China’s shot across the bows

Donald Kaberuka, head of the African Development Bank, called the impact of the crisis on Africa an ‘emergency’ and ‘deeper than anticipated at the beginning’. Ethiopian Prime Minister Melas Zenawi and South African Finance Minister Trevor Manuel both called for greater flexibility from the IMF and World Bank to make finance for trade avaiulable once again.

Prime Minister Zenawi argued that investment in Africa was in the richer countries’ self-interest as ‘The global stimulus impact of every dollar spent in Africa is higher than if it is spent in the US or the UK’, and the cost of instability and breakdown would be greater - a point also made by Liberia’s President Ellen Johnson-Sirleaf.

The African leaders were in London for a meeting hosted by Gordon Brown, who heard reports of the continent-wide impact of the crisis - 500,000 thrown out of work on the Zambian copper belt, farmers losing work and income as prices fall, and a slump in remittances from abroad.

But the four BRIC countries - Brazil, Russia, India and China - made their own powerful plea for change in a first-ever joint statement calling for more access to finance. The four nations said that private investment is evaporating this year and next year and "it is imperative that multilateral financial institutions should expand their lending to offset the massive decline."

Existing resources for the International Monetrary Fund are "clearly inadequate and should be significantly increased" they said, asking the IMF to speed up efforts to raise up to $11 billion by selling 400 tons of gold.

They also warned the U.S. and the Euro-zone nations that they needed economic policies that were "more balanced, proactive, coordinated and countercyclical" to promote global economic recovery. And they called for a speeding up of the current review of representation on the governing bodies of the World Bank and IMF.

The G20 Finance Ministers were full of warm words for the poorer countries in their final communique, stressing that ‘We are committed to helping emerging and developing economies to cope with the reversal in international capital flows. We recognise the urgent need to pursue all options for mobilising International Financial Institution (IFI) resources and liquidity to finance countercyclical spending, bank recapitalisation, infrastructure, trade finance, rollover risk and social support. We agreed on the urgent need to increase IMF resources very substantially’.

But they will need to move fast to offset the trend for the crisis to hit hard at key investment in Africa’s infrastructure. A recent meeting of the Infrastructure Consortium for Africa heard from its co-ordinator Alex Rugamba ‘We should not underestimate the impact of the financial and economic crisis on investment in Africa's infrastructure sector, particularly on the levels of private sector investment...there is a gap of 80 million dollars in new infrastructure building and maintenance’,

Meanwhile China was pushing ahead with its African investment and acquisition. The Financial Times reported that the China-African Development Fund is to receive a US$2 billion top-up earlier than planned as Beijing looks to snap up assets left by what the FT called ‘ the hasty retreat of western investors from the continent’

The fund, which was launched in late 2006 at the Beijing FOCAC summit , has so far invested US$400 million of the US$1 billion starting capital granted by China Development Bank. It is expected to use up the remainder by the end of 2009 - a full two years ahead of schedule, said Chi Jianxin, the fund's chief executive. Existing investments include agricultural projects in Ethiopia, Malawi and Mozambique; industrial zones in Egypt, Nigeria and Mauritius; and a share of a power station in Ghana.

The fund has now launched its South African branch with the signing of a memorandum with SA’s Department of Trade and Industry at a high-profile ceremony attended by powerful movers and shakers from the ruling ANC and from Chinese and South African business leaders.

To reinforce the trend, the Chinese government announced new regulations to promote and regulate overseas investment.The new regulations seek to simplify the procedures needed for Chinese companies to get permission to invest overseas. They also urge Chinese companies ‘to fully abide by laws and regulations of the host countries and fulfill social responsibilities when expanding their business on the international markets’

According to the report in Peoples Daily, China’s overseas investments in 2008 totalled US$52.1 billion - a massive 96.7% increase over 2007.

The Washington Post gave details of what it described as China’s ’shopping spree’ . ‘On Feb. 12, China's state-owned metals giant Chinalco signed a $19.5 billion deal with Australia's Rio Tinto that will eventually double its stake in the world's second-largest mining company.

‘In three other cases, China has used loans as a way of securing energy supplies. On Feb. 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on Feb. 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.

‘On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about 8 percent of the world's reserves of natural gas.’

Other reports of continuing Chinese activity included the offer of more than $1 billion in loans to Angola, to be spent on agricultural projects, housing and infrastructure, on top of the existing total of over $5 billion in loans extended since the end of the civil war in 2002.

In Nigeria talks were being held to hammer out the details of the planned Ogun Guangdong Free Trade Zone Project, a 7,000 hectare industrial enclave based on investment by Chinese enterprises from Guangdong in southern China.

And in Zambia, two Chinese companies ‘Zhonghui Guohua Industry (Group) Limited and State Grid International Development made their intentions to invest in Mwinilunga during a meeting with Mines and Minerals Development Minister Maxwell Mwale and Minister for Trade, Commerce and Industry, Felix Mutati’. This follows the recent announcement by the Zambian government that it will soon advertise demarcated Oil and Gas blocks in three regions.

The New York Times reported that at the same time as announcing the new regulations on overeas investment, China’s Commerce Ministry was also leading its first-ever mergers and acquisitions delegation of corporate executives to Europe. ‘The executives are looking at companies in the automotive, textiles, food, energy, machinery, electronics and environmental protection sectors’.

Meanwhile, a former China expert at the IMF observed that recent amendments to China’s $600 billion economic stimulus package indicate a sharper focus on increasing China’s long-term economic competitiveness. “Higher expenditures on education and research and development, along with amounts already committed to infrastructure investment, will boost the economy’s productivity.”

This background gave additional significance to the understated warning by China’s Premier Wen Jiabao that he was ’a little bit worried’ about the safety of Chinese assets in the USA.

A few days after Premier Wen made his remarks, at a press conference following the annual session of China’s legislature, the official Xinhua News Agency made clear the background in its report on the recently-published US Treasury Department figures on international capital flows, showing that in January foreign purchases of US debt rose by $10.7 billion, ‘bringing slight relief to those who were concerned that U.S. debt had lost its appeal’ as Xinhua pointedly put it.

As the agency also reported, the figures show that in the same month China increased its holdings of US debt by $12.2 billion - more than the total net increase. In other words, President Obama’s recovery programme is in effect being financed by China, which now holds 60% of total US national debt.

Naturally, US officials were swift to repeat Hillary Clinton’s recent reassurance that ‘There’s no safer investment in the world than in the United States’ - also pointing out that confidence would have been hurt without the Administration’s recent package.

As the Washington Post observed;
‘That reality, experts say, has given China more leverage in its dealings with Washington, with some seeing Wen's comments yesterday as amounting to economic saber-rattling. The words came only days after a confrontation in international waters between a U.S. military ship and five Chinese vessels that sparked recriminations on both sides of the Pacific. Chinese officials have also signaled alarm over a growing "protectionist" sentiment in the U.S. Congress that could further endanger its exports, now in sharp decline as world demand spirals during the global economic crisis.

..."The power that China now has is that its actions are seen as a leading indicator of the confidence that foreign investors will have in the ability of the U.S. government to pay the debt," said Eswar Prasad, senior fellow at the Brookings Institution. "These comments are saber-rattling in the sense that they are using that leverage to tell the U.S. to back off on currency policy and trade policy."

All of which indicates that when the full G20 meets next month, the demand from China and the other BRIC partners for a greater say in global financial governance for the emerging powers of the global south will be hard for the established powers to resist. While tempting, the BRIC partners face a daunting task of ensuring that the diverse voices and diffuse issues of the Global South and Africa, in particular, is given fair representation in any reformed global financial architecture. But perhaps the more foreboding challenge facing these emerging powers is whether they can claim to be the voice of the Global South and Africa.

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*Stephen Marks is Research Associate and Project Co-ordinator with Fahamu’s China in Africa Project
* Sanusha Naidu is Research Director with Fahamu’s China in Africa Project
* Please send comments to [email protected] or comment online at http://www.pambazuka.org/