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Ambassador Liu Guijin: China-Africa economic cooperation is mutually beneficial and win-win
2006/10/19

(Ask the Embassy)

Q: According to some media, China's economic presence in Africa is "detrimental" to Africa. What's your response to the assertion?

Ambassador Liu Guijin:

They say that China is now milking African continent of its mineral resources and flooding African markets with its cheap goods. This kind of complaint is not something completely new to China.

In the 1990s, Australia, New Zealand and some Southeast Asian countries once had exactly the same anxieties. But within a decade, these anxieties abated and vanished. Australia and New Zealand are now trying to conclude Free Trade Agreements (FTA) with China at an early date, while Southeast Asian countries and China have agreed to reach FTA arrangements by 2010. Australia's booming exports of natural resources and imports of cheap finished goods have given Australia its most favorable terms of trade since 1970s. The Reserve Bank of Australia estimates that this alone contributes 1-2 percentage points to Australia's GDP growth per year. According to a survey done by Australian Industry Group in 2004, more than two thirds of Australian manufacturers said they were affected by business contacts with China in various ways. But instead of continuing to complain about China, they are focusing their efforts on adapting to China's competition in the following respects. Firstly, they are actively seeking to improve efficiency. Secondly, they are sourcing cheap inputs from China. Thirdly, they are hastening the pace of adopting new technology to partially offset the price competition. And fourthly, they are moving either up or down the value chain. In a word, by boosting close economic cooperation with China, their domestic enterprises have earned more money and improved efficiency and the consumers, especially the poor have benefited a lot from cheap Chinese imports. Experience teaches. I think that the experience of Australia, New Zealand and Southeastern Asian countries deserves our due attention.

China-Africa trade relations need to be discussed from a broader perspective. The expansion of China's economic involvement in Africa coincides with the economic globalization process with its impact felt worldwide. The accelerating pace of globalization has resulted in major global economic structural changes. During this process, China has become the largest recipient of foreign direct investment (FDI) among developing countries since 1990s. Transnational corporations from major powers and neighboring countries have been increasingly moving their labor-intensive industries to China, thus making China a major world workshop. This in turn makes China a major importer of raw materials and exporter of mainly low-end manufactured goods. In 2005, 58.7% of China's imports and 58% of China's exports are done by FDI enterprises in China, which means those transnational corporations benefit more than China does.

Having said this, China's importance as an importer can not be overlooked. In recent years, China has been an important source of growth for the world economy. According to an IMF working paper in 2004, China accounted for about 24% of world growth, using purchasing-power-parity-based GDP. China is a major importer of goods and services, especially from other developing countries. In 2004, China was the third largest market for LDC exports, after the EU15 and the US. In 2005, China was the third largest importer in the world, after the US and Germany. In the years from 1999 to 2004, Africa's exports to China grew 48% on average year by year. Today, China absorbs almost 18% of LDC exports and 10% of African exports. The IMF assessed that China has also contributed to the recent strength in world commodity prices. I do not think that a higher raw material price is a bad thing for resource-rich Africa. As a well-known South African scholar Peter Draper pointed out, China's sustained economic development would underpin African commodities prices, "thus mitigating the age-old problem of the commodity exporter's declining terms of trade. This would support fragile balance of payments positions in the region and alleviate pervasive debt payment problems."

Economically speaking, China and Africa are highly complementary. It makes good economic sense to make full use of each comparative advantage and enhance win-win economic cooperation. As African countries are moving in the direction of opening up their economies, trade between China and Africa has quadrupled since the beginning of this decade. China is currently Africa's third largest trading partner after the US and France and second largest exporter to Africa after France. In 2005, China-Africa trade volume hit US$39.8 billion, with China's import from Africa totaling US$21.1 billion, more than its export to Africa.

I would not say that the current pattern of China-Africa trade is ideal. It is open to change and it takes some time. As a recent Word Bank report--Africa's Silk Road: China and India's New Economic Frontier-- argues, China and India's commerce with Africa is opening the way for the Sub-Saharan continent to become a processor of commodities and a competitive supplier of labor-intensive goods and services, a major departure from Africa's long established economic relations with the North. China will endeavor to expand economic and trade ties with Africa on the basis of mutual beneficial and win-win cooperation, and I believe Africa will not miss the opportunity to make full use of China's rapid economic development to translate its resource advantage into competition advantage and hasten its own international integration and growth.

Disputes and frictions are rather normal in international trade. China-Africa trade can be no exception. What China favors is to solve trade disputes through friendly consultation and mutual benefit arrangements. That's why China takes the concerns of some African countries on trade deficit and textiles seriously and is working to address these issues. As you may know, China is going to have voluntary restraint on its textile export to South Africa early next year according to the agreement reached by our two governments. This is not fully in line with WTO rules and is not an easy decision for China to make, if I may say so. But China has made the concrete concession in order to accommodate the concerns of our South African brothers and sisters in the textile industry. In the final analysis, however, one should not neglect the fact that in the process of integration into global economy, every country has to face challenges and to make necessary economic structural changes so as to boost competitiveness in global markets.

Then, what if China has no economic presence in Africa at all? Will Africa certainly be better off without China? Sanusha Naidu, a scholar from the Human Science Research Council of South Africa, does not think so. As he points out recently, the legacy of colonialism continues to contribute significantly to the instability and fragility of some African states. Even today, some African countries are still heavily depending on Western countries for markets, economic assistance and development models. China will provide an alternative market, a new source of economic assistance and a new development approach. As China-Africa ties get closer, "for Africa it means less reliance on its former colonial powers in achieving its development goals."

President Mbeki does not think so, either. In an interview during his visit to London last May, he personally welcomed China's involvement and interest in Africa. He said, and I quote. "It's clear that the Chinese will invest on the African continent in all sorts of ways, in the first instance in raw materials, energy and other things. And that will constitute development for the African continent. It's clear also they are making capital and expertise available for general infrastructure development. In that situation, it becomes possible to say that this cooperation results in our development and that is correct. "

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