China in Africa

All data are collected in the Fiscal Year of 2008-2009.

1. Introduction

China’s new scramble into Africa has little to do with benevolent idealism but rather a hardnosed preoccupation with accessing desperately needed raw materials, especially oil andiron ore, to drive its burgeoning economy and new consumer markets for its exports.Facing accelerated imports of raw materials by the turn of the 21st Century, Chinesepolicymakers made a strategic decision to diversify and secure energy and resourcesupplies across the globe. It was to some extent accentuated by the 9/11 crisis in 2001which starkly high-lighted China’s mismatched reliance on unstable Middle-Eastern oilsupplies (over 60 percent). In response, Chinese policy makers initiated a “go out andbuy” policy, primarily focused on a strategy which has seen Chinese oil and resourcecompanies move into Africa, Central Asia and South America to secure new raw materialsupplies. Consequently, China’s global economic and political reach in places like Africa,strongly reflects the imperatives of domestic economic development which is drivingChina’s search for natural resources in Africa today.

This report tracks the reasons behind China’s successful rise in the African economy oncealmost the exclusive preserve of Western multi-national companies only 10 years ago.This includes an assessment of their modus operandi, the role of the Chinese governmentin guiding the actions of Chinese companies, the institutional support provided to Chineseinvestments in Africa, the political and strategic reasons underpinning China’s entry intospecific African countries and why Chinese companies, especially oil companies, are ableto compete so successfully against their Western counterparts.

The report makes the case that Western observers of the Chinese phenomenon fail totake into account the logic underpinning the thinking of Chinese investment decisionswhich do not reflect market related criterion. Herein lies the challenge facing Westerncompanies competing against Chinese natural resource companies in Africa today. It is amindset that puts Chinese national security interests before profit, because the mainshareholder is the state not private individuals and companies. The rigours of the openmarket apply less to Chinese companies because they are provided with the full panoplyof state institutionalized backing – from political to subsidized financial risk assistance.This has had the effect of insulating Chinese companies from traditional risk factors thatface Western companies, providing them with an important competitive edge in the race toacquire resources in Africa.