Stars and Dragons: The EU and China - European Union Committee Contents


CHAPTER 9:  CHINA AND THE EU IN AFRICA: COMPETING MODELS OF DEVELOPMENT COOPERATION?

275.  China's interest in Africa stems mainly from domestic concerns about economic growth and the need to secure energy, mineral and agriculture resources (Dr Alden, London School of Economics, Q 256). These concerns are particularly acute because China has limited natural resources and a high rate of economic growth—GDP has grown on average by 9% a year over the past 25 years[113].

276.  DfID wrote that Africa currently possessed about 9% of the world's proven petroleum reserves compared to almost 62% for the Middle East. African reserves remained largely unexplored. China was a growing market, accounting for around 14% of Africa's exports; oil accounted for around 80% of African exports to China. However, the EU and the US accounted for a greater proportion of imports of oil from Africa (p 260).

TABLE
Destination of African oil exports (approximate figures)


China
14%
EU
36%
US
33%


277.  While the EU also has commercial interests in Africa, it has different policies on poverty reduction, good governance and human rights. Minister for Europe Chris Bryant MP told us that China's economic relations with the developing world should be welcomed in the context of the Millennium Development Goals (MDGs). China invested more in Africa than "all of the G8 countries combined" (Q 800). While we have concentrated on Africa during this inquiry, many of the issues would apply to other developing countries, such as in Latin America.

China's growing role in Africa

278.  China's trade, investment and aid to Africa have grown dramatically in recent years (Dr Alden, Q 255). Two-way trade grew from $10bn in 2000 to $70bn in 2007 according to DfID figures. China has also built up its political relations with African countries, with the summit meeting of the Forum on China-Africa cooperation being held in Beijing in November 2006. Following the summit, China announced an expansion of all programmes—construction, technical aid, education and health, trade and investment.

279.  Dr Chris Alden told us that China's main trading partners in Africa are all resource exporters, including Angola, Sudan, the Democratic Republic of Congo and Nigeria. South Africa is also an important partner (Q 257).

280.  Mr Keeley (International Institute for Environment and Development) said that it was possible to overstate the extent of China's engagement: overall investment and development aid were still small relative to that provided by traditional donors (Q 260). China is only one of a range of actors, including India, Malaysia, and Brazil, that are building closer relations with African countries.

281.  Dr Alden pointed out that the profile of Chinese investment and activity in Africa was varied, ranging from the Chinese central government to individual farmers. The Chinese presence included state-owned enterprises and provincial governments, as well as, increasingly, private actors. Chinese banks provided incentives to invest abroad. "We often talk about China but in fact there are many Chinas ..." (Q 283).

282.  China's commercial presence in Africa predominantly consists of privately-owned small to medium sized enterprises which have little or no relationship to the government of China. There are a few large Chinese state-owned enterprises operating in the extractive and infrastructure sectors. The Chinese government actively supports these sectors through the provision of credits, concessional financing and diplomatic support (Ivan Lewis MP, then Parliamentary Under-Secretary of State, Department for International Development, p 259).

283.  Chinese individuals are increasingly moving to Africa. Chinese official statistics say that 120,000 Chinese are on labour contracts in Africa, but Dr Alden's estimate was that there were 200,000 to 600,000 north of South Africa. These tended not to be permanent migrants (Q 276). Africans now had more ambivalent feelings towards China than a few years ago due to Chinese immigration into Africa (Q 308).

284.  China's worldwide search for resources to feed its economic development has implications for the EU's own economic and industrial needs. The EU must monitor Chinese commodity deals, whether on food, minerals or energy resources, to ensure that Europe's strategic interests and access to global resources are safeguarded.

Differing approaches

285.  Our witnesses thought that the EU and China had shared interests in Africa, but that their approaches differed. Gareth Thomas MP (Minister of State, DfID) believed that there was scope for trilateral cooperation between the EU, China and the African Union in: peace and security; support for African infrastructure; environmental and natural resource issues; and agriculture and food security (Q 526).

286.  Ivan Lewis MP (then Parliamentary Under-Secretary of State, DfID) highlighted differences in the European and Chinese approaches to Africa on harmonising their aid with other donors, conditionality (see below) and transparency of aid flows. The Chinese regarded political equality and non-interference as particularly important in their relations with African countries (pp 256-7), and believed that European aid models had not been as successful as their own (Q 269). Gareth Thomas MP suggested that the Chinese government was not motivated purely by self-interest: poverty reduction was also a Chinese objective in developing countries (Q 528). A 2006 Chinese White Paper stated that its policy was to promote peace and stability, development and common prosperity (Ivan Lewis MP, p 256).

287.  China has gradually become more willing to work with other donors to promote development in Africa. China's EXIM Bank has signed Memoranda of Understanding with several multilateral development banks, and in 2007 China contributed to the replenishment of a major development fund of the World Bank (Ivan Lewis MP, p 257).

288.  Professor Godement thought that the Chinese approach to development in Africa could be complementary to the EU's, but more cooperation was needed. The Chinese presence in Africa was in many cases welcome from an economic point of view. However, the Chinese had not studied all the strategic implications of their economic and human presence throughout Africa and were not prepared for the "backlashes" that might occur (Q 594).

289.  The EU was not competing with the Chinese in the area of development cooperation, according to Mr Delphin (European Commission). Similarly, the EU did not interfere to assist European companies in winning contracts from African governments. Rather, the EU was promoting good governance as a way of ensuring a level playing field for European companies. In contrast, he questioned the way in which the DRC had recently awarded mining contracts to the Chinese and whether Chinese loans to the DRC were good value (Q 385) (see Box 5).

290.  Scott Wightman of the FCO told us that there was an incipient dialogue between the EU and China on African issues (Q 806). He cited one interesting example whereby DfID was funding an environmental impact assessment of a Chinese road building project in the DRC (Q 807).

291.  The role of Chinese central and provincial governments, state corporations and businesses in Africa has increased substantially in the last decade. China has become one of the leading trading and investment partners for African nations. In many cases Chinese trade, investment and know-how have boosted economic growth and employment opportunities in Africa. We support the continuing dialogue between the EU, China and African regional organisations, governments and civil society on development. We believe there is scope for greater cooperation in the interest of achieving poverty reduction, through roads and railways.

Transparency in Chinese aid

292.  It is difficult to assess the breakdown by country and overall volumes of Chinese aid and investment, as China does not publish aid statistics in the same way as members of the OECD. One of the EU's main concerns about Chinese aid to Africa related to transparency and the unwillingness of China to share information, according to Ivan Lewis MP. Civil society in Africa was concerned about a lack of transparency related to deals that African leaders had signed with China (pp 256-60).

293.  The Extractive Industries Transparency Initiative (EITI) seeks to improve the transparency of revenues paid and received by governments and companies once a mining contract has been agreed. It currently has no impact on the transparency of contracts themselves, although there is a growing interest in extending transparency beyond revenues. The UK is "strongly supportive" of China joining the EITI in some form. Several Chinese subsidiaries already provide information according to EITI requirements, e.g. in Liberia. This is mandatory in some of the countries where they operate. The structure of the Chinese energy sector means that the EITI would benefit most from Chinese companies joining, rather than the Chinese government. The UK Government's initial objective is for major Chinese companies to express their support for EITI. DfID is currently organising a conference in China on "corporate social responsibility and voluntary initiatives", at which the EITI will be a core theme (Gareth Thomas MP, DfID, pp 168-9).

BOX 5
The "resources for infrastructure" deal in the Democratic Republic of Congo (DRC)

In April 2008 a consortium of Chinese enterprises signed an agreement with the Congolese government on the extraction of mineral resources from the DRC. The NGO Global Witness viewed this agreement as the most significant example to date of the "resources for infrastructure" model of Chinese investment in Africa. The value of the investments was originally $9.25 billion.
  
Global Witness highlighted deficiencies in the approaches of the consortium and the Congolese government: lack of transparency; failure to involve democratically-elected institutions; risks for long-term financial stability; insufficient protection of labour rights; and concerns about sustainable development. A "stabilisation clause" included in the agreement risked undermining the DRC's right to regulate key public policy areas such as the environment and human rights. Global Witness referred to reports of the poor treatment of workers in mines, smelters and other operations under Chinese and non-Chinese ownership in the DRC, and expressed concern that this may be repeated in the infrastructure and mining operations covered by the agreement. There were concerns that the Congolese government might not be getting a good deal from China, as it had shown a dependence on the Chinese for direction and guidance in valuing infrastructure. This reflected broader weaknesses and an "imbalance" in other aspects of the partnership, including negotiation, technical expertise and operational capacity (pp 261-4).
  
Despite the need for infrastructure investment in the DRC, the international community—including DfID and the EU—had serious concerns that the deal would compromise the DRC's longer-term debt sustainability[114]. As a result, it did not approve an IMF programme for the DRC. In late 2009, the Congolese and Chinese governments agreed changes to the deal which mean that it is now compatible with longer-term debt sustainability in the DRC, confirmed by joint World Bank and IMF analysis. The removal of state guarantees on the commercial mining part of the deal has shifted the balance of risk in the DRC's favour. The deal has also been reduced to $6 billion; $3 billion for mining investments and $3bn for public infrastructure projects.
  
The World Bank is working with the Congolese government to ensure that the infrastructure projects, mainly roads, represent maximum value for money. DfID has been working with the Ministry of Infrastructure to help the Chinese minimise their negative impacts while seeking to ensure that the poorest benefit. DfID has funded the drafting of road sector standards for the Congolese government which are about to pass into law. DfID may fund impact assessments to mitigate the environmental and social impacts of the roads and is working with the Chinese embassy, which has given assurances that all Chinese companies will adhere to the law when passed.


294.  James Keeley highlighted the EITI as an "incredibly important initiative" and a key topic for European engagement with China. The two sides could consider what the obstacles were to China joining the initiative and how it might be reframed to encourage the participation of Chinese stakeholders. Scott Wightman of the FCO said: "what we really need is for the African governments who have signed up to EITI to be encouraging China … to co-operate with not just the letter but also the spirit of the initiative" (Q 805).

295.  We are concerned about the lack of transparency of Chinese aid. African parliaments and civil society must have the information they need to be able to hold their governments to account. We are concerned that in some cases Chinese loan and investment agreements are neither contributing to poverty reduction nor respecting internationally-recognised principles of sustainable development, good governance and human rights.

296.  The Extractive Industries Transparency Initiative is a key tool for transparency and good governance. The UK and the EU should attach high priority to securing the participation of the Chinese government and businesses in the Initiative.

Conditionality and good governance

297.  Our witnesses highlighted conditionality as a key difference between the Chinese and European approaches to aid. China does not coordinate its aid conditionality with other donors. Chinese investment in Africa does not come with good governance conditionality but with a range of conditions related to how loans will be repaid and concessions that China will be granted as part of the investments. This was an "entirely different approach" to most of the OECD (Ivan Lewis MP, p 256).

298.  African governments often prefer the Chinese approach to aid because the Chinese avoid imposing too many conditions, including in the area of human rights and good governance. As Mr Keeley said, the governance agenda becomes more difficult to promote when there are alternatives (Q 260). Yet in some cases, Chinese and European aid may be complementary. Ivan Lewis MP wrote that the government of the DRC appeared to share the UK's position that the assistance provided by China and traditional partners was "strongly complementary". Therefore, he did not perceive China's involvement in the DRC as an obstacle to the promotion of broader governance and human rights objectives (p 258).

299.  The Chinese are paying increasing attention to political stability in certain African countries, not least to safeguard their substantial investments. Mr Delphin of the European Commission told us that although the Chinese may have engaged in a more "predatory policy of grabbing resources" in the past, they had realised that stability was essential to ensure access to resources, and had therefore been forced to deal with the issue of good governance (Q 384). Gareth Thomas MP wrote that China was increasingly recognising that its activities in Africa brought with it greater responsibilities. China had played an important role in persuading the government of Sudan to accept the joint African Union—UN force for Darfur (UNAMID) (p 168). Moreover, the Chinese Special Representative on Darfur, Liu Guijin, has publicly stated the need for the Sudanese government to be more active on Darfur (Bill Rammell MP, then Minister of State, FCO, p 277).

300.  Mr Delphin noted some inconsistencies in Chinese policy. For example, China had followed the lead of the international community in its response to the civil unrest in Kenya, but in the case of Zimbabwe it had paid no attention to good governance. However, he echoed the Minister's view that peace and security was one of the most promising topics of discussion with the Chinese, pointing out that China had more than 1,000 UN peacekeepers in Africa (Q 384). China's lack of interest in good governance and human rights did not imply the absence of a political agenda. One motivation was China's foreign policy, which included the objective of isolating Taiwan (Q 385).

301.  Scott Wightman of the FCO told us that the way China was engaging in some African countries was a cause for concern. One such case was Guinea, where a coup took place in 2008. There were reports that the Chinese were offering a multi-billion dollar mining contract to the Guinean authorities, contradicting African and international efforts to use aid conditionality and political pressure to support a transition to democracy. Minister for Europe Chris Bryant MP agreed that the Chinese approaches were undermining these efforts. The role of the Africans themselves, including the African Union, in taking the lead in expressing these concerns to the Chinese was underlined by our witnesses (QQ 800-801). Another case was Zimbabwe, where China was maintaining its relationship with the regime despite external pressure to the contrary (Q 804).

302.  Chinese arms exports to African countries are another cause for concern. Bill Rammell MP believed that China had supplied arms to a number of African countries which were identified as "countries of concern" in the FCO's Annual Report on Human Rights 2008, including both Sudan and Zimbabwe. These exports might not be in breach of UN sanctions, but could destabilise fragile situations. The UK consistently encouraged the Chinese government to meet international norms on arms licensing, including not allowing arms sales that could undermine the stability of other countries or regions (pp 277-8).

303.  Good governance and conditionality are issues on which EU and Chinese approaches diverge. China's reluctance to take good governance and human rights into account can undermine African and international efforts. Despite this, China does listen to African leaders and the EU, and has gradually been prepared to play a more constructive role in respect of some armed conflicts in Africa.

Debt and labour issues

304.  Several witnesses highlighted concerns about Chinese loans to African nations and debt sustainability. The Minister Gareth Thomas MP cited this as another reason why it was important for China to be more open about its agreements with African countries (Q 531). The DRC and Zambian governments were considering taking on new debts that they might not be able to repay in 10 or 20 years' time. Bilateral and multilateral—including European—creditors could then be faced with writing off some these countries' debt burden (Dr Alden, Q 266). Another concern was that major Chinese infrastructure projects in Africa often used imported Chinese labour rather than local labour, which lessened their development benefits for African countries (Scott Wightman, FCO, Q 809).

305.  We are concerned that China is encouraging African nations to take on unsustainable and inequitable levels of debt. This contradicts recent international and EU initiatives, including the Highly-Indebted Poor Countries Initiative (HIPC). The EU should engage China in a regular dialogue on this question.


113   FCO figures. Available at:
http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/country-profile/asia-oceania/china?profile=all Back

114   Information provided by DfID. Back


 
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