Before his resignation as President Trump’s chief strategist last month, Steve Bannon said in an interview that the US should be “maniacally focused on economic war with China”. This, of course, chimed with Trump’s own anti-China rhetoric during the 2016 presidential election campaign. But the US is not the only Western country anxious about China. Although the EU doesn’t use America’s trade war rhetoric, its relations with China are, at best, characterised by a cautious, let’s-watch-our-back approach. So, why is China a bugbear of the West? And is Africa right to cosy up with, and be starry-eyed about, China?
Let’s be clear: no country can ignore China. Napoleon was quoted as saying that “When China awakes, the world will tremble”. China has awoken, and the world is paying attention. Think of it: China is the second largest economy in the world; the world’s foremost financier; the biggest buyer of the world’s commodities; the holder of the world’s biggest reserves, at over $1 trillion; one of the world’s biggest long-term foreign investors etc, etc. And when it comes to Africa, China overtook the US as the continent’s largest trading partner in 2009, and now tops the league table of foreign direct investment in Africa.
For most critics, however, the problem is not China’s achievements but how it acquired its economic power. And the issue is about China’s economic model. A former Time magazine editor, Joshua Cooper Ramo, described that model as the “Beijing Consensus”, China’s riposte to the liberal, market-based “Washington Consensus” that broadly defines the West’s economic approach.
Of course, since Chairman Mao’s demise in 1976, China has embarked on market-economy reforms, with the introduction of the “Going Out” strategy, which culminated in its accession to the WTO in 2001. However, despite these reforms, China is wedded to “state capitalism”, and is widely viewed as a “modern mercantilist”. Indeed, it was China’s state capitalism, characterised by overbearing state influence in its economy, which led WTO members to brand it a non-market economy (NME) under its Accession Protocol, with the effect that it could not be treated as a market economy in trade remedy cases.
But China’s economic model turns almost all the key elements of economic liberalism on their heads. Take fiscal and monetary discipline. China’s credit problem poses a spill-over risk for the world economy. A recent estimate put bad debt in China at around $6.8 trillion, prompting the IMF to issue a warning about China’s reluctance to rein in “dangerous” levels of debt. Or take trade liberalisation. China pursues aggressive export-led growth, but accounts for a tiny proportion of the world’s imports of consumer goods, about 3%. Gordon Brown, former British prime minister, notes in his book “Beyond the Crash” that “Total consumer spending by more than a billion Chinese people is less than 20% of the total spending of just 300 million US citizens”.
China’s prioritisation of exports over domestic consumption is believed to contribute to global imbalance. Some countries accuse China of manipulating its currency to make its exports cheap and imports expensive. However, while this was its common practice, there is little evidence of currency manipulation today. Brown argues that China’s low domestic consumption is largely due to low wages and the Chinese instinct to save rather than spend! Whatever the cause, the imbalance is seriously agitating the US, which complains that China accounts for nearly 50% of its goods trade deficit, and believes that this is not due to a natural product of free market forces.
Of course, with the problem of over-capacity, caused by legions of subsidised and inefficient state-owned enterprises, China can’t escape the accusation of dumping. At the end of 2016, there were 52 anti-dumping measures in force against China in the EU, half of the bloc’s total A-D measures, covering mainly steel, chemicals and ceramics. Recently, President Trump threatened to impose punitive measures on Chinese steel exports on natural security grounds, by invoking the rarely-used provision of a 1962 trade law, known as Section 232. Concerns about dumped Chinese exports are widespread and causing angst among Western industries and their governments.
But so is China’s attitude to inward investment. China insists that foreign companies that want to sell in the country must produce there and form joint ventures. Yet even when multinational companies operate in China, they are not allowed to compete on equal terms with local firms. Indeed, President Xi Jinping’s industrial blueprint called “Made in China 2025” is based on import substitution and the promotion of national champions over multinationals. Even now, Facebook, Google, Twitter, Instagram and YouTube, are blocked in China, while their Chinese competitors, such as JD.Com, Alibaba and Baidu, enjoy state protection. Another battle ground between China and the West is weak protection of intellectual property rights, with China accused of IP abuses, including forcing foreign companies to transfer technology. Last month, President Trump launched an investigation into alleged intellectual property theft by China, threatening to use the unilateral and punitive Section 310 powers under US trade law.
The foregoing shows that the West has a problem with how China is acquiring its economic power; it believes China is, to a great extent, doing so “unfairly” through state capitalism and mercantilism. But if the West is concerned about how China is gaining its economic advantage, what might Africa be concerned about? Well, it should be concerned that China is using its economic power to pursue something akin to an imperialist objective in the continent. In her paper, titled “Africa in China’s foreign policy”, Yun Sun laid bare China’s economic goals in Africa, namely to secure Africa’s natural resources for its domestic growth, to target Africa’s market for its finished products, and to increase its investment in Africa.
However, the relationship is so asymmetrical that China, which dictates how foreign investors should operate in its country, can also dictate how it operates in Africa. For instance, as Sun put it, Chinese loans are usually backed by African natural resources, and its infrastructure development aid is mostly tied to service contracts, with 70% of such contracts going to Chinese companies, and the rest open to local firms. Some analysts say that Africa is China’s second-largest supplier of service contracts. While China insists that foreign companies operating in its country must transfer technology to Chinese firms, its investment in Africa contains no such “technology requirement”. When it comes to trade, China buys crude oil and natural resources from Africa and sells manufactured goods, mainly machineries, textiles and electronics, to the continent. What’s more, Africa has a massive trade deficit with China, with the continent’s 54 countries recording a $34bn with China in 2015 on a total trade of $172bn. In a recent interview with the Financial Times, the Kenyan president, Uhuru Kenyatta, called on China to “rebalance its increasingly skewed trade relationship” with Africa.
All of which makes it interesting that, according to a recent BBC poll, Nigeria is “the world’s most pro-Chinese nation, with 85% of respondents having a positive opinion of China”. Why might that be? Cheap Chinese imports? Chinese restaurants?Of course, if Nigerians love China, so does the government. President Buhari took 9 ministers and 6 state governors on a “working visit” to China in April last year. Nigerian policy-makers, indeed, like China’s economic model. For instance, the Nigeria Industrial Revolution Plan and the Economic Recovery and Growth Plan both mirror China’s mercantilist, import-substitution approach. In January this year, Nigeria publishing a joint statement in Vanguard newspaper, saying it agrees that “One China” policy is “at the core of its strategic partnership with China”. Why was it necessary to publish the One China statement in the newspapers? And at whose instance?
Africa has ticked the boxes in the China model, supporting its “Going Out” strategy. Unfortunately, Africa is a rule-taker; it lacks the West’s clout to dictate terms. Yet, it must not be bleary-eyed with China. As President Kenyatta said, “Just as Africa opens up to China, China must open up to Africa”. That must be Africa’s guiding principle in its relationship with the Middle Kingdom!