Chinese state-owned firms in Africa face criticism for using imported labor to build government-financed projects like roads and hospitals, while pumping out resources and leaving little for local economies, an image Beijing wants to change at the Forum on China-Africa Cooperation beginning today.
“As China’s economy transitions, shifting labour intensive industry to regions outside of China offers production opportunities,” said Zhong Jianhua, China’s special envoy to Africa, this week.
“African countries should seize this opportunity,” he added. “They can step into a track that China has taken in the past to develop their own industry.”
Chinese President Hu Jintao will speak at the summit’s opening day and is expected to announce a new set of loans for the continent. At the last meeting held three years ago, China pledged US$10 billion.
China’s economic trade with Africa reached US$166.3 billion in 2011, according to Chinese statistics. In the past decade, African exports to China rose to US$93.2 billion from US$5.6 billion.
Industrial and Commercial Bank of China, for example, the world’s most valuable lender, has invested more than US$7 billion in various projects across the continent.
The China Non-Ferrous Metals Mining Corporation however became the maligned face of Chinese investment during a bitter election campaign last year in Zambia, where it owns several lucrative copper deposits.
Along with the state-run firms, a growing number of smaller private Chinese businesses are looking to frontier markets like Africa to sell consumer goods and join in on promising growth prospects.
“A lot of African growth is no longer just commodity growth. It is growth in telecoms, services, and consumer products,” said Diana Layfield, Standard Chartered Bank’s CEO for Africa.
An official with Africa’s multilateral lender however said concern remains that countries will just shovel resources out and not look to diversify.
“They (African nations) are thinking about the immediate resources that could get them billions” of dollars, said Anthony Nyong, manager of the compliance and safeguard division at the African Development Bank. “We need to gradually work at building the capacities of African countries to see how they can negotiate good deals and know what is important for them.”
China has also found it difficult to navigate tricky political and conflict problems in Africa, particularly as the main oil investor in both Sudan and South Sudan.
China still faces a struggle to encourage companies to invest and shift production to Africa even if labor costs are lower. Smaller firms in particular are overwhelmed by the world’s second largest continent with more than 50 UN member states that have diverse languages, cultures and income levels.
“The idea that it will happen quickly, except in selected circumstances, is probably far-fetched,” said Layfield, with Standard Chartered, adding that one factor accelerating some trade now is a sharp drop in container transport costs following the 2008 financial crisis.
Jeremy Stevens, a Beijing-based China economist at Standard Bank, said even if Chinese firms move to Africa they face competition from other low-cost producers such as India, Bangladesh, Vietnam, Mexico and Turkey – and inland China.
“It is more costly to make something in Africa because of bottlenecks in infrastructure, human capital and access to finance, which have been exacerbated by poor governance and mismanagement,” he said.