AEGIS ECAS 2007 - View abstract

Panel	76. Invited AEGIS panel: The role of China and India in Africa
Paper ID	731
Author(s)	Dijk, Meine Pieter van
Paper	View paper (PDF)
Abstract	China plays an active role in Africa. Trade, Foreign Direct Investment (FDI) and development cooperation are increasing rapidly and the country has developed an active policy with respect to Africa. This policy has at least three pillars: 1. Assure the supply of raw materials for China 2. Provide an alternative to the Western development model 3. Create a market for Chinese products and services. The theory of international trade predicts trade flows on the basis of comparative advantage. The theory is developed much further to include institutional factors (the efforts to create a level playing field), trade in services and capital flows. Major factors explaining capital flows are political stability and interests, liberalization of the financial sector, new investment opportunities, or a big market. A lot of the Chinese trade and investments cannot really be explained by these theories and requires a different approach, which will be elaborated in this proposal. There exists no systematic overview of China's involvement in Africa. However, the picture can be drawn on the basis of different sources such as trade statistics (WTO), statistics on international investments (UNCTAD) and indicators of development cooperation (OECD). These data need to be complemented by a number of case studies. Latecomers in international markets have the choice of replacing existing supply or developing new markets (green fields). The Chinese government has chosen of the last approach and the following factors seem to explain their huge investments in Africa: - China tries to gain political influence, playing the card of being itself a successful developing country - It can provide an alternative development model, which puts stability as more important than democracy - China wants to assure the supply of the necessary raw materials and can do so by promoting product differentiation (supplying products especially for low-income consumers), low prices and a different market mechanism (a network of small traders is assuring sales in regions where western salesmen don't come - It can present itself as a non-colonial power, which has been the victim of colonialism itself at the end of the 19th and the beginning of the 20th century The following research questions are suggested: 1. What is the current presence of China in Africa? 2. Which countries, sector and activities are affected in particular? 3. What is the role of FDI among other instruments like trade and aid? 4. What are the effects of the current involvement of China in Africa? Hypotheses: 1. There exists a coherent strategy behind China's involvement in Africa 2. An authoritarian regime will find it easier to implement such a policy 3. The effects are partially positive, partially negative, depending on the sector and activity 4. FDI plays a minor, but strategic role, in the overall relations with Africa Research based on secondary data will be complemented by case studies. The case studies were undertaken in Ethiopia and Tanzania.

The role of Chinese foreign direct investment in Africa