautigam. I will address part of that. I don't have
data on the depth of resources in Africa, and I am not sure
anyone does. What we do see is that as prices go up, more
resources are found. And that has been the case for a long,
long time.
And so, now we are finding all over West Africa and along
the coast there, countries that never thought they had oil
resources have suddenly found them. And of course, our
companies are very active in that, and Chinese companies are
trying to break into that without so far very much success.
I want to say something about agriculture. There is an idea
that the Chinese are out there leading the land grab in Africa.
It is one of the areas that I have been looking at at the
International Food Policy Research Institute, where I am now.
And what we are finding is that there is actually no
evidence of very large Chinese engagement in Africa to grow
food to ship back to China at all. It doesn't exist, with the
small exception of sesame seeds, which is not a vital resource.
There is some Chinese investment in agriculture for local
consumption. In Zambia, there are some 25 Chinese farms that
all produce for the Zambian market, but they are not yet doing
speculative land investments. What we see is American and
European firms that are active in land speculation.
And for investment in agriculture for feeding people at
home, it is the Gulf States in the Arab world that are doing
that and India, but not so far China.
So one other point about our different concerns about
governance, and that is I think, as has come up in this hearing
earlier, we both care about stability. That is very important.
China's principles here are more consistent than ours are. And
what China and many of its friends in Africa see is that the
United States and Europe are engaging with China, and China is
stable, but does not have a very good human rights record. And
yet we are all there, investing and trading quite actively.
And China seems to be--the Chinese people seem to be doing
better. They are becoming more prosperous. And so, that is
something that is important for framing this conversation as
well.
A small anecdote about Chinese engagement and governance.
In Sierra Leone after the war, there was an election, and the
presiding government lost. But they didn't want to give up
power, for various reasons.
And a group of ambassadors went to talk to them, to the
President, to say you have got to step down and let your
opponent come in. And amongst that group of ambassadors was the
Chinese Ambassador.
So I think this kind of engagement at the ambassadorial
level is something we need to do a lot more of, and we are not
doing enough of this in most of the countries that I am
familiar with.
Thank you.
Mr. Hayes. I think, Senator, you are absolutely right in
terms of the GMO issue. I think that is one of the really
important issues that needs to be addressed, and the United
States needs to press that more.
I also think that China is open to that. So there may be
another area where China-United States could cooperate in
breaking what I think is essentially a European blockade of
American agriculture. I don't think there are many United
States ag companies in Africa. I think that is a major problem.
I also think it is a major opportunity for U.S. business.
I think there is enormous opportunity for agriculture and
the United States, especially. We are still the leaders in the
world in that area.
Senator Lugar. And it will be an opportunity for Africans
to have more food, likewise----
Mr. Hayes. Absolutely right.
Senator Lugar. I thank you very much.
Ambassador Shinn. Senator, if I could just speak to the oil
question? Ten percent of the world's oil reserves, known oil
reserves, are in Africa. The experts think that as we look to
the future, the continent that is going to come up with the
largest percentage of new finds will be Africa because it has
been relatively underexplored so far.
The experts also say that China's percent of oil imports is
going to continue to grow at a significant rate. Now that may
be because of increased demand. It may also be due to declining
domestic production or a combination of both.
But those two trends suggest that the China-Africa oil link
is going to become increasingly important in the years ahead.
Mr. Hayes. We are counting on 25 percent of our oil needs
to be met by Africa by 2020. I think there is going to be an
increasing and competitive environment, although, yes, there is
more oil being discovered.
Senator Coons. Thank you, Senator Lugar.
Senator Durbin.
Senator Durbin. Thank you, Mr. Chairman.
Last year I went to Ethiopia with Senator Sherrod Brown and
met with Prime Minister Meles. We had a 30-minute meeting. And
25 minutes into the meeting, I asked Prime Minister Meles,
``Oh, incidentally, what is the story about the presence of
China in Ethiopia?'' The meeting went on for 35 more minutes.
And basically, his message was pretty straightforward. ``We
think the United States has given up on Africa. China hasn't.
China is investing in Africa in a way that nobody has ever seen
before, and we have noticed it,'' he says, ``in terms of the
Chinese and their interest in our energy, our raw materials,
our cheap labor, an opportunity for a growing middle class to
buy their products.''
And he said they come in with concessional loans many
times, saying we will give you $100 million, just pay back $70
million for whatever the project is, so long as there are
Chinese engineers, Chinese contractors, and half the workers
are Chinese. And so, there is a pretty substantial presence of
Chinese in Ethiopia and many other African countries. So they
clearly have a plan, and they are executing it.
One European Foreign Minister told me, as I described this
to him, he says, and there is one other factor you have missed.
They will do business with anybody. The rules are very relaxed,
as long as it meets their economic needs.
So what I put together here is a bill that Senator Coons
has joined me on to talk about how we can improve our exports
to Africa and our business in Africa and investments in Africa
and try to coordinate this melange of agencies that we have
that don't seem to work as well together as they should.
But as I listen to this hearing, I think the most
significant thing that has come out of the hearing goes beyond
what I have just said. And it started with Senator Coons's
presentation with this chart behind me, which really tells a
big story here about the fact that we are spending a
significant amount of money in Africa for different things than
the Chinese.
They are investing in infrastructure and building potential
for economic growth. We are investing in people and health
care.
So I asked my staff to take a look at the Global Fund. Most
of us know the Global Fund. That is a group of nations around
the world trying to find ways to alleviate human suffering from
AIDS and malaria and tuberculosis all around the world.
In recent years, the United States has given $1 billion
annually to the Global Fund. We are one of the largest donors.
China, between 2003 and 2011, received $550 million from the
Global Fund in grants. Another $200 million is pending. China's
Global Fund contributions over recent years equaled $16
million, our contribution $5.5 billion.
So we are clearly putting money into Africa, and we have
decided that we want to focus at least part of our commitment
to Africa into alleviating human suffering and death. Zambia
has been talked about a lot here. There is an interesting
article in my notes given me about the recent election. And it
became a backlash against the Chinese economic presence in
Zambia.
And the Chinese Ambassador to Zambia ridiculed the writer,
saying, ``You send election judges. We build hospitals and
roads in Zambia.''
It turns out we spend $400 million a year in Zambia keeping
300,000 Zambians alive with antiretroviral drugs. So we are
spending money there in different ways, and I guess virtue is
going to have to be its own reward.
The last point I want to make before opening it up to your
thoughts on this, every time you say ``OECD,'' I kind of do the
shorthand, which says no bribery. I think what you are
suggesting is that if we could get China to play by some rules
that we think we are playing by, we might have a better
competitive situation with them. And if they are not going to
play by those rules, we may not have as good a chance.
So how do you overcome this? We are not just strictly
mercantile here. We are trying to alleviate human suffering and
play by some rules on corruption and human rights. Do we have
our hands tied behind our back, Ambassador Shinn?
Ambassador Shinn. Senator, you mentioned your meeting with
Prime Minister Meles--I have had similar conversations with him
as recently as several years ago.
Ethiopia is one of the major recipients of the Global Fund.
It is also one of the major recipients of bilateral HIV/AIDS
support from the U.S. Government. The problem is that HIV/AIDS
money and emergency food aid probably accounts for two-thirds
of all American assistance to Africa today. It is taken for
granted by the Africans. We just don't get the credit for it
that we deserve, quite frankly.
The Chinese go in with a loan that has to be paid back,
albeit it is concessionary financing, build a road or a dam or
a bridge. All of a sudden, it becomes the Chinese road or the
Chinese dam or the Chinese bridge, and everyone in the vicinity
knows about it. So China gets all sorts of credit for that. It
is very smart on China's part to do that.
It puts us in a very difficult position because we are
simply not getting the credit that we rightly deserve, even
from someone as sophisticated as Prime Minister Meles. He knows
the numbers. He knows them better than anyone in this room.
But I don't know how you deal with that issue. It may just
be the nature of the beast.
I would like to make a pitch for one organization, though,
that hasn't yet been mentioned in terms of what the U.S.
Government can do, and that is support for the Overseas Private
Investment Corporation. It is very small organization. I used
to deal with it when I was Ambassador, and I found it to be an
effective organization in what it did. But it is very small.
Senator Durbin. Mr. Hayes, you said we should be shifting
USAID toward the private sector. That seems to say to me spend
less on health care, spend less on educating young women, more
on establishing mercantile, business relationships.
Mr. Hayes. Well, I think that we have got to look at a
greater balance certainly in aid and how we use that, and also
there are other ways beyond simply money, in terms of training,
capacity-building, and so forth. So I think, yes, I do say that
we need to put more emphasis on building a middle class because
then I think
it makes the other money that we are spending less needed
ultimately.
Senator Durbin. These are Faustian choices, 300,000 people
living----
Mr. Hayes. Indeed, they are.
Senator Durbin [continuing]. With HIV retroviral drugs who
would be, some of them, cut off in the name of establishing a
better business relationship.
Mr. Hayes. I am not convinced that it is an either/or
choice. I think that----
Senator Durbin. With this budget, it is.
Mr. Hayes. I think the issues of commercial offices,
stronger commercial presence. For God's sake, send the
Secretary of Commerce to Africa once every 10 years.
Senator Durbin. We now have one.
Mr. Hayes. It has been 10 years since the last Secretary of
Commerce visited. There are other ways to develop those ties.
I----
Senator Durbin. I am sorry.
Mr. Hayes. Go ahead.
Senator Durbin. Dr. Brautigam, I want to give you one last
word, if you would like?
Dr. Brautigam. I think, ultimately, Africans are going to
have to pay for their own health care in the long term. And how
are they going to have the foundation to do that? They are
going to have to build up their business sectors. They are
going to have to be able to tax, and they are going to have to
be able to get the revenues.
And I think the Chinese approach--looking at the
infrastructure, looking at business engagement--is moving
toward that kind of future. Whereas our approach, which is
laudable in many ways, the amount of money that we are putting
into health care in Africa, we are keeping a lot more people
alive, but we aren't doing much about providing jobs for them.
Senator Coons. Thank you, Senator Durbin.
Our last questions today will come from Senator Udall.
Senator Udall. Thank you, Chairman Coons, and thank you
both for holding this important hearing.
I wanted to focus a little bit on--and I think it was very
important we got into the human rights issues and corruption
and all the issues that Senator Durbin just raised. I wanted to
focus a little bit on environmental issues.
You mentioned, Profession Shinn, in your testimony that
China has four hard interests in Africa. And you mentioned as
one of those--on one of the four--energy, minerals, timber, and
agriculture products. And obviously, if you are talking about--
we would like to see, I would assume our policy is sustainable
economic development.
That we do these things--you can develop energy and
minerals and timber and agriculture in such a way that you do
it sustainably. That you do it where you don't harm the
environment, where--you mentioned dams, you build dams in such
a way that you don't dislocate local people.
I know there is a dam that has been mentioned here recently
in the news that the Chinese are funding, where 300,000 Kenyans
would be deprived of their water needed for agriculture, cattle
herding, and fishing.
And so, the real--my question is looking at how Western
countries, and mainly the Western developed countries,
participate in Africa and how their practices compare with the
Chinese and what you see there. What are the things that we can
do about if there is a disparity and they are not practicing
sustainable practices, then what can we do to try to encourage
them to do so?
And the other witnesses also may have comments on this. So,
please, why don't you lead off?
Ambassador Shinn. Thank you, Senator. That is an
interesting question, and it is also a very timely one.
If you were to go back 5 or 6 years and look at Chinese
projects in Africa and the environmental consequences of those
projects, you would have a fair amount to criticize. There was,
for example, a plan to develop iron ore in Gabon. The problem
was that in order to do so, China would have to rip up a local
game park in order to implement that project.
There was so much opposition from both local environmental
groups and international environmental groups that the whole
thing was scrubbed, and it is being revisited in terms of how
the project moves forward.
China does not have a great record, obviously, on
environmental issues. Western projects, I think, across the
board must have environmental impact assessments. It is
certainly true in the case of American projects and, I think,
most Western governments. That has traditionally not been the
case with many of the Chinese projects.
But, and this is a good news story. I think you are
starting to see a change in the Chinese approach to how they
deal environmentally not only with their projects overseas, but
what is happening in China. I think the Three Gorges Dam has
been a real wakeup call for them. They are now seeing some very
negative environmental impacts from the construction of that
project, and it is causing them to rethink how they deal with
the environment in China. That is impacting how they deal with
projects outside of China.
You are hearing more and more about Chinese actually
employing outside Western companies to do environmental impact
statements for their projects, and that, I think, would have
been unheard of 5 or 6 years ago.
Senator Udall. You see that as a real improvement for them,
weighing in on these issues of how you balance sustainability
and still get what you need for your country?
Ambassador Shinn. I do see it as an improvement, but China
is still well behind Western countries and getting to the point
where it needs to be. But the trend is in the right direction.
Senator Udall. And is there more that we can do to
encourage them to do this kind of thing?
Ambassador Shinn. I don't have any ideas other than having
these conversations at senior levels with appropriate Chinese
officials and also with the African officials who are signing
these agreements with China. They need to understand that there
has to be an environmental impact statement and assessment
before you go ahead with a project.
And I think that is what is happening with this Gibe III
Dam project in Ethiopia that impacts Lake Turkana in Kenya. I
think that is the project you were referring to.
Senator Udall. That is the one I was referring to.
Ambassador Shinn. Gibe III has raised a firestorm of
difficulties among the Kenyans and even among some Ethiopians
who would be displaced as a result of construction of the dam.
On the other hand, the region desperately needs more
hydropower. So there have to be some offsets there. But better
environmental studies are clearly needed by the African
countries and in terms of the Chinese who are doing a lot of
these projects.
Senator Udall. Dr. Brautigam.
Dr. Brautigam. I would agree with Ambassador Shinn's
assessment of the changes that we have seen happening with
Chinese financiers. They are very interested in corporate
social responsibility as a concept. Adopting these kinds of
practices is still going to take quite a while, though. It took
us a while to get there.
I was young when the World Bank was the big problem actor
in this regard, funding these kinds of projects overseas. And
eventually, they changed. And the Chinese will probably change
in the future, and we can see signs of that already.
But the way this change happens is in part through pressure
from outside, and it comes from a lot of different players--
from the U.S. Treasury Department, from civil society, and from
informed analysis. But I think the pressure is not coming from
African governments.
And the Chinese standards, surprisingly, for environmental
assessment are higher in China than they are in most parts of
Africa. And so, that is part of the challenge now that we have
a new actor here. Whose standards will prevail?
But we can see this change amongst the Chinese in other
areas as well. Few people realize this, but the Chinese have
actually made overseas bribery into a crime in China. So that
was never the case before. This just happened very recently. It
is part of their responsibilities under their signing of the
U.N. convention against corruption.
They don't yet have good enforcement for that, and it is
very new. And we know a lot of our partners in Europe aren't
enforcing this very well, either. But this is a change, and
these are the kinds of things that we can see signs of. And it
is up to us to know about those and then to encourage them.
Senator Udall. Great. Mr. Hayes, do you have any thoughts
on this or----
Mr. Hayes. Well, I have thoughts, but it is not too
different from what you have already heard from the two
witnesses. I think our diplomacy, particularly with the African
Governments in this case, needs to be strengthened.
Senator Udall. The one thing I would note and then turn my
time back here is that apparently--and Dr. Shinn, correct me if
I am wrong. But I think China ignored the EIS from the World
Bank in the Gibe III case, having to do with the dam? Is that
correct that there was an EIS? It was done by the World Bank
and that they just went ahead. I don't know if they have made
adjustments.
Ambassador Shinn. I don't know the answer to that, whether
they did or not.
Senator Udall. OK.
Ambassador Shinn. It would be better not to comment on, as
I just don't know.
Senator Udall. OK. OK. Well, as you noted, I mean, this is
a--I have a report here that says, you know, this Omo River is
responsible for 90 percent of the water heading into Lake
Turkana. A major dam blocking the river would drain most of the
lake, depriving 300,000 Kenyans of the water needed for
agriculture, cattle herding, fishing, and this Omo River could
affect--the changes in it that we are talking about, and I
think that you mentioned, could affect 70 percent or more of an
important species around the lake. So, you know, that is major
damage being done by a major part of their effort in terms of
their loan that they put out there.
So, thank you, Mr. Chairman. Really appreciate you holding
this hearing.
Senator Coons. Thank you, Senator Udall.
Unfortunately, we have reached 3:30 p.m., and as I shared
with the panel before we began, we have a briefing to which all
Senators need to turn now.
I just want to thank you very much for sharing your
insights and your expertise on these critically important
subjects that have significant implications for the economic
and political future of the United States, of China, and of the
people of Africa.
There are so many remaining interesting questions I would
like to have gotten into about intellectual property
protection, the role of the other BRIC nations, multilateral
means for more effectively engaging with China, and ways to
develop shared standards for everything from labor protections
to environmental protections, to advancing human rights, and
then ways to diversify the economic opportunities of Africans
going forward. But we will have to wait for some future
opportunity.
With that, I will conclude today's meeting. I thank the
witnesses, and we will keep the record open for any Senators to
submit statements for the record until the close of business
Thursday, November 3.
Senator Coons. Thank you very much.
This hearing is hereby concluded.
[Whereupon, at 3:30 p.m., the hearing was adjourned.]
|
NEWSLETTER
|
|
Join the GlobalSecurity.org mailing list
|
|
|
