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New Research Challenges Perception of Chinese Business in Africa

A pioneering study claims the role of Chinese private investment in Africa is now an important asset alongside that of the Chinese state in the continent. Dr Jing Gu, of the Institute of Development Studies (IDS), Sussex, showed how her findings differ from the conventional wisdom that says Chinese economic activity in Africa is driven by the Chinese government.

She emphasised the complexity and diversity of Chinese actors in Africa during her presentation at   a popular seminar held by the Africa Asia Centre – a research initiative based at the London International Development Centre. Gu also made recommendations and called for intergovernmental standards to avoid poor business practice when she addressed the audience at the School of Oriental and African Studies (SOAS) on 25 November.
The research was based on unprecedented access to private Chinese companies, including 100 in-depth interviews with Chinese firms and Business Associations and officials in China and in Africa. The groundbreaking study addressed a significant weakness in current China-Africa studies, namely a relative lack of empirically-grounded analyses.

Dan Large, the Research Director of the Africa Asia Centre, said: “It is extremely stimulating and refreshing to hear original empirical research”.
Chinese interests in Africa
The talk, entitled China's Private Investment in Africa and the Implications for African Development, put Chinese investment in Africa in perspective. Gu cited official Chinese figures referring to 2006 which showed that only four per cent of China’s Foreign Direct Investment (FDI) went to Africa, as compared to 26 per cent to Latin America and 64 per cent to Asia. However, she stressed that it is not the level of investment that is significant, but the speed of its growth, which has increased markedly since 2005. Today Chinese firms are engaged in numerous industries throughout Africa, including textiles, pharmaceuticals, farming, services and extractive industries. She noted that more than 300 Chinese firms operate in Ghana with over 100 of these in manufacturing.

Private companies
Gu also highlighted how small and medium enterprises are involved in a variety of industries and how they are able to adapt quickly to local market conditions because of their entrepreneurial ethos. She said Africa is regarded as an attractive destination for investment because it provides access to new markets in Africa and beyond through exports from the continent, is partly an outlet for China’s domestic over-production, and is a source of raw materials. Many Chinese businesses see Africa as the “last golden land” and one CEO interviewed by Gu compared Nigeria today to China in the 1980s and 1990s. She also said China’s “Going Out” strategy to boost investment beyond its borders has placed more emphasis on the private sector since 2005, although the majority of private firms have lacked support from the government and have followed their own paths. Gu added: “The private sector is increasingly the engine behind economic exchange”.

Development implications and recommendations
The presentation also referred to the consequences of Chinese commercial ties with Africa and how these will depend on the motivations of Chinese firms, the time horizon of the investment, the extent of their linkages with local companies and the local absorbing capacity in Africa. Gu spoke of the “high social and environmental cost” of high economic growth in China and made recommendations for ensuring China’s engagement with Africa is beneficial for Africans. She said intergovernmental agreements are needed to avoid firms “go shopping” for low standards in certain African countries. Gu said practices are evolving and that many Chinese private firms now mainly employ African staff. She also cited comments made by Donald Kaberuka, the President of the African Development Bank, as he has said this is “Africa’s agenda” and it’s up to African countries to react appropriately to the opportunities presented by engaging with China. She added: “Chinese firms could and should go further, but they can only go so far. African governments, along with the African Union and civil society, need to work together to establish constructive policy frameworks that help ensure that FDI helps to make a positive contribution to their economies and societies”. Gu also stressed that China and Africa certainly should and can learn from each other.

By Guy Collender, Communications Officer, LIDC
Further Reading
Research on China, Institute of Development Studies, Sussex