Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics, Partners, and Petro. Reagan Thompson May 21, 2012

Transcription

1 Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics, Partners, and Petro Reagan Thompson May 21, 2012 Stanford University Center for International Security and Cooperation (CISAC) Dr. Thomas Fingar

2 Table of Contents Abstract Acknowledgements List of Figures Chapter I: Introduction Overview of the Chinese Influence in Africa 1 Chapter II: Literature Review..8 Chapter III: The Chinese Influence in Ghana Talk Does Not Cook Rice..34 Chapter IV: The Chinese Influence in Angola A Thirst for Oil Chapter V: The Chinese Influence in Zimbabwe Diamonds are Mugabe s Best Friend.98 Chapter VI: Conclusion and Policy Recommendations. 127

3 Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics, Partners, and Petro There has been a dramatic increase in Chinese economic activity in Africa since By examining Ghana, Angola, and Zimbabwe, this paper explains how Chinese economic activity has impacted these countries using a politics, partners, and petro argument. Models by Kastner and Brautigam and data from the World Bank and the Millennium Challenge Corporation provide a framework for analysis. Trade has characterized China s relationship with Ghana. Accra has many partners and receives much Western aid. Ghana s strong democracy has ensured that Chinese aid benefits the general population. Chinese economic activity in the petro-state of Angola is very similar to Western aid and investment both are guilty of perpetuating poor politics. However, Beijing is now the largest importer of Angolan oil and has strictly dictated how its aid can be used. China is interested in Zimbabwe for its raw materials and is one of Mugabe s few friends today. President Mugabe s dictatorship enables China to make investments that mainly benefit Beijing. A close look shows that China and the West generally invest similarly in Ghana and Angola, and somewhat in Zimbabwe. By supporting the development of sound democracies, the U.S. can ensure that Chinese economic activity benefits those in Africa.

4 Acknowledgements: I would like to thank Stanford University s Center for International Security and Cooperation (CISAC) for the chance to pursue this honors thesis. My advisor, Dr. Thomas Fingar, has been incredibly patient and thorough throughout the entire process. I thank him for helping me move beyond simple explanations of what the Chinese are doing in Africa. It was an honor to be able to work with someone of his experience and caliber. Dr. Chip Blacker and Dr. Martha Crenshaw were great program leaders and I appreciate the time they dedicated to the program. Thanks also to my seminar classmates your comments, laughs, and friendship helped make this process so beneficial. I am especially grateful to those who assisted with editing: Ram Sachs, Matt Boswell, Joel Samoff, Barry Shutz, and Peter Davis. I am so thankful for the support, encouragement, and even snacks from my friends and family. We can spend time together now! Finally I owe all praise to Jesus Christ who has blessed me with life and this opportunity.

5 List of Figures: Chapter I: Introduction Figure 1.1: China s trade with Sub-Saharan Africa, Figure 1.2: China s Trade with the Top Sub-Saharan African Countries, 2004 Figure 1.3: Chinese investment by country, , % & US$ billion Chapter III: Ghana Figure 3.1: Visits by top Ghanaian and Chinese officials, Figure 3.2: 2007 FDI in Ghana in non-extractive sectors Figure 3.3: Imports to Ghana from China and other nations Figure 3.4: Chinese vs. Total Investment to Ghana, Figure 3.5 Chinese aid and investment in Ghana: Figure 3.6: ODA to Ghana, average (in US$M) Figure 3.7: Changes in Ghana s WGI, Figure 3.8: Percentile Rank of Voice and Accountability in Ghana Figure 3.9: China-Ghana Trade + Loans with WGI, Figure 3.10: Changes in Ghana s MCC Governance Scores, Figure 3.11: China-Ghana trade and loans with MCC data Chapter IV: Angola Figure 4.1: China s Oil Demand and Domestic Production, Figure 4.2: Visits by top Angolan and Chinese officials, Figure 4.3: The Angolan model of Development Figure 4.4: Value of Angolan Trade with China, Figure 4.5: Angola s Oil Exports to China as a Percentage of Total Exports, Figure 4.6: China s Imports of African Oil by Country as Share of China s Oil Imports Figure 4.7: Dollars per barrel of brent crude oil, Figure 4.8 Top Ten ODA Donors to Angola, average Figure 4.9: Angola s oil exports to the U.S. and China, (US$ millions) Figure 4.10: Angola s Crude Oil Exports by Destination, 2010 Figure 4.11: Changes in Angola s WGI, Figure 4.12: Percentile Rank of Control of Corruption in Angola Figure 4.13: China-Angola Trade + Aid with WGI, Figure 4.14: Changes in Angolan MCC Governance Scores, Figure 4.15: China-Angola Trade + Aid with MCC, Chapter V: Zimbabwe: Figure 5.1: Visits by Top Chinese and Zimbabwean Officials, Figure 5.2: China-Zimbabwe Trade, Figure 5.3: Zimbabwe s 2010 exports by product Figure 5.4: ODA to Zimbabwe, average (in US$M) Figure 5.5: Changes in Zimbabwe s WGI, Figure 5.6: Percentile Rank of Government Effectiveness in Zimbabwe Figure 5.7: China-Zimbabwe Aid + Trade and WGI, Figure 5.8: Changes in Zimbabwe s MCC Governance Scores,

6 Chapter I: Introduction Overview of the Chinese Influence in Africa The Chinese are coming is a popular mantra when describing Chinese investments in Africa. 1 Many worry that Beijing is seeking to spread its communist model of governance, or that Beijing is helping keep despots in power. This thesis attempts to critically examine the Chinese influence in Africa, through the experiences of Ghana, Angola, and Zimbabwe. These three nations represent varying levels of development, governance, and economics, providing an enlightening comparison. A new framework, politics, partners, and petro, is used to ascertain Beijing s influence in these countries and the effects of China s investments and aid. This framework seeks to examine the recipient country s governance, extent of investment and aid from other countries and entities, and the share of the economy focused on extractive industry. Kastner s Buying Influence model and Brautigam s The Dragon s Gift hypothesis, as well as data from the World Governance Indicators and Millennium Challenge Corporation provide the methodology for examining a country s standing in governance, diversity of foreign investment, and economic development. This introduction provides a brief historical overview of China s engagement with the continent. While this generalized description misses country-level details, it is important to underscope the scope and variety of Beijing s actions. 1 The Economist, The Chinese are Coming to Africa, April 22, 2011, 1

7 China s relationship with Africa has deep historical roots. African nations helped China gain a seat in the United Nations in 1971 and the Chinese Presidents Jiang Zemin and Hu Jintao traveled to China a total of nine times during their terms in the 1990s and 2000s. For the first half of the 1960s, Beijing established relations with left-leaning or radical states, including Ghana, Angola, and Zimbabwe, as China itself was going through an ideological period. 2 More recently, the relationship seems to be focused on resources and economic gains. There have been several large Chinese projects, starting in the 1950s that set the tone for engagement between Africa and China. The Tanzania-Zambia (Tanzam) Railway was a huge undertaking that connected land-locked Zambia with Tanzania s ports. The project was completed in 1976 after over half a decade of work. The venture employed 25,000 Chinese workers and cost $500 million. Within the past decade, Chinese investment and economic activity have grown dramatically. In less than eight years, China-Africa trade increased from $10 billion to over $100 billion. 3 Last year, two-way trade between Africa and China exceeded $120 billion. 4 Africa is now the fourth largest destination of Chinese investment. 5 Figure Jackson, Steven, China's Third World Foreign Policy: The Case of Angola and Mozambique, The China Quarterly, No. 142 (June, 1995), Pg Ministry of Foreign Affairs, People s Republic of China, Article of Yang Jiechi: A Decade of FOCAC Fruitful Achievements and A New Chapter of China-Africa Relations October 11, 2010, 4 BBC News African Union Opens Chinese-funded HQ in Ethiopia, January 28, Ministry of Foreign Affairs, An Article of Yang Jiechi 2

8 shows the rapid growth in China s trade with Sub-Saharan Africa since China has also begun construction of six economic and trade cooperation zones in Africa. To encourage bilateral trade, China has zero tariffs on 60% of imports from Africa, with plans to expand to 95% of exports from Africa. At least three-quarters of the tariff-free products are industrial goods, including vehicle spare parts, bicycles, soap, and plastic products. 7 Figure 1.1: China s trade with Sub-Saharan Africa, China has also been working to develop Africa through aid projects. From , China gave more than $5 billion for 800 aid projects in Africa. 8 By 2006 there were 259 China Export Import (ExIm) Bank projects in 36 African countries. 9 Since 6 International oil prices also increased significantly during this period as well, contributing to the increase in price. This issue is discussed in greater detail in the Angola chapter. Zafar, Ali The Growing Relationship Between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment, and Aid Links, Oxford University Press, pp Brautigam, Deborah, The List of Zero-tariff Products Is Now Here! China in Africa: The Real Story, April 13, 2010, 8 Burgis, Tom and Wallis, William, Continent Drives a Harder Bargain, Financial Times 14 June Wang, Jian-Ye, "What Drives China's Growing Role in Africa?" IMF working paper, 3

9 2005, Chinese infrastructure projects in sub-saharan Africa exceeded, in value, those of the World Bank. 10 In 2000 China cancelled 168 debts totaling $1.6 billion owed by 33 African countries. 11 In contrast, Organization for Economic Cooperation and Development (OECD) countries provided $107.4 billion in debt relief to Highly Indebted Poor Countries (HIPC) from In 2009, the China-Africa Development Fund, which hopes to encourage Chinese investment in Africa, had $1 billion to use for project implementation. From , China also trained 15,000 Africans from across the continent in different professions, including science, medicine, and administration. 13 A comparison of Chinese aid to U.S. aid reveals the paltry state of Beijing s charity however. For example, in 2010 alone, the U.S. Agency for International Development (USAID) gave $6.4 billion in assistance to Sub-Saharan Africa this oneyear of giving is greater than the historic entirety of China s aid giving to Africa. However, China is still only a developing country itself, and the country does not adhere to Western definitions for humanitarian aid. Chinese aid, unlike Western aid, does not assign money to specific health or education related projects, thus making it quite complicated to figure out exactly how much Beijing is giving. Despite the differences in naming, Chinese humanitarian assistance to Africa is much smaller than aid from Western nations and institutions. Issues McKinsey and Company, Lions on The Move: The Progress and Potential of African Economies McKinsey Global Institute, June 2010, pg Burgis 12 OECD, External Debt, Mutual Review of Development Effectiveness in Africa, 13 Becker, Rose, China-Africa: A Partnership with Equal Benefits? University World News, October 3, 2010, 4

10 Africa-China trade is similarly still relatively small in the global context only 16% of Africa s total exports went to China in However, China wants to see its trade with Africa increase and it has reached its goal of doubling two-way trade with the continent. China seeks to institutionalize its relationship with Africa and the two countries participate in many meetings to further bilateral relations. The 2000 establishment of the Forum on China-Africa Cooperation (FOCAC) helps encourage cooperation through frequent conferences. 48 African presidents participated in the November 2006 Beijing Summit, which brought together the largest number of participating leaders since the founding of the People s Republic of China. 15 Figure 1.2: China s Trade with the Top Sub-Saharan African Countries, Wang 15 Ministry of Foreign Affairs, An Article of Yang Jiechi 5

11 China frequently holds political consultations between Chinese and African leaders at the U.N. and China recently finished construction of the African Union headquarters in Addis Ababa. China has also increased its troop contributions to U.N. peacekeeping forces in Africa. Human Rights Watch reports however that Chinese aid creates new options for African dictators who were previously dependent on those who insisted on human rights progress. 16 Instead of providing reform-incenting investment, Chinese aid, like other countries aid, can be entirely self-focused. For example, China generally imports African raw materials while Africa imports Chinese finished products. 17 As Figure 1.2 shows, Chinese activity is varied throughout the continent and many countries have extreme balance of payment differences. 18 Although China invests in every African country, the majority of Figure 1.3: Chinese investment by country, , % & US$ billion its investment and trade is concentrated in four oil rich African countries, as Figure 1.3 indicates. 19 Chinese businesses in Africa do not always adhere to local laws. Chinese contractors low wages, lax safety standards, and poor environmental standards frequently give rise to African indignation against Chinese firms. For example, in 2005, an explosion at a Chinese-owned copper mine killed Brautigam, The Dragon s Gift, pg Reisen, Helmut, Is China Actually Helping Improve Debt Sustainability in Africa? G-24 Policy Brief No. 9, 2008, 18 Zafar, pp McKinsey and Co. pg

12 Zambian workers, causing much outcry. In response, the Chinese company paid compensation to the victims families and permitted unions to organize at the labor site. 20 However, it does not appear that there were any legal or legislative ramifications for the company s lax standards however and there have been similar problems since. The case studies in this paper represent a variety of governance types, foreign investors, and economic development. Ghana is a small country with a strong democratic government. Many foreign countries and entities invest in Ghana and its industry is not focused on natural resources. Angola is a larger country with an autocratic leader that has ruled the country for many years. Western nations, other countries, and China are all competing to invest in Angola s oil reserves. Zimbabwe is a smaller country with a failed democracy turned dictatorship and significant mineral deposits. While there are some countries that still invest in Zimbabwe, the regime is increasingly isolated politically. This thesis is organized as follows: the literature review reviews China s motivations for investing in foreign countries, including commercialism, realism, and idealism. This section also includes an explanation of the politics, partners, and petro model. Case studies of each country examine each s historical dealings with China and the current economic relationship, and how Beijing compares to the country s other foreign investors. The paper concludes with policy recommendations for the U.S. government and world. 20 Hong Kong Liason Office of the International Trade Union Movement (IHLO), China in Africa, 7

13 Chapter II: Literature Review Of the seeming and real innovations which the modern age has introduced into the practice of foreign policy, none has proven more baffling to both understanding and action than foreign aid. 1 Hans Morgenthau China s activities in Africa are closely linked to Being s foreign policy and its role as a rising power in the world. Over the past decade, China s international economic activity has grown and Beijing is increasingly utilizing foreign aid. As shown below, the literature has focused on broad explanations for China s presence in Africa, without examining cases across countries. Work needs to be done to determine if China s investment strategy varies according to regime type and understand if, and how, Chinese investment and aid has influenced the political development of African nations. The proposed politics, partners, and petro model provides a way to assess the state of the recipient country and how it will be affected by Chinese aid and investment. The literature on foreign aid can be generally divided into two parts. One set looks at the motivations for aid that is, which countries give aid to specific nations and why. The other set studies the effects of foreign aid on the recipient countries. This paper follows a similar pattern and begins with an explanation of the motivations for foreign aid: idealism, realism, and commercialism. 2 The missing piece in our understanding of Chinese foreign aid, that investment must be included into discussions 1 Morgenthau, Hans, A Political Theory of Foreign Aid, American Political Science Review 56, no. 2 (June 1962), pg From Hook, Steven W.; Peter J. Schrader; and Bruce Taylor Clarifying the Foreign Aid Puzzle: A Comparison of American, Japanese, French, and Swedish Aid Flows World Politics 50.2 (1998) for part of this naming. 8

14 on aid, is next and a short discussion on the political environments of Ghana, Angola, and Zimbabwe concludes. This paper seeks to delve into questions not addressed in the literature, including how the recipient country s governance, industry, and foreign relations impact the effects of Chinese aid and investment. Foreign Aid as Foreign Policy I will work under the assumption that foreign aid is first and foremost a technique of statecraft. 3 It is argued that a country, in this case China, uses its aid budget to achieve foreign policy goals. There are three prevailing explanations for why a country provides foreign aid: idealism, realism, and commercialism. 4 As shown below, commercialism and realism help explain China s behavior. Idealism Idealism presents a positive view of a country s motivations for giving foreign aid one that is based on humanitarian concerns. 5 Idealist countries are optimistic about cooperation in the international realm. They seek to avoid competition and conflict and do not imagine a solely we or they structure. 6 In this system, states act on ethical concerns and seek to help some countries are not as developed, or those that are dealing 3 There is some debate in the literature on whether aid is an aspect of foreign policy. Baldwin, David A. Economic Statecraft (Princeton, NJ: Princeton University Press, 1966), pg. 3 4 While other such as Hook, Steven W. National Interest and Foreign Aid (Boulder, CO: L. Rienner Publishers, 1995) and Weissman, Stephen R. The Trojan Horse: A Radical Look at Foreign Aid, (Palo Alto, CA: Ramparts Press, 1975) cite a structuralist model, this explanation is less prevalent in the literature and generally does not apply to China s foreign aid policy. Structuralism sees foreign aid as helping to preserve or widen the economic disparities between wealthy and poor states. With the rise of international aid institutions and the interconnectedness of globalization however, this explanation fails to provide relevant insight into why Beijing gives aid. 5 Lumsdaine, David Halloran, Moral Vision in International Politics: The Foreign Aid Regime, (Princeton: Princeton University Press, 1993). 6 Cook, Thomas I. and Malcolm Moos Foreign Policy: The Realism of Idealism The American Political Science Review, Vol. 46, No. 2. (Jun., 1952), pg

15 with natural disasters, civil wars, and the like. Idealists such as Cook and Moos describe aid that is geared towards humanitarian arenas such as education, health, and gender equality, all of which contribute to a creative peace. 7 Idealist assessments point to the empirical relationship between bilateral aid flows and the demonstrable human needs of third world countries. For example, economists Maizels and Nissanke examined aid to 80 countries and found that a donor s humanitarian interests best explain multilateral aid flows. 8 David Lumsdaine, a supporter of the idealist school, examined foreign aid since WWII and concluded that donors humanitarianism and their perception of the world as an interdependent community motivated aid giving. 9 Indeed, the Organization for Economic Cooperation and Development (OECD) notes that international cooperation on humanitarian giving is necessary to launch countries out of poverty. 10 While not all idealists ignore a country s national priorities as motivation for giving, they believe moral considerations play a decisive role. The United Nations has helped formalized these humanitarian concerns through agreements such as the Monterrey Consensus where nations agreed on a framework for financing development. An idealist argument sees Beijing making aid and overseas development assistance (ODA) decisions based on the need of the recipient country. Likely targets include many countries in Africa, and nations that are going through humanitarian 7 Cook and Moos, pg They also found that a donor s state interests best explain bilateral aid flows. Realism includes the state interests argument and will be discussed in greater detail below. These two different findings are evidence of the disagreement among experts about the motivations for aid. Maizels, Alfred and Machiko Nissanke, Motivations for Aid to Developing Countries, World Development 12, no. 9 (1984), Lumsdaine, pg OECD, Development Co-operation: Efforts and Policies of the Members of the Development Assistance Committee. (Paris: OECD, 1985). 10

16 disasters. Even though China is a developing country itself, it is wealthy enough to reach down and help poor nations. Reality however, shows that Chinese foreign aid, and most aid in general, does not generally fall into the idealist school. 11 While China does give some ODA to poor African countries, many agree that this is due to realist or commercial motivations, not due to an honest desire to help these countries flourish. 12 In fact, many go even further and accuse Chinese foreign aid of being detrimental to a country s well being for its support of dictators and human rights violators. 13 Realism Scholars acknowledge that governments are not charitable institutions, but rather strategic-minded entities that act in line with their national interests. According to realism, these national interests dominate decision-making in countries and foreign aid should give primacy to donor interests. Realists assume a Hobbesian international system that is dominated by competition. 14 According to realist Arnold Wolfers, states are lone actors that constantly fear violence and they act out of a desire for power and security. 15 Neo-realists provide additional insight with the assertion that a state s economic situation in the global balance is just as important as traditional security arenas 11 Knorr, Klaus Power and Wealth (New York: Basic Books, 1973). 12 Medeiros, Evan S., China's International Behavior: Activism, Opportunism, and Diversification. Santa Monica, CA: RAND, 2009 points out that, on the whole, Chinese aid is not motivated by idealism. However, he does note that Chinese humanitarian assistance is growing. 13 Brooks, Peter and Ki Hye Shin China s Influence in Africa: Implications for the United States, (Heritage Foundation, No. 1916, February 22, 2006). 14 Hook, Schrader, and Taylor 15 Wolfers, Arnold, The Pole of Power and the Pole of Indifference, World Politics, Vol. 4, No. 1 (October, 1951), pg

17 such as alliances and military strength. 16 Humanitarianism and other interests enter into the equation, but foreign aid is ultimately a tool to ensure the longevity of the donor. Morgenthau, the originator of realism, says that all types of foreign aid, including humanitarian aid, are very political; they all are opportunities for the donor country to gain political advantage. 17 George Liska agrees and further explains that aid can advance the donor s position in three ways, by consolidating a friendly regime s legitimacy, increasing the donor s access to resources, or expanding the donor s power and influence at the expense of a third actor. 18 Realism focuses on the relationships between powerful countries while dependency theory is more relevant to how strong states interact with weak ones, and how China works with African countries. A.G. Frank suggests that the international system is divided between capitalist countries and satellite nations and that these satellite, or dependent, countries are locked into a subordinate status. 19 Steven Krasner asserts that dependent countries are unable to exert influence over their own national economic decisions because the system dictates that they export natural resources to the powerful countries. 20 One reading of the international system suggests that, while Beijing might have been a dependent state in the past, it is now a capitalist nation that is extracting raw goods from the dependent nations of Africa. 16 See Gilpin, Robert The Political Economy of International Relations (Princeton: Princeton University Press, 1987). 17 Morgenthau, pg Liska, George The New Statecraft: Foreign Aid in American Foreign Policy (Chicago: University of Chicago Press, 1960), p Chernotsky, Harry; Geller, Daniel; and Kaufman, Robert, A Preliminary Test of the Theory of Dependency, Comparative Politics, Vol. 7, No. 3 (April 1975), pg Krasner, Steven, Structural Conflict: The Third World Against Global Liberalism, University of California Press,

18 Realism, when applied to the Chinese case, would lead to aid policies that help strengthen the legitimacy of countries friendly to Beijing, increase China s access to resources, or raise China s standing in the world. This includes promoting good relations with, and real influence in, recipient African nations. 21 Projects should be high profile, well-publicized, large, and focused on states that are critical to China s strategic interests. If realists in Beijing controlled the foreign aid budget, they would focus aid on African nations with significant political influence, resources, or regional clout. Realism helps explain Beijing s concern with its international reputation as well. While this concern has not led China to cut dies with dictators such as Mugabe, Beijing still understands that its relationship with the United States and other powerful nations is more important than its friendship with a small African dictator. As this paper shows, realist arguments explained the origins of Chinese aid, when Beijing was struggling with the Soviet Union. However, as globalization has helped make China an economic powerhouse, there are aspects of Chinese aid that do not entirely fit into the above realist structures. China invests in every African country, though the majority of these nations have little political power in the region. 22 It seems unclear what geopolitical weight China is seeking in the land locked Malawi or the small nation of Djibouti. Commercialism 21 Kastner s Buying Influence challenges the conventional wisdom that China s foreign economic ties are translating into increased influence over the foreign policies of other states. His work is discussed in greater detail below. Kastner, Scott, Buying Influence? Assessing the Political Effects of China s International Economic Ties Working Paper. 22 While speculation on the validity on realism is warranted, the theory does carry explanatory power as the vast majority of Chinese aid to, and investment in Africa is concentrated in four countries: Angola, Nigeria, Ethiopia, and Sudan. 13

19 There is a strong commercial interest in [aid-giving]. 23 This commercial interest might more fully explain China s foreign aid practices and its investments in countries such as Malawi and Djibouti. The commercialism argument is an extension of the realist school in that it assumes aid is for the benefit of the giver, not the receiver. This economic self-interest argument is supported empirically. 24 In commercialism, aid is directed towards trade, markets, and resource interests. The donors seeks to promote growth in developing countries that are trade partners, either as a way to create a market for exports, or to cultivate a source of imports. 25 McNeill argues that donors tend to provide aid to countries with which it has, or hopes to have, strong trading ties. Mason takes the argument one step further and asserts, essentially all aid consists in providing increased access to imports. 26 In true commercialist fashion, donor countries can often make money from aid deals. 27 In fact, the international system almost requires that developed countries expand their trading partners in order to continue to grow. Tied aid is an example of commercialism in practice. Countries generously provide aid, but on terms favorable to the donor s interests. Tied aid is the practice of 23 Clifford, Juliet Mary and Ian Malcolm David Little. International Aid: a Discussion of the Flow of Public Resources From Rich to Poor Countries. (Chicago: Aldine Pub. Co, 1966), pg See the Little & McKinlay study of aid from the United States, France, Germany, and the United Kingdom during the 1960s. Little, R., and R.D. McKinlay, A Foreign Policy Model of U.S. Bilateral Aid Allocation, World Politics Vol. XXX No. 1 (1977). 25 Maizels. 26 Mason, Edward S. Foreign Aid and Foreign Policy. (New York: Published for the Council on Foreign Relations by Harper & Row, 1964), pg This depends on interest rates in both countries and is generally unlikely. In fact, donors frequently do not profit from aid. For example, data from the OECD s Development Assistance Committee shows that the commercial advantage gained from giving aid is relatively low. These results however look purely at interest rates earned, and do not consider factors such as access to resources, or long-term market potential. 14

20 requiring grant money to be spent on goods from the donor country. While aid money goes to a foreign country, the funds can actually support domestic constituency groups in the donor country. Both Western nations and China tie their aid. For example, the $5 billion China-Africa Development Fund that will be used to invest exclusively in Chinese companies. 28 This paper will explore China s practice of tying aid, not through political ties, but with economic ties. The commercialist model as applied to the Chinese case sees markets and resources as the main motivations for Beijing s foreign aid. China s economy is booming and the country needs inputs like platinum and oil for its industries as well as markets for its exports. It is hard to grasp the immensity of China s energy needs but its growing population and economy have sent it on a mad rush around the globe for fuel. Medeiros describes these forces as China s economic diplomacy which characterizes Beijing s never-ending quest for markets, investment, technology, and natural resources. 29 The government is also encouraging Chinese companies to go global to create powerful international brands. Beijing s aid and investment patterns reveal that economics are upmost on Chinese leaders minds when thinking about foreign aid, though other priorities influence the decision as well. Missing Pieces in Understanding Chinese Aid: The above explanations have focused on Chinese aid. However in order to understand the full nature of Chinese aid to other countries, one must consider Chinese economic investment part of the picture as well. Below are two reasons why considering 28 Anderlini, Jamil, China Insists on Tied Aid in Africa, Financial Times, June 25, 2007, 29 Medeiros, pg. xviii 15

21 economic investment with foreign aid helps us better understand the extent of the Chinese influence in Africa. First, Chinese foreign aid amounts are not public, thus the world lacks reliable information on how much China gives and to whom. Further, China does not adhere to OECD aid definitions, so it is difficult to make aid comparisons with other countries. 30 Because of the differences in definitions, Chinese foreign aid, as defined solely as grants, ODA, and concessional loans, is quite small when compared to its economic activities in the rest of Africa. Chinese aid does not follow Western patterns of reporting and does not assign money to specific health or education related projects that are implemented by locals. In order to understand the full picture, we need to consider all of Beijing s economic activities in Africa. Here an example is helpful, Brautigam notes that in 2009, China provided $1 billion in aid to Africa. However, Beijing provided an additional $1 billion in concessional lending and about $8 billion in development finance. 31 To understand the full picture of Chinese aid in this case, we should consider Chinese aid to Africa as $10 billion. Chinese aid encompasses a range of economic tools besides just grant giving, including low interest loans, export credits, and subsidized infrastructure projects. It is also reasonable to assume that many, if not the majority of, Chinese economic activities are an extension of the state s will. 32 There is quite the close 30 Practices governing Chinese aid and development finance generally diverge from clear OECD standards and norms on transparency and definitions, the management of concessional export credits, and the management of sovereign debt in Brautigam, Deborah, China, Africa and the International Aid Architecture, Working Papers Series No. 107, (Tunis, Tunisia African Development Bank, 2010), pg Rotberg, pg This relationship between the government and industry has recently come under pressure and can be described as falling prey to the principal-agent dilemma. Gill and Reilly define this 16

22 relationship between the Chinese state and private industry, in addition to the large number of state owned enterprises (SOE). As is common in China, the state and private corporations often work hand-in-hand and the government will often provide access and preferential treatment for Chinese firms. Brautigam notes that government-owned banks and companies carry out the bulk of China s economic activities in Africa. 33 Further, there is murkiness about the distinction between public and private in China due to the close connections between government and industry. 34 With this understanding of Chinese economic activities as part of Beijing s aid package to African nations, this paper s hypothesis suggests using the two ideas interchangeably. While the commercial and realist arguments are most compelling for understanding Chinese aid, it is not clear how Beijing decides where to focus economically. Further, do these explanations for aid vary according to the recipient country s regime type? Does China follow realist prescriptions when dealing with fellow authoritarian countries and rely on commercialist motivations when dealing with democracies? Perhaps China sees an authoritarian like Mugabe in Zimbabwe and acts according to realism because Beijing is more comfortable with a similar government type. Or maybe history shows that China focuses on economics when dealing with wellsituation as the increasing set of tensions and contradictions between the interests and aims of government principals and the aims and interests of ostensible agents-the companies and businesspersons. While the economy opens more fully, we will see the government s hold over industry relinquish, but this phenomenon is really only just beginning. Gill, Bates, "The Tenuous Hold of China Inc. in Africa". The Washington Quarterly, Volume 30, Issue 3, July pp Brautigam in Waldron, pg Saavedra, Martha and Julia C. Strauss, Introduction: China, Africa, and Internationalization The China Quarterly, 199, September 2009, pg

23 governed nations like Ghana in a desire to stay clear of any accusations of promulgating the Beijing Consensus? 35 These questions will be explored below. Traditional Arguments for China in Africa: With an understanding of the general motivations for foreign aid, and an assertion that Chinese aid includes other investment, we turn to an examination of theories of why the Chinese invest in Africa. Scholars generally assume markets, resources, and influence drive Beijing s economic decisions in the continent. Commercial Expansion Argument: The commercial argument states that China is interested in Africa because of the continent s growing economy and potential for domestic demand. This economic expansion model sees China seeking out new markets for its growing economy and parallels nicely with the general theory of commercialism as a motivator for aid. Wang notes that China s private sector is at the forefront of the country s investment expansion. 36 Chinese businesses are often leading the way in investing in Africa. Their primary motivation is revenue and they see Africa as a growing market with huge potential. As China seeks to employ its 1.4 billion people, Africa can serve as an outlet for Chinese workers. Further, because China is the world s factory, it is constantly seeking new markets for its goods and Africa s future consumption is immense. Like any company, Chinese businesses are focused on profit. Instead of training Africans and employing locals in their business ventures, Chinese companies often bring 35 See Ramo, Joshua The Beijing Consensus (London, The Foreign Policy Centre, May 2004). 36 Wang, Jian-Ye, "What Drives China's Growing Role in Africa?" IMF working paper, Issues pp

24 their own labor. Chinese firms mainly rely on Chinese project managers, engineers, and designers, thus not contributing to the indigenous development of African leaders. Political Concerns Argument: A second assertion says that Beijing sees Africa as the last unconquered frontier and a place where Beijing can foster friendships. This political concerns argument sees Chinese economic investment leading to political clout for China. This is a manifestation of the realism argument in the contest for global power, Beijing is making friends and allies to utilize in the future. In fact, China s interests in Africa go well beyond the continent s wealth of resources and include important political and diplomatic aspects. 37 As China s profile rises in the world, Beijing seeks new allies and friends in an effort to counter the U.S. and other established nations. While the Chinese are pursuing economic opportunity in Africa, they are also looking for political favors. Chinese ministers are careful to ensure that African nations agree with the one-china policy. And they have been successful for only five African nations recognize Taiwan. China is becoming a more assertive player in the international arena and Africa may be part of China s plan to improve its standing in the world. China s assertiveness can be seen in its U.N. activity. In 2000, China won only 43% of UN votes on human rights as compared to Europe s 78%. But in 2010, they won 82%, as compared with Europe s 52%. 38 China and Europe seem to be trading spots of power, at least at the 37 Bates, Gill, The Tenuous Hold of China Inc. in Africa, The Washington Quarterly, Volume 30, Issue 3, July 2007, pp Leonard, Mark How to deal with a more assertive China? European Council on Foreign Relations, February 4, 2010, ard/. 19

25 U.N. Similarly, Beijing was quite assertive at Copenhagen and worked to avoid binding environmental targets for itself and for the developed world. 39 In the world trade talks in Doha, China took action and worked with India to derail discussions on a global trading system. 40 And on Iran, China has used its role in the P5+1 process to slow action on sanctions, while increasing its own trade and investment in the country. 41 China needs allies to support its forward action in the world. There are 53 African nations and their votes at the UN, or their public statements can help support China. Energy Resources Argument: The resource argument asserts that Africa is home to oil and other raw resources such as aluminum, gold, and rubber that Beijing needs for growth. China s quench for energy is seemingly endless and, as the argument goes, Africa has the materials to fuel China s continued development. Large notes that resource extraction is the primary motivation behind current Chinese engagement in Africa. 42 Beijing seeks to secure its energy future in order to fuel its continued growth. Especially in light of the unrest in the Middle East, Africa seems to be a reliable oil provider. Currently 85% of Africa s exports to China come from five oil rich countries: Angola, Equatorial Guinea, Nigeria, the Congo, and Sudan. 43 The majority, 64% to be exact, of these exports are made up of oil and gas while another 13% are comprised of crude materials such as minerals and metals. Thus three-fourths of African exports to China are from extractive industries. 39 Leonard 40 Leonard 41 Leonard 42 Large, pp Hanson, Stephanie, China, Africa and Oil, Council on Foreign Relations Report, 6 June 2008, 20

26 China s investment is not solely oil-focused however. A more nuanced look shows that China is active in many African countries that do not have significant natural resources. Interestingly, China gives aid to every country in sub-saharan Africa that follows the one-china policy. 44 Many scholars, such as Kirshner, argue that China s increasing economic presence in Africa will lead to enhanced political clout for Beijing. 45 In his 2008 Three Faces of Chinese Power, Lampton says that China s role as a buyer, seller, investor, development assistance provider, and innovator provide ample opportunity for Beijing to dictate political favors from Africa. Similarly Baldwin s 1985 Economic Statecraft argument says that economic instruments can be deliberately used to shape policy choices in other states. In this sense, China s aid, debt relief, and contracts influence African nations decisions. Hirschman s influence logic says economic integration leads to foreign policies that do not antagonize key trading partners, in this case, African policies that do not upset Beijing. 46 It seems intuitive that increased trade between countries will lead them to desire cooperation and friendly relations. There are two recent examples of economic investment leading to political influence. The Clinton administration reversed course on its earlier decision to link China s trading status to improved human rights in the face of pressure from the U.S. business community. In this case, the U.S. understood the value of its trade with China 44 Braugtigam, pp Kirshner, Jonathan The Consequences of China s Economic Rise for Sino-U.S. Relations: Rivalry, Political Conflict, and (Not) War. In Ross and Zhu, eds., China s Ascent: Power, Security, and the Future of International Relations. Ithaca, NY: Cornell Press, Hirschman, Albert O National Power and the Structure of Foreign Trade. Berkeley: University of California Press. 21

27 and altered its policies accordingly. France too agreed in the 1990s to halt weapon sales to Taiwan after China made it clear that French companies would be penalized. Politics, Partners, and Petro Model: The above theories provide an enlightening context for understanding the Chinese influence in Ghana, Angola, and Zimbabwe. However, the conventional wisdom is full of sweeping generalizations about China s role in Africa. The academic literature also presents a fairly negative and monochromatic view of the situation. In order to better understand how Chinese investment is affecting African countries, this paper proposes a new model. In examining the effects of Chinese investment and aid in Ghana, Angola, and Zimbabwe, three factors emerged as essential for dictating how Beijing s money affected the recipient country that is politics, partners, and petro. Politics looks at issues of governance, including the strength of a country s democracy, or the extent of an authoritarian leader s power. When governance is strong, the recipient country has more power to dictate how aid is used, and to ensure that the loans and grants are on terms favorable to the recipient. A positive institutional setting in the recipient country means that the detrimental dynamics of aid flows can be largely avoided. 47 If there is an isolated government, or one that is highly corrupt, such as in Zimbabwe, donors that are willing to work with the country have much leverage. Further, countries with poor governance often experience that aid does not benefit large segments of the population. Burnside and Dollar s empirical examination of foreign aid shows that aid would be more 47 Abuzeid, Farah, Foreign Aid and the Big Push Theory: Lessons from Sub-Saharan Africa, Stanford Journal of International Relations, Fall 2009, pg

28 effective if it were conditioned on good policies and governance of the recipient country. 48 The number of investing countries and how much they give, the partners aspect, is also important. Is Beijing in a crowded room of investors who are all competing with one another, or are they the only country providing assistance? It seems that when there are many development partners in a country, donor countries have to act similarly and not in total self-interest. Many foreign investing countries and institutions means that there are multiple checks and balances on how aid is given and used. And generally Western countries are sure to include aid that incentivizes reform. When there are many countries investing in many industries, the host country has the upper hand and can take advantage of the seller s market situation. However, having only a few foreign partners, and having them concentrated in one industry (such as petro), means it is a buyer s market, which gives the host government fewer negotiating advantages. A country s resource endowment is included in the petro aspect. If a nation is an oil state, its entire industry is focused around crude oil. Petro is used to mean all types of commodity and resource based industries. The Dutch disease means that other industries are not as established, resulting in low employment and generally underdeveloped civil society. In The Oil Curse, Michael Ross explains that ironically, good geology often leads to bad governance. 49 Foreign investment tends to shy away from developing domestic industry in that country and instead focuses on extracting and 48 Burnside, Craig and Dollar, David Aid, policies, and growth, The American Economic Review, Vol. 90, No. 4. September, 2000, pp , 49 Ross, Michael, The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, Princeton University Press,

29 exporting material for already advanced economies. 50 At the same time, oil is a very fungible commodity and countries with oil are generally able to find multiple buyers for their exports. No purchaser is guaranteed power over the seller. By examining three very different African countries Ghana, Angola, and Zimbabwe, the thesis attempts to see how domestic conditions help mitigate against any negative effects of Beijing s economic activity. Determining Politics, Partners, and Petro: This paper takes four cuts at determining the influence of Chinese aid and investment in these three countries using two models and two data sets. These four tools shed light on the politics, partners, and petro of each country. Scott Kastner examines the link between economic investment and political influence and Brautigam argues that African governance is essential for understanding the Chinese impacts. The World Governance Indicators (WGI) and Millennium Challenge Corporation (MCC) scores are well-recognized statistics that measure governance. As shown in later chapters, Kastner s argument holds in Ghana and Angola Chinese investment and aid has not led to strong support from Accra or Luanda. His conclusion was only slightly off in Zimbabwe. Similarly Brautigam s hypothesis rings true as Ghana s governance has resulted in benefits for the population while Angola s and Zimbabwe s corrupt elite has siphoned off funds. The WGI and MCC data reveal positive trends in Ghana s development and negative tendencies in Angola and Zimbabwe. Kastner s Buying Influence Model: 50 Nurkse, Ragnar, Some International Aspects of the Problem of Economic Development, The American Economic Review, Vol. 42, No. 2 May 1952, 24