Chinese investments and business Essay
Chinese investments and business
For more than ﬁve years now, China has been the most important trade partner of Africa (OECD, 2011). Its growing investments in the African continent show the deﬁnite long-term interest that the Asian country has in Africa. When comparing the manner and the effectiveness of doing business in Africa of Chinese companies and of western companies, a lot of differences can be found. These divergences can help us better understand why Chinese ﬁrms are being more successful in Africa than European and American ﬁrms but also why they continue to be so eager to multiply and deepen their business partnerships in Africa.
The particularities of the « Chinese way » to do business in Africa that enhance this growing investing trend can be assembled in three general characteristics of the Africa-China relations: the long-term relationship that was built between China and African countries over the years, the efﬁcient model used by Chinese companies to cultivate a good image in the eyes of the African people and the important role played by the Chinese government through diplomatic efforts.
1. Africa and China, in good terms since 1955.
At the Bandung conference in 1955, China has allied with the newly independent African countries in order to resist agains any form or colonialism or neocolonialism. This ﬁrst contemporary step reﬂects the position that China has since been adopting: allying with African countries by showing them that China is « on their side » and helping them ﬁght the western hegemony. By positioning on their side and emphasizing their common interest and similarities in resisting the western world, China has gained a great trust in Africa. This process was greatly catalyzed by the actions of the Chinese government from the 1960s till today.
On the other side, complicated diplomatic relations between the African and the western countries have made it more difﬁcult for the European and American companies to do business in Africa. Indeed, political leaders from the West have had negative behaviors with African leaders and people, only emphasizing the poverty, the instability and the lack of democracy of this continent and underrating Africa’s potential for business (Rieff, 1998). In fact, companies from the Western world were only pushed by their leaders to invest in Africa in the 1990s, when these latter started to realize the performances of Chinese ﬁrms in Africa
(Sautman & Hairong, 2007). On this side, we see clearly that the Western countries are late compared to China and still suffering from their image of neocolonialists. Furthermore, it is interesting to see that China has been paying more attention to the longterm consequences an interests, when investing in African countries. On the other side, the western countries as seen by the Africans as investing selﬁshly and only looking for rapid expansion without caring about the long-term consequences for Africa and its people.
Also, when looking at Hofstede’s cultural dimensions, we observe that China and many African countries are similar on certain dimensions such as individualism (low) and power distance (high), which could make it easier for Chinese companies to invest in Africa. Nonetheless, the success and the attraction of China in Africa seems to have deeper explanations, and some authors suggest that a true « Chinese model » exists when it comes to its commercial activities on the African continent (Li, 2005). This speciﬁc method of investing in Africa is made possible for Chinese ﬁrms through China’s philosophy to encourage foreign direct investments (FDI) and with the help of all the Chinese savings.
2. A more efﬁcient model, a better image, a better business environment. Since the beginning, China was able to « play on the same side » as African countries as they can relate to some similarities in their history. Indeed, both African and Asian countries, except for Japan and Korea, were developing countries not to long ago, after suffering of decades of colonialism from the Western countries. In this sense, China, which is the best developed of the « South » countries can then show the way to African countries and understands the situation there far better than the Occidental countries do.
To go even further, some authors argue that increased trade and investment from China is reducing the African dependence on the US and other Western countries: it is then seen as « mutually beneﬁcial » (Itano, 2005) It is because of that mutual understanding and beneﬁt that Chinese companies see Africa as a less risky proposition. These companies have understood how to do business in Africa and how to overcome the risks of that continent.
At ﬁrst, it could look like Chinese, American and European companies are doing business in the exact same way: they all extract resources such as oil and buy tax materials from Africa, while exporting other consumer goods. However, China seems to be more selﬂess when doing it. Chinese companies, thanks to their still cheap manufacturing force, is able to export goods to Africa that are way cheaper than the ones from Western countries, and sometimes even cheaper than the local African goods (Donnelly, 2005). Moreover, Chinese companies seem to have understood that to improve their business relationship with African stakeholders, they have to really contribute to the development of the country in which they operate. While the Western companies have an image of only improving the GDP of the nations in which they !do business, only looking at their interests, pretend to be helping African countries because they help them grow.
However, the main difference between Chinese and Western way of investing is that the ﬁrst one has been helping Africa to develop while the second one has only brought growth but no real development. The Chinese companies seem to have done more to help industrialism grow in the different African countries where they operate. According to the Carnegie Endowment for International Peace, in 2009, 29% of China’s FDI to Africa went to the extractive industries but it represented 60% of U.S. FDI . During the same year, the CEIP reported that China had invested more in manufacturing, and in African jobs, than the U.S did (Proctor, 2013). Chinese companies have found that helping the African countries to develop and to industrialize, while providing low-cost technologies to their African partners (Muekalia, 2004) allowed them to build better relations with these partners and get more connections locally, which seems to be essential she doing business in Africa.
The last characteristic of this Chinese model is very interesting and it has to do agin with the similarities between the two cultures. While western expatriates in Africa show a very negative image of their countries, this is not the case at all for the Chinese workers. These latter appear to have a closer lifestyle to the African people than the workers and businessmen from Europe and North-America. The have similar living conditions, are not privileged over the African employees and do not demand indecent salaries. On the other side, the Western executives and workers, even among Non-governmental organizations (NGOs) seem to have an exploitative behavior and take advantage of their position (Wainaina, 2006). This type of behavior can, without any doubt, be called neocolonialism, and this is what makes Western companies loose the trust an collaboration of their African partners.
This altered relation between Western and African companies create an even riskier environment for the ﬁrst to business on the second’s territory. Nevertheless, Chinese’s good behavior and long-term earned respect allows its companies to enjoy good relations and an easier business environment. This important difference, however, is not only imputable to the Western companies actions, but particularly to the wrong strategies of their governments, completely opposed to China’s diplomatic strategy.
3. Efﬁcient diplomatic efforts from the Chinese government. Indeed, as it was said before, the diplomatic efforts of the Chinese government in Africa are more than 50 years old. The best example for this is the Tanzania-Zambia railway project, implemented by China during the 1960s and the 1970s, and which was made possible through the help of around ﬁfty thousand workers from China ( Hall & Peyman, 1976). This is the perfect example of the way China has been doing diplomacy in Africa for the past half century: it brings help without trying to force things and knowing that they will get something in return. In the opposite, E.U. and the U.S. have always attached conditions to their help in Africa, demanding changes from their governments and forcing different legal and economic reforms.
Indeed, these governments have continuously tried to force their western conception of democracy into the African countries, while pushing for more deregulation and privatization. This obsession for democracy, coupled with an almost unhidden neocolonialist desire to « educate » the African people has pushed the Western leaders into complicated relationships with the African people and has deteriorated their image in the continent. Today, some of the Western governments start to see their mistakes and realize that their strategy has not been the right one and has made investing in Africa even more complicated for their ﬁrms.
When she was still Secretary of State, Hillary Clinton, ex- declared that the U.S. ﬁrms should look for « sustainable partnerships in Africa that add value rather than extract it. » (Salvaterra, 2012) However, these countries still have a long way to go, as they have been using international treaties that have weakened African nations (Nunn & Price, 2004) and that are seen as « promoting an aggravated form of worldwide unequal exchange » (Sautman, B &
Hairong, Y, 2007). China, on the other side, has been promoting infrastructure, human capital and other long-term investment, while Western countries have been promoting only primary products and ﬁrst-aid. China’s government has never given any ofﬁcial political support, while keeping smooth relationships with the African leaders, which is a deep difference with the U.S. and the E.U.
This difference seems to be the most obvious when it comes to aid in Africa. Western countries’ aid is called « tied aid », meaning that the aid will only provided in certain conditions, which will beneﬁt the stakeholder performing the aid. For example,when a U.S. passes a contract with an African developing country, it ties the ﬁnancial aid it will provide to this African country to the obligation to use this money to buy goods from American ﬁrms or non-proﬁt organizations. Chinese aid, on the contrary is mostly « untied ». The best description of this divergence of strategies between China and the Western countries seem to be described by Julius Nyere (1974), when he declared that « the Chinese people have not asked us to become communists in order to qualify for this loan… They have never at any point suggested that we should change any of our policies ».
The main reason why it is easier for Chinese ﬁrms to do business in Africa than for other ﬁrms seem to be contained in this quote. China has been building a positive relationship with African countries, where both parties are winning and where Africa’s free agency is taken into account and even valued. The Chinese diplomats and companies have managed to lower the risk of corruption and of change from the African people by building a good image in their eyes and becoming « friends » with them.
On the other side, Western ﬁrms still suffer from these risks of corruption as they rarely beneﬁt from a trust-based relationship in the African countries, which is crucial when trying to work around this problem. By having neocolonialist behaviors and building win-lose situations instead of win-win situations, they made it even worse for them to do business in Africa.