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China’s Second Continent

Thursday, August 27, 2015 12:25
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<b/>china s ofdi stock <b>in africa</b> with south <b>africa</b> alone receiving 22 …” width=”500″ /></p> <p>China watchers around the world are alarmed at the significant fall in Chinese stock markets and many are warning that the recent crash has alarming prospects for the underlying Chinese economy. Their worries reached new heights following the 8.5% drop in the Shanghai Composite Index on Monday – the biggest fall in eight years. Many attempts were made to stem the decline in the stock markets, including the banning of short-selling and new listings, the threat to arrest short sellers, the freezing of close to half the companies traded, and massive influx of state capital to buy shares. Perhaps in an attempt to prop up the financial position of its exporters, a supposed one-time yuan devaluation of 1.9% was announced last Tuesday by the People’s Bank of China. Since then, the yuan (or renminbi) has had its value cut an additional two consecutive days.</p> <p>Some prominent China watchers are calling into question the Communist Party’s ability to control not only its stock markets, but also other policy-making areas. Paul Krugman, winner of the Nobel Prize in Economics in 2008 and professor of economics and international affairs at Princeton University, calls the Chinese leadership “naked emperors” and says “they have no clue what they’re doing.” Despite Krugman’s admonition, the Party may have a few tricks up its sleeve.</p> <p>Beijing has been expanding its reach in other markets, such as Africa, where ten out of the top twenty fastest-growing economies between 2013 and 2017 are located according to the International Monetary Fund. Indeed, it has done so for some time now, with China’s trade with Africa reaching an estimated $200 billion in 2012. Chinese companies are also winning massive infrastructure contracts to build railways, airports, highways and ports, typically supported by large, state-owned financial institutions such as the Export-Import Bank of China. Most of the financing of these large projects is tied to procurement of Chinese equipment, machinery and materials—a boost to its exporters. And many Chinese have flocked to Africa to set up small retail stores and sell cheap Chinese-made household items.</p> <p>Yet, while providing new markets for Chinese state-owned enterprises and traders may help improve China’s gross domestic product (GDP), this strategy is not without risk. As Howard French, author of <em>China’s Second Continent</em> relates, it is “outcomes that count.” Chinese citizens and companies have been welcomed by many African leaders who believe they can quickly build much-needed infrastructure. And in many countries they have done just that. However, French reports in his many travels throughout Africa, that some of the Chinese-built infrastructure is substandard, with airports subject to flooding or newly-built highways crumbling. In another example, French points to the “outraged Ghanaians who seem to have awoken one recent day to the discovery that thousands of Chinese newcomers were scrambling illegally to take control of their country’s lucrative gold mining sector, digging up the countryside, despoiling the land, and bribing local chiefs and police officials in the process.”</p> <p>If Chinese policy-makers want to sustain their stated GDP growth near 6-7 percent for the near future, increasing the number of countries their exporters have access to would certainly help. With Chinese-led initiatives such as the Asian Infrastructure Investment Bank, the BRICS New Development Bank, and the Silk Road Fund, their exporters and state-owned enterprises could well gain access to new markets. But given the backlash many Chinese companies are now facing in Africa, new efforts will need to be undertaken to improve their behavior—lest better-governed countries turn to their competitors.</p> <br /><br />Source: <a href= http://foreignpolicyblogs.com/2015/08/27/chinas-second-continent/

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