Xi Jinping’s visit shows why investment in Africa suits China’s long-term planning

David Dodwell says that while one may only see problems associated with investing in Africa in the near term, plans such as the Belt and Road Initiative were built with the longer view in mind, and from that perspective, Africa’s natural resources and young human capital look to pay off later

PUBLISHED : Friday, 27 July, 2018, 12:02pm
UPDATED : Friday, 27 July, 2018, 10:30pm

If last week’s love-fest with Europe’s leaders was not emphatic enough, Xi Jinping’s travels this week through Africa, culminating with the BRICs summit in South Africa, showed determination to set China’s own trade agenda, to set it in its own time, and to set it far from Washington’s Twitter-storms.

The good news is that the Chinese president remains firm in his high-profile commitments to the rules-based multilateral trading system, and to steady liberalisation of China’s economy. The bad news is that this is still mainly talk, and that the reforms needed to address the concerns of international businesses are still awaited.

At the BRICS summit on Thursday, Xi was clear: “We are facing a choice between cooperation, not confrontation, between opening up versus closed doors, between mutual benefit and a beggar-they-neighbour approach … Openness and cooperation are the sure way to achieve progress. Trade wars should be rejected because there can be no winners.

“The current international order is not a perfect one, but if it is rules-based, is equitable, and prefers win-win outcomes, such an international order should not be dismantled.”

Despite the commitment to the status quo, the warnings are clear – and well-received by an audience from the BRICS countries (Brazil, Russia, India, China and South Africa): China is in the business of changing the balance of global governance. Xi talked of this being “a critical historic juncture” involving a “difficult and painful transition”, in which “every country has an equal right to development”.

Watch: Xi Jinping reveals his economic plans at the Boao Forum in April 2018

In African visit, Xi Jinping aims to step in where US steps aside

He also talked of Africa as having “more development potential than anywhere in the world” – a polite way of saying that much of Africa remains grindingly poor. Xi visited two of them on his way to South Africa – Senegal and Rwanda, which the World Bank ranks as the 161st and 171st richest countries in the world by per capita gross domestic product.

This was the Chinese president’s first visit to either country despite multiple visits to Africa since coming to power, and his choice deserves some attention (Rwanda must be wondering what it is doing to attract such attention, because India’s Narendra Modi made his first visit there just a day earlier than Xi, also on his way to the BRICS summit).

One has to presume that thinking about the Belt and Road Initiative is at the heart of such visits. Look at a map of Africa, and draw an east-west line from Djibouti and it travels tantalisingly close to Ethiopia, Rwanda and Kenya as it eventually reaches Senegal on Africa’s Atlantic coast. Draw a line south from Djibouti, and you pass naturally through Rwanda on route to South Africa. With a close eye on belt and road infrastructure-building, it is easy to imagine such east-west and north-south routes being natural connectors across such a huge and unconnected continent.

China’s investment in West Africa takes on France in former colonies

The choice of Senegal and Rwanda is also a significant indicator of Beijing’s strikingly long-term planning vision. Anyone looking to build strong businesses in either country can only see bleak prospects in the short term. But take a 40- or 50-year view, and such economies can make sense.

In an Asia-Pacific region where most economies are rapidly ageing (only four of Apec’s 21 economies – Vietnam, Malaysia, the Philippines and Indonesia – have populations that are still growing), there is sense in focusing on a continent where populations are so young and are going to be growing for long into the future. The median age in Senegal and Rwanda is just 19 – demographic light-years from Hong Kong (median age 44) or Japan (47).

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Such long-term thinking about Africa has been a hallmark of Beijing’s approach to the dark continent for over three decades. I still vividly recall conversations with the editorial team at China Daily when I spent three months there in 1982 over the steady flow of African leaders to banquets at Beijing’s Great Hall of the People.

Back then, we never learned anything about the substance of these visits except for the banquet menus, but the journalists’ view was clear: Chinese companies’ access to the rich European or US markets was for the foreseeable future impossibly tough, with unassailable competition from gigantic, well-entrenched local brand leaders. So Chinese companies would start to build where they could, and wherever they were welcomed. They chose African markets.

Thirty-five years later, China is the leading supplier of imports to almost every African country. Trade has grown 40-fold over this time. This leads many commentators to imply that China is a dominant trade and investment force in Africa – but in this they would be wrong. Africa accounts for barely 3 per cent of China’s trade, and about 2 per cent of its foreign investment. Old colonial powers still dominate, investing in the oil, mineral and natural resources areas in particular.

It will take many decades of belt and road-related trade and investment to correct this imbalance, but this is a time frame China’s leaders are comfortable with.

Beijing’s ‘Belt and Road Initiative’ will benefit the world

Meanwhile, Beijing will plug away in the BRICS grouping (where its economy accounts for two-thirds of the BRICS aggregate gross domestic product), and at the belt and road plan.

As steps along the way, Xi was reminding his BRICS audience of the importance of the investment-focused Forum on China-Africa Cooperation in September, and of the first-ever China import expo in Shanghai in November.

For those puzzling why Beijing remains so quiet on a strategic response to the tariff war launched on China by the US, this import expo deserves attention. As China continues to reassure the world that it is opening up, this massive import promotion event is being built up as a significant “coming out” party, and a formal attempt to give substance to recent rhetoric over opening the economy.

Until then, it may be that Donald Trump’s tariff onslaught will go unanswered. If the eventual Chinese response during the import expo is to open up to foreign investment, adopt more international standards, become more transparent and rules-based, with stronger intellectual property protection, and import more stuff, then silence in the meanwhile may not be a bad thing.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view