International Journal of Business and Management Vol. 5, No. 9; September 2010

Kinfu Adisu
Grand Valley State University

Thomas Sharkey
College of Business Administration, The University of Toledo

Sam C. Okoroafo (Corresponding author)
College of Business Administration, The University of Toledo

Abstract
The purpose of this paper is to explore the increasingly important economic and business relationship between the People’s Republic of China and the countries of Africa. Our focus is on how this partnership manifests itself
in investments. The research questions are: first, how has the relationship changed over time and second, from an African perspective has this relationship been beneficial? Finally, how has the recent economic downturn
affected their partnership? Our investigation shows that Chinese investment has been motivated by a desire to access critical resources (oil, bauxite, etc.). The Chinese approach was been to downplay political issues (e.g., human rights). Although recipient African nations have received investment inflows, they have come with certain drawbacks. For instance, they have negatively impacted local trade and commerce. Also, in some cases African labor has not benefited from Chinese investment.

1. Introduction
1.1 Phases of Engagement
Historical evidence show that there have been economic and political relationships between China and Africa as far back as 500 years ago (Mohan and Kale, 2007). A profound increase in the last two decades may have been
related to the shifts in the world economy, geopolitical competition, and changes in Chinese foreign policy (Brautigam, 2003). According to Mohan and Kale (2007), the Chinese-Africa business contact is divided into three phases. The first phase from 1850 to 1950 related to colonial labor demand called “coolie trade.” Coolie trade focused mainly on plantation, mining, and railway construction. Alongside this were small but enterprising businesses that serviced Chinese labor markets and undertook small-scale export. The second period was from 1960-1980. With the establishment of the People’s Republic of China and the subsequent cold war, relations between China and Africa became political. China challenged the superpowers through foreign aid to Africa in order to cement ‘South-South’ relations. It also encouraged the independence movement in Africa. This is also when Chinese economic reforms were being instituted allowing liberalization, special economic zones, and permitting foreign direct investment (Shenkar, 1994). The last period is from 1990 to present, most noticeable in the last 5 years. According to Broadman (2007), there has been movement of Chinese companies into African countries particularly in the areas of construction, mining, and oil extraction. Such efforts have been encouraged by the Chinese government.
1.2 Conferences
One of the cornerstones of Chinese-African relationship began after the Bandung conference in 1955 (Muekalia, 2004), in which, “China began to cultivate ties and offer economic, technical, and military support to African
countries and liberation movements in an effort to unite with them against both superpowers” (pp. 6). This strategy was also reflected at the first ever China-Africa Co-operation Forum held in Beijing from October 11-12, 2000, in which 44 African countries and 80 ministers were present. According to Muekalia (2004), the forum expressed a clear policy goal for dealing with African countries. It involved co-operation on investment, financial operations, debt relief and cancellation, agricultural, natural resources and energy, education, and multilateral matters. Anshan (2007) also reiterates this, explaining how the new Chinese approach enhanced its relations with Africa in many ways including educational, cultural, medical, public health support and training.
1.3 Motives
In view of the above aid strategy, one may suggest the main motive for Chinese relationship is to gain access to the abundant raw materials that Africa offers. Although this may be a good reason, Alden (2005) states that China’s insistence on recognition of its “one China” policy by Africans as another important requirement. Alden (2005) also lists four factors that have shaped China’s contemporary African policy: China’s need for energy security; new market and investment opportunity; symbolic diplomacy and development; and forging strategic partnerships. According to Konings (2007), the main drivers of the China-Africa cooperation is defined by recent
statement by Chinese government on two issues. One is on cooperation, “China will continue to strengthen solidarity and cooperation with African countries in the international arena, conduct regular exchange of views, coordinate positions on major international and regional issues and stand for mutual support on major issues concerning state sovereignty, territorial integrity….” (pp. 360) The other one is the fact that “The one-China principle is the political foundation for the establishment and development of China’s relations with African countries and regional organizations.” (pp. 361). Zweig and Jianhai (2005) concluded that China’s African policy is being driven by its domestic development strategy. First, it wants to access energy resources. Second, it wants to establish export markets for its light manufacturing, services, agro-processing, apparel, and communications offerings. Already, Africa is full of low-cost motorcycles, electronic and consumer goods sourced from China.
2. Chinese Investment Model
According to Sautman and Hairong (2007), there are factors that made China’s relationship with Africa distinctive. Other than aid and migration policies, the “Chinese model” of investment and infrastructure loans known as the “Beijing Consensus” is a very important approach that needs to be discussed. In Ramos’s (2004) terms, it is a new attitude towards politics, development, and global balance of power. In general, it values the political and international relations concept of multilateralism, consensus and peaceful co-existence (Wenping, 2007). This approach contrasts with Washington consensus, a neo-liberal paradigm that takes into consideration
democracy, good governance, and poverty reduction (Fine and Jomo, 2005- in Sautman and Hairong, 2007).
The Chinese model of investment in essence brings economic growth objectives and foreign policy together guiding trade and invest decisions in Africa along with “no strings attached” financial and technical assistance (Zafar, 2007). Chinese bid competitively for resource and construction projects using investment and infrastructure loans. These loans are often advanced at zero or near-zero percent interest or allow for repayment in natural resources (Brautigam, 2003). For example, China offered US$2 billion in aid for infrastructure projects, thereby securing a former Shell Oil block in Angola by outbidding an Indian proposal. In a similar case, a Chinese firm promised US$7 billion in investments and rehabilitation of power stations to secure an oil area sought by western corporations (Alden and Davies, 2006). Many Africans view Chinese investment as different from the western investment. According to This Day (2005), the Chinese are not imposing the neo-liberal package of reform usually required by the World Bank under its ‘‘conditionality provisions.” Chinese aid by contrast comes without strings attached and is seen as supporting initiatives by African states to address development issues not solved by Western investment (Sautman and Hairong, 2007).
3. Chinese Investment in Africa
Africa, according to Sautman and Hairong (2007) has the highest return on FDI, ranging from 29% in 1990 to 40% in 2005. Although China’s trade with Africa is small compared to US$1.76 trillion in world trade, it has grown from US$3 billion in 1995 to US$55 billion in 2006. It is predicted that Chinese investment will top the US$100 billion mark by the end of the decade (Taylor, 2006). As evidence of this trend, there are more than 800 Chinese companies in Africa in 2006, one hundred of which are medium to large state owned firms (Xinhua, 2007).
According to Kaplinsky, McCormick and Morris (2007), China is having a profound impact on African economies. The increasing economic expansion is particularly evident in Sub-Saharan Africa. In the last decade, the Chinese have built a network of trade, aid and investment with close to fifty countries (Zafar, 2007). Chinese companies are mining oil in Angola and Sudan, building roads in Ethiopia, generating electricity in Kenya,building infrastructure and encouraging tourism in Sierra Leone, and servicing mobile phones in Kenya and Nigeria. China’s rapidly developing oil consumption seems to have a bigger effect on Chinese-African trade (Taylor, 2006; McLeary, 2007). This is the main reason behind the whole raft of new contracts between 2002 and 2006. During this period, Chinese oil companies have signed deals to buy refineries and explore oil and gas in Algeria, Gabon, Angola, Nigeria, Ivory Coast, Kenya, Congo Brazzaville, Namibia, Ethiopia, Madagascar and Sudan. Additionally, China also helped in treating infectious diseases such as malaria and HIV/AIDS and launched the first overseas radio station in Kenya (Brooks and Shin, 2006). Recently, China and Nigeria just signed a major oil deal worth US$23 billion (Swartz and Hall 2010). It calls for China to build three refineries in Nigeria.
As a result, trade between them has increased making China the continent’s third largest trading partner after the European Union and the US. China has continued to push closer ties with Africa and has awarded US$10 billion in aid for the next three years and dispatched volunteers to provide medical assistance and build hospitals and schools (Ewing, 2009). As Tull (2006) explains, Western criticisms of China’s human rights record and other international issues have induced the Chinese to seek closer ties with non-western nations in an effort to build international coalitions.

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