Markets, not minerals

If you’re a student of China in Africa and haven’t read Howard French’s “China’s Second Continent: How A Million Migrants are Building a New Empire in Africa”, you need to remedy that.

French was probably the best correspondent the New York Times ever posted to Africa between the Democratic Republic of Congo and the Sahara. The newspaper then made him bureau chief in Shanghai where he mastered Mandarin and was struck by the growing flow of visiting African bigwigs. That led to scores of interviews in six African countries, and the book.

To see China’s involvement as a “raw materials play” is “a failed appreciation of China’s ambition with regard to Africa and, indeed, the world”, he said at a forum here this week. “What China is really after is the development of markets”.

To illustrate his point, he held up his iPhone.

“China is making hundred of millions of mobile phones in a factory owned by (Taiwanese contract manufacturer) Foxconn that run 24 hours a day in 8 hour shifts. 10 000 workers come out at a time. It’s a sight to behold. They (the Chinese) are accepting all of the pollution that goes into this process, all the difficult labour conditions, and they are capturing just 15 cents of each dollar of value add.”

Further up the value chain companies in Japan, South Korea and Taiwan like Samsung and Toshiba were capturing 30 cents by supplying branded high end components containing intellectual property. The remaining 55 cents was going to Apple in Cupertino, California, for “design, integration and, above all, marketing.”

“That’s where the big money is, the good lifestyle money, the clean money will with little of no associated pollution, but with really good jobs.”

That kind of money and job is what China wants. As early as the late 1980’s, well before anyone thought of the iPhone, Beijing’s planners knew China had to climb the value chain, as Japan and others had done, if its economy was to be more than an archipelago of sweatshops in special economic zones using foreign investment and intellectual property to create wealth for foreigners.

“That,” French said, “was the beginning of the “going out” policy”: China had to be “an agent of globalization”, not simply a “recipient”.

“Going out” was the context in which the Chinese started looking at Africa while Europe was preoccupied with post-Berlin Wall reunification and the US was coming to grips with the end of of the Cold War. “The Chinese are thinking opportunity while we don’t think of Africa as an economic space, but a place where we can project our goodness and give people lessons.”

China did not have to wait for McKinsey to tell it about its 900 million potential consumers, its growing middle class or its rapid urbanisation.

“There are literally hundreds of Chinese companies out there in Africa today cutting their teeth and trying to establish brand loyalty among emerging African middle classes to become the standard products Africans will turn to in generations ahead. This is much more important than minerals.”

Amid rising labour costs at home, “one can also expect that certain Chinese industries will offshore to Africa,” French said. But it was not just a question of wages. Chinese companies would locate in African countries to take advantage of their preferential access to other markets, under the African Growth and Opportunity Act, for example.

“In the case of Quandong, the most industrial province, there’s a very strong push to reduce smokestack, low value added industries. Instead of closing the business, relocate to an African country and have them put up with the smog and pollution.”

French admires what China is accomplishing in Africa, but he is also under no illusions. “The Chinese are strikingly neocolonial about wanting to command the economic heights” in African countries. They truly do consider themselves superior “to everyone”. They have no qualms about exploiting the desire of African leaders for vanity projects like football stadia. But they are also nimble at climbing learning curves when politics and popular sentiment demand.

The author concluded with this observation: “I have been to lots African embassies in Beijing, and behind the scenes the embassy is being run by Chinese people. There’s the ambassador and sitting in his office is a top aide who’s been loaned to him by the Chinese foreign ministry.”

There was no evil intent, French said. It was just that African missions often “do not have someone of their own who can speak and read Chinese and so depend a lot on on the Chinese to run their embassies. And that’s just a massive disadvantage.”

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