China’s FDI in Africa
---Does It Create Development or Dependency for Africa?
Master Degree Candidate：Song Han
Supervisor：Peer Moeller Christensen
Aalborg University
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China’s FDI in Africa---Does it Create Development or Dependency for Africa?
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Abstract
The thesis is designed to figure out the influence of China’s FDI in Africa. As China dramatically expands its investment in Africa, there emerge some voices suspecting China of its motives and defining its presence in Africa as a new scramble for Africa’s energy resources. Questions arise if China’s investment generates economic development or dependency for Africa. The thesis will answer the question based on two theories: dependency theory and soft power theory.
The thesis is made up of six chapters. In the first chapter, the background knowledge is presented, briefly showing the history of Sino-African diplomatic relations and the development of Sino-African trade after the establishment of New China; the problem formulation is also given herein, explaining why the topic of China’s FDI in Africa is chosen. Following the introduction part, the structure of the whole thesis, as well as the methods applied to the thesis, is introduced in the methodology part. Chapter three gives a brief introduction to the basic concepts that run through the thesis---Foreign Direct Investment (FDI) and South-South Cooperation. Chapter four introduces the approaches used in the thesis---development approach and neo-liberal approach, after which the introduction and main interpretations of dependency theory and soft power theory are elaborately given here.
The analysis chapter involves two parts. The first part is written in the light of dependency theory which has four major explanations: development should be seen from a historical perspective; the periphery exports primary goods to and imports manufactured goods form the center, which results in an imbalance in the trade relations; the center benefits the most from the international linkages, and the periphery is not able to follow the development path of the center countries; the domestic elite of the periphery is in an alliance with international capital. The analysis, based on these four explanations, probes into the history of Sino-African relations, China’s quest for energy resources, China and Africa’s motives and China’s Alignment with African elites. This part will give us a clearer picture whether China’s presence in Africa creates dependency for African countries or not.
The second part of the analysis is written in the light soft power theory. With “indirect” and “non-coercive” as one of its defining features, soft power has three elements---culture, political values, and foreign policies---as its promotion tools. The following analysis focuses on how China promotes its trade relationship with Africa through these three elements and what effect they have achieved. As for culture, China has put a huge amount of money into transport, education, and cultural projects, which is an important channel of conducting China’s cultural diplomacy. With regard to political values, the Confucius Institute is introduced as an effort made by Chinese government to disseminate and promote its political values. Besides, China’s growing trade with African countries is a great endorsement of the China Model, which is often seen as an alternative to the neo-liberal Washington Consensus. In the case of foreign policies, China’s emphasis on non-intervention and win-win situation when dealing with African countries is specifically analyzed here.
The last conclusion part summarizes the influence of China’ FDI on African countries in economic, political and social fields, concludes whether China’s FDI in Africa fits with the dependency theory and soft power theory or not, and answers the question if China creates development of dependency for African countries.
Key Words: China’s FDI, Africa, dependency theory, soft power theory, development
Table of Contents
Chapter One: Introduction 1
1.1 Background Knowledge 1
1.2 Problem Formulation 2
Chapter Two: Methodology 3
2.1 Structure 3
2.2 Hermeneutics Method 5
2.3 Qualitative Research Method 5
Chapter Three: Basic Concepts 6
3.1 FDI-Foreign Direct Investment 7
3.2 South-South Cooperation 7
Chapter Four: Theory 8
4.1 Approaches 8
4.1.1 Development Approach 8
4.1.2 Neo-Liberal Approach 9
4.2 Theories 9
4.2.1 Dependency Theory: 9
4.2.2 Soft Power Theory 14
Chapter Five: Analysis 18
5.1 The Analysis Based on Dependency Theory 18
5.1.1 The History of Sino-African Relations 18
5.1.2 China’s Quest for Energy Resources 21
5.1.3 China and Africa’s Motives 26
5.1.4 China’s Alignment with African Elites 28
5.2 The Analysis Based on Soft Power Theory 29
5.2.1 The Reasons for Promoting Soft Power in Africa 30
5.2.2 The Means to Promote Soft Power in Africa 32
5.2.2.1 Culture 32
5.2.2.2 Political Values 34
5.2.2.3 Foreign Polices 39
Chapter Six: Conclusion 43
Reference 45
Chapter One: Introduction
1.1 Background Knowledge
The Sino-African diplomatic relations started when Egypt first established diplomatic ties with China in the year 1956. In the following six decades, the Sino-African relationship has gradually developed, with Chinese and African people supporting each other through both good and bad times. In 1964, China formulated the guidelines for its foreign aid programs---The Eight Principles for Economic Aid and Technical Assistance to Other Countries---which was announced by Premier Zhou Enlai during his visit to Africa. The Eight Principles features mutual benefit and foreign aid with no strings attached. In 1971, China resumed its seat in the United Nations (UN) with twenty six African countries voting in Being’s favor, which is a major milestone in Sino-African relations. With the advent of the twenty first century, new issues and new problems have emerged in Sino-African relationship. To face these problems, the Forum on China-Africa Cooperation (FOCAC) was established in 2000 to provide a more strategic platform to further improve the Sino-Africa communication and cooperation, which is a noticeable landmark in the progress of the bilateral relations. And China declared the year of 2006 as the “Year of Africa” when a Sino-African development fund was established to promote the bilateral trade.
The Sino-African trade also dates back to several decades ago, with most of Chinese investments made in infrastructure sectors at the very beginning of Africa’s post-colonial era. The past half a century has witnessed the dramatic growth of Sino-African trade, and the trade volume between these two parties has increased from over US$ 10 million at the initial stage after they established diplomatic relations to US$ 220 billion in 2014.[1] The trade volume between the two sides is expected to exceed US$ 280 billion in 2015.
1.2 Problem Formulation
China's dramatically increased involvement with Africa over the past few decades is one of the most significant developments in the region. It appears to contradict the idea of international marginalization of Africa and brings changes to its economic and political situations with far-reaching influences. The Chinese government has been constantly emphasizing its mutual-benefits-based foreign policy, and China is a very attractive partner for many African countries since it does not impose political values or ideologies on them in exchange for cooperation. However, there are still a lot of voices that define China’s presence in Africa as a new scramble for Africa’s energy resources. Questions arise if China is a friend or foe, a comrade or a colonizer of African counties, if China’s investment in African generates economic development or dependency for Africa, and if the bilateral economic cooperation has raised the Africans’ living standard. This thesis is designed to answer these questions and the analysis will be based on two theories: Dependency Theory and Soft Power Theory.
Chapter Two: Methodology
2.1 Structure
First, the methodology of the thesis will be introduced. In this thesis, a qualitative method will be mainly used to collect related information and conduct the analysis. Second, the basic concepts running through the thesis will be explained, and two theories used in the analysis, namely, the dependency theory and the soft power theory, will also be presented herein. Third comes the analysis part which is divided into two parts base the two theories. Last, the conclusion part will provide an answer to the problem statement.
The structure diagram of the thesis will be presented as follows.
And this thesis is designed to deal with the effect of China’s FDI in Africa as a whole. There is a tendency to take Africa as a single country or a single unit in the academic study, which is an obvious problem the analysts and scholars are confronted with. Despite the fact that he relationship between China and Africa is not a bilateral relationship but a series of bilateral relations between China and more than 40 countries in Africa, and the nature of these relations varies from country to country, there is a scope for the generalization of African countries, in that China’s involvement with the continent provides opportunities and poses challenges equally to all African countries and it could seen as a big push to propel Africa onto a path of development or dependency. Therefore, Africa will be analyzed as a whole in this thesis.[2]
2.2 Hermeneutics Method
A general method used in the analysis section is hermeneutics, a method dealing with the interpretation and understanding of the texts. Hermeneutics has been defined in different ways. According to Friedrich Schleiermarcher, a reader needs to have some prior knowledge about the historical context and the author’s life in order to understand a text.[3] And Hans–Georg Gadamer extends the idea, claiming that a pre-comprehension is needed to understand a topic and subsequently the interpretation is based upon the reader’s prejudices. However, the text is capable of removing the prejudices of the reader.[4]
A pre-comprehension about the topic of China’s FDI in Africa has been gained before the start of the thesis that China is taking up the position of the largest investor in Africa and creating a stronger and stronger bond with Africa, which exerts a great influence on Africa’s development, with both positive and negative effects taking place at the same time. And throughout the process of data collecting and thesis writing, some of the pre-understanding about the topic has been confirmed, while some needs to be revised.
2.3 Qualitative Research Method
The qualitative method refers to the description of a phenomenon’s qualities, and it is based on conceptual instead of numerical analysis. According to Michael Quinn Patton and Michael Cochran: “Qualitative research is characterized by its aims, which relate to understanding some aspect of social life, and its methods which (in general) generate words, rather than numbers, as data for analysis.”[5] Qualitative research involves finding out what people think and how they feel, and it involves feelings and impressions rather than numbers. The aim of the qualitative research is not to gain accuracy but to obtain an in-depth understanding. There are many choices for qualitative researchers to conduct data collection, such asgrounded theory, narratology, state or government studies, case studies,participant observation, qualitative review of statistics, etc.[6] In this thesis, academic studies at home and abroad, state or government studies qualitative review of statistics will be mainly used for data collection.
Chapter Three: Basic Concepts
3.1 FDI-Foreign Direct Investment
FDI is an investment made by the enterprises or entities based in one country into the enterprises or entities based in another country. FDI is considered as a major resource for the economic development and expected to fill the gap between the desired investment and the domestically mobilized savings. Many scholars believe that FDI could help to create more job opportunities, develop human capital and acquire new technology, thus getting the host country out of the vicious circle of underdevelopment.[7]
3.2 South-South Cooperation
South-South Cooperation, a term established by the United Nations in 1978 and historically used by policymakers and academic scholars, refers to a process of the exchanges of resources, technology, and knowledge between the countries of the global South, namely, the developing countries. China has attached great importance to the South-South cooperation in dealing with international issues and achieving common development.[8]
Chapter Four: Theory
4.1 Approaches
4.1.1 Development Approach
It is not easy to define “development” in a simple and unified way or formulate an all-embracing theory to tell whether a region suffers from underdevelopment or not without knowing its past history.[9] There are some measurement indicators, though, which could give us a rough idea of development and underdevelopment. One of the indicators is Gross National Product (GNP) per capita as well as the comparative GNPs among countries. However, it also has some problems in that it does not take into consideration the wealth parity generated along with high GNP and it ignores that type of government presiding over the development. Another measurement is the level of the social welfare system, and more specifically, health care, the access to education, and other factors that improves the standard of living.[10] Many African counties, if judged by this measurement will be put into the category of underdeveloped countries since they are deficient in offering these essentials. There are also some other indicators to define development, such as mass production and consumption, international trade and commerce, and technological development, etc. It can be seen from these indicators that development should not be simply equated with economic growth and there also other factors that are worthy of notice.