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Editorial
No strings attached
A new worry is running through the discussions about the plight of Africa- the fear that the continent's growing trade and investment relationship with the People's Republic of China (PRC) could be unhealthy. Reuters reported on June 14th:
World Bank presidential nominee Robert Zoellick suggested on Thursday he would try to get China to listen to Western worries that it was exploiting investment opportunities in Africa while ignoring corruption there.
China has used its economic weight to invest in Africa but has drawn criticism from Western aid groups that it fosters misrule by failing to demand accountability.
Zoellick added:
"I have worked a lot with China over the years and I find it at a very interesting point. It is intensely focused on national interests .. but I think they are willing to see a broader sense of national interests."
This presumably contrasts with the Western nations whose relationships with Africa are assumed to be conducted for selfless and humanitarian reasons. Continuing with little pretence that the job of head of the World Bank is to represent anything but the Western viewpoint, Zoellick then made an interesting offer on behalf of the USA and the EU:
Beijing was aware it could enhance relations with the United States and Europe if it used its new ties to wield political clout with African governments, said Zoellick.
Only a few years ago, the Western claim was that Africa was failing to develop because it was badly governed. Now, Western concern expresses itself as a fear that Africa might manage to develop economically despite being badly governed.
The sin of forgiving
For three decades the African continent suffered from relative and absolute economic decline, with the sub-Saharan countries falling in income by $200 per person - a drop of 11% - between 1974 and 2003. The West insisted that IMF structural adjustment, imposing privatisation, deregulation, and cuts in state spending, was was the answer. These measures served to ensure that the burden of the poorest continent's deepening impoverishment fell on its poorest inhabitants, while Africa continued further into debt, stagnation and decline.
Why wasn't structural adjustment working? The fault, as perceived in the West, clearly lay with the irresponsible way in which the Africans were running Africa. Larry Diamond surmised on behalf of the Hoover Institution in July 2000:
Africa has been wretchedly governed. Its now endemic political pathologies—corruption, nepotism, ethnic domination, abuse of power, decimation of the rule of law—have seeped into the culture. There are ways of reversing this tragedy, but unconditional debt forgiveness for the poorest of the poor countries is not one of them.
There was no mention in the Hoover Institution's analysis of the steep long-term decline in the prices of the African continent's main exports to the rest of the world: food products, coffee, metals and other basic commodities; of the African countries' problems in competing under de-restricted global trading conditions against countries with vastly superior levels of education, public health, infrastructure and industrial investment; or of the economic effects of the 'brain drain' of hundreds of thousands of African scientists, engineers, doctors and other highly-skilled workers who leave their homelands for better prospects in the developed countries.
Diamond offered this advice to George W. Bush on his accession to the presidency:
Unless African countries lay the institutional foundations of limited and accountable government, under a true rule of law, they have no hope of relief from their burdens... 'forgiveness' would reinforce the irresponsibility that has brought the continent to this juncture.
Africa needs the compassion of the West, but it also needs its conditionality. Debt must only be forgiven in exchange for lasting reforms that will control corruption. A new American president should lead the West in offering to Africa an international bargain: debt for democracy and development for good governance... Only with freedom, transparency, and a rule of law can Africa escape its miseries. Only with conditionality can the West show compassion.
The USA, Britain and the rest of the West duly imposed tighter conditions on African governments. Now, the continent is growing again economically. But it is widely acknowledged that Western compassion and controls are not the main reason for Africa's revival. Alan Wheatley, the China Economics Editor of Reuters observed:
"...the [African] continent [is] enjoy[ing] its fastest burst of growth in 30 years on the back of booming Chinese demand for oil and minerals."
Alongside the expansion of trade between Africa and China, the PRC is investing in African countries, providing expertise and funding, digging mines, building infrastructure and making loans at low and zero interest. This is causing investors in other countries to follow suit.
New dynamic
The revival of Africa is only one example of the effects of a change in the pattern of the world economy, a new phase in the nature of globalisation. To greatly simplify: China imports increasingly advanced production technology (machinery, licenses and expertise) from Europe, Japan and the USA. Because wages in the PRC are very much lower than in the West, and the country's technology is improving, manufactured goods of increasing quality and complexity are cheap to make in China, and can be sold abroad at low prices; this has been causing a huge growth in China's industries to feed the demand- in 2006, China overtook the USA as the world's biggest exporter of manufactured products. This in turn creates another demand- the need of the PRC's expanding industries for energy and metals, and of the country's urbanising population for food. China's rising appetite for these basic commodities is such a powerful force that it has reversed the long-term downward trend in commodity prices.
As well as Africa, other regions which rely on basic commodity production, including Latin America and Russia, have gained economically from this change. They are gaining politically also, as they become somewhat less dependent on the West.
The European Union countries are gaining too, as their trade with China increases faster than their trade with the United States. The Financial Times reported in March 2007 that while imports from the United States to the 25 EU countries rose by 8 per cent to €176.2bn in 2006, the value of imports from China rose by 21 per cent to €191.5bn. Further:
The EU has also seen strong growth in its exports to China, which rose by 23 per cent last year to €63.3bn. The rising importance of such trade links explain why economists remain upbeat about Europe’s economic prospects, in spite of the threat of a US slowdown.
As Steven Schwankert of the IDG News Service noted in January 2007, the European Union has established a very strong position in exports of technology to the PRC:
China purchased a record amount of technology in 2006, with Europe accounting for almost 40 percent of total imports, China's Ministry of Commerce said Thursday.
The U.S. trailed both Europe and Japan as an exporter of technology to China. China's imports totalled $22.02 billion, up 15.6 percent over 2005 spending. Of that number, $14.76 billion was spent on technology licensing and other fees, or 67 percent of total spend, the ministry said.
Nations in the European Union were the leading technology exporters to China, with total trade valued at $8.66 billion. Japan placed second with 23.8 percent of technology orders with a value of $5.24 billion. The U.S. was China's third-largest technology exporter, with $4.23 billion worth of goods and services and 19.2 percent of total imports, the ministry said.
More than half of the technology imported went to foreign-invested enterprise, $11.3 billion worth. China's state-owned enterprises accounted for $8.99 billion and 40.8 percent of total technology imported.
China's industrial rise has been a boon not only to producers of basic goods and high-tech processes, but also to financiers. As the London Evening Standard's City Editor Anthony Hilton wrote on 23rd April 2007:
...the agrarian workers of China... are migrating to new cities, swamping the world with their manufactured goods and generating huge mountains of cash... There is too much cash for the Chinese and other similar Asian economies to absorb so it is flowing into London - the world's leading international financial centre. Money has never been so abundant and so cheap for so long... that [is] why the City is doing so well...
Hilton was writing specifically about Britain and the rise of its 'super-rich' financial elite; otherwise he might have mentioned also the importance of Chinese cash to New York and the US economy.
Naturally, few people worry that the trading and financial advantage which China's growth provides to Western nations is being offered with few strings. China is under no pressure to cease lending money to the USA unless it withdraws from Iraq, or that it should try to force Britain to investigate the allegedly corrupt deal between BAE Systems and the Saudi Royal Family. When Western firms seek to profit by selling to China, the most that is required of them is that they invest in the country and hand over some of their technology.
Naturally- not merely because of the shift in assumptions which such demands would require, but because China is not at present in a position to hold the West to account for anything. But we are at an early stage of the current phase of globalisation; when that has played out, there will be a further phase. And changing assumptions tend to follow changes in economic and political reality.