Reasons behind China’s great interest in Africa
China has been putting up several projects in Africa. In Kenya, the Standard Gauge Railway is operational, with the Nairobi Expressway taking shape.
Well, China’s first infrastructure in Africa dates back to 1975: it’s the 1,860-kilometre-long railway called Freedom Railway connecting the two East-African countries of Zambia and Tanzania.
In the following years, the ties between the two actors got closer and closer: in 2003 Chinese investments in Sub-Saharan Africa counted for 68 million dollars, that soon became 6.48 billion in 2008, about 33% of the total amount of investments.
China has a very strong presence in this part of the continent because of the huge amount of raw materials needed by the Chinese economy, but also because this part of the world is an enormous market composed by millions of potential consumers and thousands of infrastructures to build.
On the other side, China offers all that is needed, from technology to clothes, passing by infrastructures: scooters, bikes, radios and many cheap products that have a low level of technology but that allow African people to reach a basic level of consumption.
We must also say that Africa’s exports to China have been growing from less than 1 billion dollars in 1990 to almost 15 billion in 2004.
Before 2010, China became Africa’s most important trading partner and it is important to highlight the fact that both actors gain befits from this relationship because, in the balance of payments, the exports are almost the same of the imports.
While all countries of the world want to be paid with cash for the materials and the help they offer, China accepts to be paid also with natural resources, such as raw materials like crude oil, copper, iron and wood.
China has the world’s biggest population, about 1.36 billion people, in the period 2000-2006 its GDP growth rate has been among the highest in the world, about 9.6%, but the country does not have enough arable land for its enormous population.
This country alone counts for 20% of the world population, yet it owns only 8% of global farmland. For this
treason, one of the most urgent needs is to secure itself arable land and reduce as much as it can its dependency on the import of food.
With Deng Xiaoping, during the 1978-1984 period began the reform for the agriculture sector, the aim of which was to increase China’s limited productivity.
The first step of this important revolution had to come from agriculture that played a key role in the country’s economy, and, in particular, it has been the one of separating the price: part of the production could be kept for the ones that could sell their products on the market.
People working in the agriculture sector could keep some money, and this was meant to push to a new form of domestic demand.
In the following five-year plan, the urban industrial sector was involved and the important thing was that from that moment on, firms were allowed to keep the profit.
More probably, it has a transition economy because the weight of the agricultural sector in China’s GDP passed from 28.1% in 1978 to 12.5% in 2005, while the service sector has grown from 23.7% up to 40% in the same period.
China has a high number of state-owned companies and of private ones but it is not always easy to draw a distinction of the two.
Anyway, since 1998 many private enterprises rose, from less than 10% of total industrial enterprises to almost 50% in 2005.
The country’s 9 biggest companies produce 69% of total profits and they are involved in the sectors of oil, communication, steel, coal and energy.
However, Chinese companies and its State have already purchased lands for 3 million hectares, an area wide as the Italian regions of Lazio and Abruzzocombined together.
The first direct contacts between China and the African continent can be dated back to the half of the 20th century when on October 1st 1949, there was the birth of the People’s Republic of China (PRC).
Since the beginning, it was politically isolated, mostly because the U.S. didn’t want to recognize the new-born State because of its fear for communism to spread in the whole area.
For this reason, during the Fifties, China began to create some sort of connections with the independent African states.
The first ties between these two actors were political ones. Over time a lot has changed and the links among them moved from the political plane to the economic and business one: in October 2000 Beijing hosted the first Forum on China-Africa Cooperation (FOCAC), a meeting between Ministers for Foreign Affairs and the ones for Economy and Finance.
In 2001, China entered the World Trade Organization (WTO) and thanks to this, its exports began taking off: in 1970 it counted for 1% of global export, in 2010 was counting for 10%, becoming world biggest exporting country.
To be more precise, China has had an explicit “Going Out” policy since 2001 as part of business development (rather than food security) strategy.
Investing in land
The central government has encouraged its firms to invest abroad, partly to secure access to resources where Chinese demand outstrips domestic supply, and also to build robust international companies capable of competing in key sectors with leading established multinationals.
This policy has been supported by a range of incentives such as tax breaks, credit, low-interest loans and customs preferences, allied to high-level diplomatic support.
The focus of this activity has been strategic SOEs, which Chinese policy-makers see as capable of rivalling established multinationals.
However, in theory, smaller companies investing in land may also be able to access government support. The China-Africa Development Fund set up by China Development Bank to finance China’s development programme in Africa is actively looking for opportunities to support Chinese agribusiness development on the continent.
China’s population suffers from a severe shortage of suitable farmland because 2/3 of chinas territory is arid grassland and desert, with climate change worsening the situation.
As a result, it is no surprise that Beijing is calling for Chinese firms to engage in land grabs for arable farmland in foreign countries, starting in 2011, with the minister of agriculture saying “the time is ripe for the country’s agricultural companies to embark on a ‘go outward strategy.”
In Africa, such land grabs are even more possible today since two million Chinese live in the continent.