How China Is Reshaping The Glob - Rhys Jenkins

How China is Reshaping the Global Economy
How China is Reshaping

the Global Economy
Development Impacts in Africa and Latin
America
Rhys Jenkins
Great Clarendon Street, Oxford, OX2 6DP,
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To my grandchildren,
Tom, Mat, Kit, and Leo
who will experience the consequences of China’s
re-emergence as a global economic power
Preface and Acknowledgements
I first became interested in the impact of China’s economic growth on the

Global South in 2004, when I was commissioned by the UK Department for
International Development (DFID) to prepare a paper for a conference in
Beijing at the launch of the Inter-American Development Bank’s study of
the opportunities and challenges that the emergence of China presented for
Latin America and the Caribbean (Devlin et al., 2006). This was the first time
that I had visited China, and it began a period when my research was mainly
focussed on questions posed by the rise of China.
Much of my previous work had been about the impact of globalization,
starting with studies of transnational corporations and trade liberalization
in Latin America and then extending to work on the environmental and
socioeconomic implications of globalization in Latin America, South Africa,
Vietnam, and Malaysia.
By the mid-2000s, it was already becoming clear that the dramatic growth
of China and its re-incorporation into the global economy was a key feature
of globalization in the twenty-first century. The accession of China to the
World Trade Organization in 2001 sparked a number of studies looking at
the likely impacts that this would have in both the North and the South.
My own interest developed through further studies for DFID on the im-
pacts of China on Asia, Africa, and Latin America, carried out with my
colleague Chris Edwards. I was also involved in a network of scholars who
studied the impacts of the Asian Drivers (China and India) on the Global
South and published special issues of the IDS Bulletin and World Development
on this theme (Kaplinsky, ed., 2006: Kaplinsky and Messner, eds., 2008).
Some of my subsequent research on the impact of China on Latin America,
on Brazil, and on South Africa was funded by the UK Economic and Social Re-
search Council (ESRC),1 and this allowed me to go into greater depth on the
impacts of China on specific countries. I worked with a number of colleagues
on these projects and I am particularly grateful for their contributions. They
include Jonathan Barton, Enrique Dussel Peters, Andrés Lopez, Alexandre
1
ESRC grant numbers RES-165-25-005; RES-238-25-0006; and ES/1035125/1.
Preface and Acknowledgements
de Freitas Barbosa, and Lawrence Edwards. I was also fortunate to receive a

Leverhulme Research Fellowship that enabled me to start work on this book.
As I delved deeper into the impacts of China on Latin America and the
Caribbean (LAC) and Sub-Saharan Africa (SSA), I became aware that I needed
to obtain a better understanding of the drivers of Chinese growth and global
projection. Thus, although the book was originally planned as a study of the
impacts of China on the two regions, I realized that it needed to begin with
developments in China. Although I do not claim to be an expert on Chinese
economic development, I hope that Part I of the book will provide the reader
with sufficient background to make sense of the impacts on LAC and SSA.
I am very conscious that one limitation I faced in writing the book is that
I do not read Chinese. This may have led to the underrepresentation of some
points of view. I have tried wherever possible to refer to official Chinese doc-
uments that are available in English and to the work of Chinese academics
that has been translated into or published in English. However, this probably
does not do full justice to the range of Chinese views on LAC and SSA, and it
may mean that Chinese perspectives that are more critical are not fully rep-
resented. On the other hand, I have drawn on a range of sources from both
LAC and SSA to ensure coverage of views from within both regions.
I would like to thank colleagues who have read and commented on parts of
this book for their invaluable feedback. They include Enrique Dussel Peters,
Chris Edwards, Raphie Kaplinsky, Bereket Kebede, Diego Sánchez-Ancochea,
and John Thoburn. Michael Abou-Sleiman provided research assistance in
putting together the database and carrying out the econometric analysis that
is reported in the book. Finally, Sally Sutton’s editing work on the manuscript
helped put it into a coherent and presentable form. I acknowledge all their
contributions, while accepting ultimate responsibility for the contents and
any errors that remain.
vii
Contents
List of Figures xi
List of Tables xii
List of Boxes xiii
List of Acronyms xiv
Introduction: China’s Re-emergence as a Global Economic Power 1
Part I. China and the Global Economy

1. The Transformation of the Chinese Economy 13
2. The Workshop of the World 34
3. A Voracious Dragon? China and Global Commodity Markets 54
4. Going Global: Chinese Firms Abroad 74
5. The World’s Wallet? China’s Role in Global Finance 95
Part II. China and Sub-Saharan Africa

6. China’s Economic Expansion in Sub-Saharan Africa 117
7. China’s Economic Impacts on Sub-Saharan Africa 155
8. Social, Political, and Environmental Impacts in Sub-Saharan

Africa 191
Part III. China and Latin America and the Caribbean

9. China’s Economic Expansion in Latin America and the Caribbean 235
10. China’s Economic Impacts on Latin America 271
11. Social, Political, and Environmental Impacts in Latin America 304

Contents
Part IV. Comparisons and Conclusions

12. A Comparative Perspective on China’s Involvement in
Sub-Saharan Africa and Latin America and the Caribbean 345
13. Conclusion 363
Statistical Databases 378

References 380
Index 435
x
List of Figures
2.1 China’s share of world manufacturing value added (MVA) and world
manufactured exports, 1980–2019 (%) 35
2.2 Share of China’s manufactured exports by technology level,
1995–2019 46
3.1 Index of commodity prices in constant 2010 US$ (2010=100) 59
4.1 Chinese stock and annual flow of outward FDI and turnover of
contracted projects fulfilled, 1982–2019 (US$ billion) 76
4.2 Geographical distribution of value of completed projects, 1998–2000
and 2016–18 79
5.1 China’s foreign assets, 2004–20 (US$ billion) 98
6.1 China’s trade with SSA, 1995–2019 (US$ billion) 119
6.2 Shares of different products in imports from SSA, 2017–19 120
6.3 Chinese outward foreign direct investment (OFDI) stocks and flows in
SSA, 2003–19 (US$ million) 122
6.4 Chinese contracts in SSA, 2003–19 (US$ million) 125
6.5 Sectoral distribution of the value of Chinese project contracts in SSA,
2005–20 126
6.6 Chinese official financial flows to SSA, 2000–19 (US$ million) 128
7.1 Share of Chinese imports in apparent consumption of manufactured
goods in selected countries, 2000–17 168
9.1 China’s trade with Latin America, 1995–2019 (US$ billion) 237
9.2 Shares of different products in imports from Latin America, 2017–19 238
9.3 Chinese OFDI in Latin America, 2003–19 (US$ million) 241
9.4 Chinese Contracts in Latin America, 2005–19 (US$ million) 244
9.5 Sectoral distribution of the value of Chinese project contracts in LAC,
2005–20 245
9.6 Chinese loans and debt in Latin America, 2005–19 (US$ million) 247
10.1 China’s share in apparent consumption of manufactures in selected
Latin American countries, 2000–18 280
11.1 Coincidence of voting between Latin America, China, and the United
States, 2000–15 321
List of Tables
0.1 Examples of possible impacts of China on developing countries 7

3.1 China’s significance in commodity markets, 2000, 2010, 2019 (%) 57
6.1 Determinants of Sino-SSA economic relations 150
A6.1 Significance of economic relations with China by country in SSA 154
8.1 Percentage of exports of wood products at high risk of illegality, by
destination, 2013 223
A8.1 Effects of voice and accountability on Sino-SSA economic relations 229
A8.2 Effects of control of corruption on Sino-SSA economic relations 229
A8.3 Effect of political stability on Sino-SSA economic relations 230
A8.4 Impact of economic relations with China on governance 231
9.1 Key actors in Sino-LAC economic relations 251
9.2 Determinants of Sino-LAC economic relations, 2002–15 265
A9.1 Significance of economic relations with China by country in LAC 270
10.1 Industries with the highest level of Chinese import penetration 281
11.1 Estimated reduction in manufacturing employment in Latin America
from trade with China 306
11.2 Shares of Latin American trade with China and the United States,
2019 (%) 319
A11.1 Determinants of voting coincidence with China 341
12.1 Summary of China’s major impacts on SSA and LAC 356
List of Boxes
4.1 Problems in Measuring China’s OFDI 74

6.1 The Angolan Model 129
6.2 The Sicomines Agreement in DRC 130
7.1 China’s Impact on SSA exports of Textiles and Garments 169
8.1 Debate on Labour Conditions in Chinese Copper Mining in Zambia 198
9.1 Argentina and China: The Soybean Connection 257
List of Acronyms
ABC Agricultural Bank of China

ADB Agricultural Development Bank (China)
AGOA African Growth Opportunities Act
AIIB Asian Infrastructure Investment Bank
ATC Agreement on Textiles and Clothing
BOC Bank of China
BRI Belt and Road Initiative
CADF China-Africa Development Fund
CARI China Africa Research Initiative
CBRC Chinese Banking Regulatory Commission
CCB China Construction Bank
CCICED China Council for International Cooperation on Environment
and Development
CDB China Development Bank
CGGC China Gezhouba Group Company
CIC China Investment Corporation
CNMC China Nonferrous Metal Mining Corporation
CNOOC China National Offshore Oil Corporation
CNPC China National Petroleum Company
COFCO China National Cereals, Oils and Foodstuffs Corporation
CREC China Railway Engineering Corporation
CSR Corporate social responsibility
DAC Development Assistance Committee
DFA Department of Foreign Assistance
DPP Democratic Progressive Party
DRC Democratic Republic of Congo
EITI Extractive industries Transparency Initiative
EIZ Eastern Industrial Zone
EPRDF Ethiopian People’s Revolutionary Democratic Front
List of Acronyms
ETDZ Economic Trade and Development Zone

Exim Bank Export-Import Bank of China
FDI Foreign direct investment
FOCAC Forum for China Africa Cooperation
FSC Forest Stewardship Council
FTA Free trade agreement
GDP Gross domestic product
GHG Greenhouse gas
GM Genetically modified
GMO Genetically modified organism
GPN Global production network
GVC Global value chain
HRW Human Rights Watch
IADB Inter American Development Bank
ICBC Industrial & Commercial Bank of China
IEA International Energy Agency
ILO International Labour Organization
IMF International Monetary Fund
ISI Import substituting industrialization
ISIC International Standard Industrial Classification
JSCB Joint-stock commercial bank
LAC Latin America and the Caribbean
M&A Mergers and acquisitions
MEP Ministry of Environmental Protection
MFA Multi Fibre Arrangement
MOF Ministry of Finance
MOFA Ministry of Foreign Affairs
MOFCOM Ministry of Foreign Commerce
NDB New Development Bank
NDRC National Development and Reform Commission of the People’s
Republic of China
NGO Non-governmental organization
NSSF National Social Security Fund
OBOR One Belt, One Road
ODA Official development assistance
OECD Organization for Economic Co-operation and Development
xv
List of Acronyms
OFDI Outward direct foreign investment

OOF Other Official Finance
OPEC Organization of the Petroleum Exporting Countries
PRC People’s Republic of China
R&D Research and development
REER Real effective exchange rate
RMB RENMINBI
RTRS Round Table on Responsible Soy
SAFE State Administration of Foreign Exchange
SASAC State-owned Asset Supervision and Administration Commission
SEPA State Environmental Protection Administration
SEZs Special Economic Zones
SIC SAFE Investment Company
SINOSURE China Export and Credit Insurance Corporation
SOE State-owned enterprises
SPR Strategic Petroleum Reserve
SSA Sub-Saharan Africa
SSI Sinopec Sonangol International
SWF Sovereign wealth fund
TNC Transnational corporation
TVE Township and village enterprise
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNIDO United Nations Industrial Development Organization
VAT Value added tax
WGI World Governance indicators
WTO World Trade Organization
xvi
Introduction
China’s Re-emergence as a Global Economic Power
The re-emergence of China as a major economic power has been a central fea-
ture of globalization over the past four decades. It constitutes a significant
shift in the world economy’s centre of gravity to East Asia. In terms of gross
domestic product, China is now the world’s second-largest economy after the
USA, which it is predicted to overtake by 2028 (Elliott, 2020). It is the world’s
leading exporter, and a significant destination for, and increasingly a source
of, foreign direct investment (FDI). It has become a major centre of global
industrial accumulation, accounting for almost a quarter of worldwide man-
ufacturing output. It is the most important consumer of many minerals and
industrial raw materials, and is an increasingly significant user of energy and
contributor to carbon emissions. It has the world’s largest foreign exchange
reserves and plays a growing role in international financial markets. All this
has profound effects on countries around the world.
The economic rise of China can be looked at through two lenses. The first,
looking from the outside in, emphasizes changes in the global capitalist econ-
omy that have led to the geographical reconfiguration of the world economy.
The second approach, looking from the inside out, emphasizes the internal
changes in China which have led to its economic transformation since the
introduction of economic reforms at the end of the 1970s (Hung, 2008).
The ‘outside-in’ approach sees China’s economic growth as primarily ex-
ternally driven, reflecting a new phase of globalization. In this view, capitalist
accumulation faced increasing barriers in the developed world in the 1970s
as a result of falling profitability, rising wages, and an increasingly mobi-
lized working class (Hart-Landsberg and Burkett, 2007; Harvey, 2005). This
led to the abandonment of the Keynesian policies of the post-war consensus
and the adoption of neo-liberalism, particularly under Reagan in the USA
and Thatcher in the UK. One of the strategies used by capital to restore prof-
itability was to move labour-intensive production offshore in order to reduce
How China is Reshaping the Global Economy. Second Edition. Rhys Jenkins, Oxford University Press.
© Rhys Jenkins (2022). DOI: 10.1093/oso/9780192866356.003.0001
production costs. This had started to happen in the 1960s, but it accelerated
in the 1980s.
In East Asia the ‘flying geese’ pattern in which certain Japanese industries
relocated to the newly industrializing countries, South Korea, Taiwan, Hong
Kong, and Singapore, had, by the 1980s, developed to a point where those
industries were now looking to relocate once more in the face of rising wages.
China’s economic reforms came at an opportune moment, and companies
relocated initially to the special economic zones that were created after 1978,
and then to other parts of the country.
In contrast, the ‘inside-out’ approach takes as its starting point the
changes that occurred in China after the death of Mao Zedong in 1976.
The reforms to economic policy started by Deng Xiaoping in 1978/9 un-
leashed a dynamic process of growth and increased competitiveness in China
as it moved from a centrally planned to a market economy (see Chapter 1).
High levels of investment and a rapid increase in exports led to China’s
rising share of world output and trade. Rapid growth in China made it
an attractive destination for foreign investors. Its eventual accession to the
World Trade Organization in 2001 gave a further boost to export growth,
which contributed to the accumulation of foreign exchange reserves. As Chi-
nese firms accumulated technological capabilities, they began to invest and
carry out construction projects abroad. China also became a more impor-
tant player in global financial markets as a result of lending by Chinese
banks, particularly the policy banks, and investment by its sovereign wealth
funds.
Both of these lenses provide important insights into the growing global
significance of China. The post-1980 phase of globalization set the con-
text within which the Chinese economy was able to grow so rapidly. A
focus on shifts in global patterns of accumulation and the organization
of global production networks is a reminder that the Chinese economy
is part of a larger whole. This underlines the fact that China’s economic
growth involves a range of Chinese and international actors, and has de-
pended crucially on access to foreign markets and foreign inputs, capital, and
technology.
Without radical changes within China, however, it is unlikely that these
changes in the global economy would have been accompanied by such spec-
tacular economic growth. Internal changes also determine the characteristics
of China’s ‘socialist market economy’, which have implications both domes-
tically and internationally. Globalization set the context within which China
was able to grow, but the drivers of economic growth were internal to China.
It is, therefore, imperative to analyse at some length the key changes and
stages of economic reform and development (see Chapter 1).
2
Introduction
0.1 China, Sub-Saharan Africa, and Latin America

and the Caribbean
Both Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC)
have seen the influence of China increase significantly since the turn of the
century. China is now SSA’s most important trading partner, accounting for
almost a fifth of the region’s total trade. Chinese construction companies
are building roads, railways, dams, and stadiums, and other public buildings
across the region. China has also become an increasingly important source of
FDI, loans, and official development assistance (ODA) to SSA. The Forum on
China-Africa Cooperation, at which major announcements are made con-
cerning China’s plans for increased trade with and finance to Africa, meets
every three years.
China is LAC’s second-largest trading partner after the USA, and in several
countries, including Brazil, Chile, and Peru, it has overtaken the USA. China
has lent more than $140 billion to countries in the region since 2007 and
has made significant investments in oil and mining. It is also involved in
major infrastructure projects in the region, building roads, railways, dams
and power stations. In 2015 it formalized its relations with the region with
the establishment of the Forum of China and Community of Latin American
and Caribbean States.
China’s growing involvement in SSA has been a source of intense debate
(Mhandara et al., 2013; Alden, 2019). Critics of China’s relations with the re-
gion have portrayed it as a new colonial power extracting natural resources
with little regard for the local population or the environment while sup-
porting authoritarian regimes and intensifying corruption. As Lamido Sanusi
(2013), former governor of the Nigerian Central Bank, wrote in the Financial
Times:
China takes our primary goods and sells us manufactured ones. This was also
the essence of colonialism. The British went to Africa and India to secure raw
materials and markets. Africa is now willingly opening itself up to a new form of
imperialism.
These critics have been accused by their opponents of ‘China-bashing’ and

of following a Western agenda which sees China as a threat to its interests
in Africa (Hirono and Suzuki, 2014). They argue that on the contrary, the
Sino-SSA relationship is quite different from the colonial and neo-colonial
relations that existed with the West. China is seen as providing SSA with
capital and technology, as well as with a booming market for its exports,
leading to the revival of economic growth in the region in the twenty-first
century. Zambian economist Dambisa Moyo (2012a) writes:
3
China’s rush for resources has spawned much-needed trade and investment and
created a large market for African exports—a huge benefit for a continent seeking
rapid economic growth.
China’s commitment to non-intervention in the internal affairs of other

countries and its provision of aid without any strings attached, in contrast to
the use of economic and political conditionality by Western donors and the
international financial institutions, is also emphasized (Wang and Ozanne,
2010).
In the case of LAC, while the debate has been less heated it is, nevertheless,
possible to discern significantly divergent views (Jenkins, 2010a; Stallings,
2020). A common criticism is that China’s economic involvement has led
to the recommodification of the region’s exports and deindustrialization,
thus reproducing the centre-periphery relations that historically character-
ized trade with North America and Europe (Gallagher and Porzecanski, 2010;
Rosales and Kuwayama, 2012, Ch. II). There are also concerns, particularly
on the political right in the USA, that China’s growing presence is threat-
ening US influence and encouraging left-wing governments in the region
(Grudgings and Gardner, 2011). As in SSA, critics of China’s involvement
have been accused of Sinophobia and of propagating myths about Sino-LAC
relations (Harris and Arias, 2016).
The alternative view of Sino-LAC relations emphasizes South-South coop-
eration, economic complementarity, and mutual benefits. This characterizes
official pronouncements. such as the Chinese government’s policy papers on
the region (PRC, 2008; 2016). Harris (2015) describes China in its relations
with LAC countries as ‘a peaceful panda bear’, which he contrasts with the
critics’ view of ‘a roaring dragon’. More specifically, China is seen as hav-
ing made an important contribution to the region’s rapid recovery from the
2008 global financial crisis by coming to the rescue of LAC exports (ECLAC,
2010, p. 10).
In practice much of the academic literature on the impacts of China on
SSA and LAC recognizes that the reality is more complex and varied than
either of these extremes. There are both positive and negative impacts of the
growing Chinese involvement in the two regions. In Latin America, partic-
ularly, some countries are identified as ‘winners’, and others as ‘losers’, as
a result of China’s growth (Funakushi and Loser, 2005; González, 2008). In
SSA, too, there has been some recognition that different countries have been
affected differently (Sindzingre, 2011; Zafar, 2007). However, much of the
literature shares certain basic assumptions characteristic of both the critics
and the defenders of China’s role.
4
Introduction
Although this debate is highly polarized, both sides are state centric in
their focus on the actions of the Chinese state.1 They see China as a mono-
lithic actor which pursues its interests globally. These interests are seen as
either benign, as portrayed in Chinese discourse on ‘peaceful development’
and the ‘harmonious world’, or as a challenge to the existing world order and
an effort to expand China’s global power, as seen by those who emphasize the
‘China Threat’. Both sides also focus on the direct bilateral relations between
China and SSA or LAC countries, neglecting the indirect impacts of China’s
increased significance in the global economy. There is also a tendency in
much of the debate on China’s impact to focus exclusively on Chinese in-
terests and actions, and to see SSA and LAC as simply the beneficiaries or
victims of China’s international expansion, ignoring the role of local actors
within the two regions.
Inevitably, given the politicized nature of the media coverage of China’s
impacts on SSA and LAC, there is a tendency to present things in polarized
terms, emphasizing either the negative side or win-win scenarios. There is
also often a tendency on both sides of the debate to exaggerate the extent
of China’s influence in the two regions. The challenge in analysing China’s
growing significance for SSA and LAC is to provide an accurate picture of the
extent of its influence and to develop a critical account of its impact while
avoiding the ‘China-bashing’ that often characterizes media reports.
This book tries to achieve this by avoiding a state-centric approach to
China’s relations with SSA and LAC. It rejects the monolithic view of China
as a unitary actor pursuing a clearly defined coherent strategy in its ap-
proach to the two regions. Although the Chinese government has issued two
policy papers on its relations with each region these are very broad state-
ments rather than coherent plans which the state implements (PRC, 2006,
2008, 2015, 2016). Chinese involvement is driven by the interests of a
number of actors including different ministries, provincial and municipal
governments, state-owned enterprises (SOEs), policy and commercial banks,
and private companies.
In analysing the significance of China for SSA and LAC, this study recog-
nizes that China’s growth has both direct impacts as a result of the countries’
bilateral relations, and indirect ones arising from China’s effects on global
markets and prices. This implies that even those countries whose bilateral re-
lations with China are limited can, nevertheless, be affected either positively
1
As Alison Ayers (2013) notes in her analysis of the ‘new scramble for Africa’, ‘[t]he privileging
of nation-states as the fundamental units of analysis is characteristic not only of realist and liberal
perspectives in IR/IPE [international relations/international political economy] but also various
critical perspectives that have sought to understand the rise of the BRICs [Brazil, Russia, India,
China and South Africa], especially China’ (p. 236).
5
or negatively by the global economic impacts of China.2 While detailing the

bilateral economic relations between China and SSA and China and LAC,
this study goes further to consider not only the direct impacts of China but
also its indirect impacts on both regions.
There is, perhaps inevitably, a tendency to focus more on Chinese actors
and interests in a book which looks at the impact of China. However, it is
important to recognize the role played by SSA and LAC actors in terms of
both explaining the increased Chinese presence in the region and the im-
pact of this.3 While it is true that states in SSA and LAC have been largely
reactive in response to China’s growing involvement, it is also the case that
the outcomes for host countries and different groups within them depend
on the responses of local state and non-state actors.
Finally, this book emphasizes the heterogeneous impacts of China’s
growth on the two regions. Some of the policy-oriented literature discusses
these impacts in terms of ‘threats/challenges and opportunities’4 or ‘com-
petitive and complementary effects’ (Kaplinsky and Messner, 2008). This
approach opens up the possibility of a more differentiated perspective on
China’s impact which recognizes that it creates winners and losers both be-
tween and within countries. The framework used in this book recognizes
both positive and negative impacts of China on SSA and LAC, and includes
both direct and indirect impacts.
Table 0.1 illustrates some of the potential impacts. The first three rows
cover those related to the economic impacts of China’s growing involve-
ment in trade, FDI, construction and engineering projects, and finance. The
last three rows include possible social, political, and environmental impacts.
The first two columns include the effects associated with China’s bilateral
relations with SSA and LAC, while the last two columns describe indirect
impacts arising from China’s effect on the global economy, governance,
and environment. These are all discussed in detail in Parts II and III of the
book.
0.2 Outline of the Book
This book sets out to answer a number of questions regarding the growing
involvement of China in SSA and LAC. First, is the hype regarding China’s
2
A similar point could be made in relation to China’s environmental impact on other coun-
tries, which can arise both directly from, for example, the polluting activities of Chinese firms
in a host country, but also indirectly as a result of the contribution of Chinese greenhouse gas
(GHG) emissions to global warming.
3
On the importance of recognizing the agency of local actors, see Mohan and Lampert (2013)
and Corkin, 2013, Chapter 2) on SSA, and Levy (2015) on Latin America.
4
See Devlin et al. (2006) and Lederman et al. (2009) on Latin America, and Ajakaiye (2006)
and Knorringa (2009) on SSA.
6
Introduction
Table 0.1. Examples of possible impacts of China on developing countries
Direct Effects Indirect Effects
Positive Negative Positive Negative
Trade Growth of Displacement of Increased world Competition

exports to local produc- commodity from Chinese
China ers by imports prices goods in third
from China markets
FDI & Inflows of Displacement Integration Diversion of
projects Chinese FDI of local firms into global OECD FDI
& technology by Chinese production from develop-
competitors networks with ing countries
Chinese firms to China
Finance Additional re- Unsustainable New modes of Global effects
sources for increases in international of Chinese
investment in indebtedness finance financial
infrastructure instability
Social Employment Displacement of Increased gov- Downward
creation by communities ernment pressure
Chinese firms by Chinese revenues on interna-
mines & dams for social tional labour
expenditure standards
Political Increased policy Support for Chinese sup- Less inter-
space for SSA authoritarian port for national
& LAC states regimes developing protection of
countries’ human rights
positions in
international
organizations
Environment Transfer of tech- Chinese firms Reduced cost of Chinese green-
nologies for operating in technologies house gas
renewables ecologically for renewable emissions
fragile areas energy contribut-
ing to global
warming
Source: Own elaboration based on Kaplinsky and Messner (2008, Figure 6).
role really justified? How much impact has China’s re-emergence as a global
economic power had on the two regions? Next, what are the main chan-
nels through which China is affecting SSA and LAC? What is the relative
significance of trade, FDI, engineering and construction projects, loans, and
ODA within the relationships? Then, what are the key drivers behind China’s
growing economic relations with SSA and LAC? Are the growing relations
a result of the strategic diplomatic or strategic economic interests of the
Chinese state or of the commercial motives of Chinese companies, and how
are these linked? Finally, the book considers the economic, social, political,
and environmental implications for SSA and LAC of China’s growing sig-
nificance. It discusses how these impacts vary both between countries and
between different groups within countries.
7
The next chapter sets the scene by examining the transformation of the
Chinese economy since the start of the reforms in the late 1970s that led to
China’s integration into the global economy. It is not a comprehensive ac-
count of China’s economic development, but rather it concentrates on those
features that are essential to understanding the impacts that are discussed
later in the book. These include the growth of trade and FDI, the develop-
ment of the financial system, the changing nature of SOEs and the growth
of the private sector, the increases in productivity and wages, and the effects
of growth on natural resources and the environment.
The remainder of Part I consists of four chapters which discuss the most
important characteristics of China’s global economic integration. China is
best known as a manufacturing powerhouse, and Chapter 2 analyses the
way in which it became a global centre for industrial production, paying
particular attention to the factors that underlie its global competitiveness.
It describes some of the key characteristics of its manufacturing sector,
including its integration into regional and global production networks,
the role played by inward investment, and the increasing technological
sophistication of its production.
The growth of industrial production and rising incomes in China led to a
rapid increase in demand for natural resources and industrial raw materials,
which was increasingly supplied by imports. China went from a marginal
player in global commodity markets to a key consumer with a significant
impact on their prices and organization. Chapter 3 documents its role in dif-
ferent markets and its contribution to the commodity boom between 2002
and 2012. It discusses the strategies used to ensure a secure supply of key com-
modities, and the specific characteristics of the Chinese market that make it
different from the developed-country markets to which SSA and LAC have
traditionally exported.
Not only is China a significant destination for FDI, but it has also emerged
as a source of outward FDI, and of non-equity forms of international expan-
sion, such as engineering and construction contracts. Chapter 4 documents
this growth and analyses state and firm actors’ motives for investing abroad.
A key debate, the extent to which the internationalization of Chinese firms
is primarily state or market driven, is discussed.
The last chapter of Part I considers China’s growing role in international
finance. There is some confusion in the literature on China over the dis-
tinction between Chinese ‘aid’ and other forms of official finances provided
by Chinese banks. This has led to exaggerated accounts of the significance
of China’s financial contribution to the Global South. The chapter clarifies
some of these issues.
Part II of the book analyses China’s impact on SSA. Chapter 6 sets the
scene, documenting the growth of bilateral relations between China and
8
Introduction
the region, focussing on trade, FDI, Chinese construction and engineer-

ing projects, and financial flows, and it identifies the main actors involved
in these relationships. The chapter discusses the role of China’s strategic
diplomatic, strategic economic, and commercial interests in its growing
involvement in SSA, as well as African interests, before presenting an econo-
metric analysis of the key determinants of the different types of Chinese
involvement in the region.
Chapter 7 focuses on the key economic impacts of the growth of China,
considering both direct and indirect impacts on SSA. Particular attention
is paid to China’s direct and indirect impact on commodity exports, the
direct involvement of Chinese firms in infrastructure, and the direct and in-
direct impacts on the manufacturing sector. These overviews are followed
by case studies of China’s economic impacts on Angola, Ethiopia, and
South Africa.
Part II concludes with a chapter discussing China’s social, political, and
environmental effects on SSA. These effects have been a particular target for
critics of China’s increasing influence in the region. On the social side, it has
been claimed that Chinese firms have preferred to employ Chinese rather
than African workers, and that wages and working conditions are poor and
labour rights frequently violated. China is also often criticized for its in-
volvement with undemocratic and corrupt regimes in SSA. Finally, China’s
demand for resources and the operations of Chinese firms in the region
are criticized for causing environmental degradation. The chapter consid-
ers these claims and shows that the impacts are not universally negative, as
some critics suggest, and that local agency and context have an important
effect on the outcomes in different countries.
Part III is structured along the same lines as Part II to analyse Sino-LAC re-
lations. Chapter 9 provides background information on China’s economic
involvement in the region, the main actors involved, and the drivers of
the relationship. Chapter 10 considers the economic impacts of these re-
lations, with particular attention to the impact on commodity exports and
prices and the effects on the manufacturing sector. It concludes with case
studies of Brazil, Mexico, and Chile. Chapter 11 provides an analysis of the
social, political, and environmental impacts. In terms of social impacts, par-
ticular attention is paid to that on local communities, while the section
on China’s political influence includes case studies of Brazil and Venezuela.
Latin America’s booming soybean industry is used to illustrate some of the
environmental problems created by China’s growing demand.
Part IV contains two chapters by way of conclusion. Chapter 12 provides
an explicit discussion of the similarities and differences between China’s re-
lations with and impacts on SSA and LAC, drawing on the two preceding
parts. It reinforces the conclusion that these impacts are heterogeneous, and
9
that specific local situations play an important part in determining the costs
and benefits. The final chapter looks at recent developments which are likely
to affect China’s relations with SSA and LAC in the future. These include the
changes in globalization including the increasing trade conflict between the
USA and China, the impacts of the COVID-19 pandemic, and the shift to
a slower rate of growth in China with greater emphasis on household con-
sumption and the quality of growth. It also considers the likely effects of the
Belt and Road Initiative (BRI) which has been closely associated with Presi-
dent Xi Jinping. Finally, it considers the prospects for resolving some of the
problems which have characterized China’s relations with SSA and LAC in
recent years.
Several previous monographs and edited collections on China’s impact
on SSA and on LAC have addressed some or all of these questions. Although
there are many parallels between the two regions, no previous study has
brought the two cases together in a systematic way, as here. By highlighting
both the similarities and the differences between the two regions, this book
brings out the importance of specific local contexts and agency in explaining
the ways in which changing global patterns play out.
10
Part I
China and the Global Economy
1
The Transformation of the Chinese Economy
The growth of the Chinese economy since the late 1970s has been spectacu-
lar. Gross domestic product (GDP) increased at an average of over 10 per cent
per annum until 2011, when the growth rate began to slow down, although
still achieving significant increases. At market exchange rates, China’s total
GDP overtook that of Germany, in 2007, and of Japan, in 2009, and it is now
the second-largest economy in the world. Various sources predict that it will
overtake the USA in terms of total GDP in the late 2020s or early 2030s. In
purchasing power parity terms, the Chinese economy is already larger than
that of the USA.1
Gross national income per capita in China increased twenty-five times in
the four decades between 1979 and 2019, taking it from a low- to an upper-
middle-income country in terms of the World Bank’s classification. This has
led to a massive reduction in poverty. The proportion of the population living
below the international poverty line fell from 88 per cent in 1981 to 0.5 per
cent in 2016, and the absolute number of people living in poverty has been
reduced by over 850 million according to the World Bank.2
Economic growth has been driven by high levels of investment and rapid
export growth, which have led to significant structural change and pro-
ductivity increases. Investment levels were high and increasing over the
period, reaching over 40 per cent of GDP in the mid-2000s (Naughton, 2007,
p. 144). Exports grew at almost 17 per cent per annum between 1980 and
2010 (UNCTADStat). The share of industry in total output increased, par-
ticularly after 1990, to around 45 per cent of GDP (Naughton, 2007, Figure
6.4). Estimates put total factor productivity growth in China in the period at
around 3 per cent a year (Liu et al., 2014, pp. 231–3).3
1
Purchasing power parity takes into account differences in countries’ price levels in order to
compare GDP.
2
https://www.worldbank.org/en/country/china/overview (accessed 12 October 2020).
3
‘Total factor productivity growth’ refers to that part of the increase in output that is not
explained by increases in inputs such as capital and labour.
The remarkable performance of the Chinese economy over that period

followed major changes in economic policy after the death of Mao in 1976.
The period since then can be divided into four main phases. The first phase
from the late 1970s initiated the transition from a centrally planned to a
market economy, creating a ‘dual-track system’. Naughton, (2007, Table 4.1)
describes this as a period of ‘reform without losers’. The second phase be-
gan in 1992 with the Communist Party declaring its support for a ‘socialist
market economy’ and endorsing the extension of the market to all the major
economic sectors. In contrast to the earlier phase, this created losers, particu-
larly amongst state-owned enterprise (SOE) workers, as well as winners (ibid.,
pp. 106–7). In 2001 China joined the World Trade Organization (WTO) mark-
ing the start of a third phase characterized by further integration with the
global economy. Finally, since 2012, China has entered a new phase referred
to as the ‘new normal’, which is characterized by slower growth and greater
emphasis on the quality of growth.
The initial reforms introduced under Deng Xiaoping at the end of 1978
focussed on agriculture and created what became known as the ‘house-
hold responsibility system’. There was also an expansion of township and
village enterprises (TVEs) that played an important role in the Chinese
economy in the 1980s. These were not included within the plan, but they
contributed significantly to rural industrialization by producing inputs for
agriculture and basic consumer goods. Rural incomes increased rapidly, and
the reforms proved popular with the majority of the population in rural
areas.
The success of reform in the rural areas encouraged Chinese policymakers
to extend the process. SOEs were also allowed to sell production in ex-
cess of that required by the plan through the market, and to transact and
cooperate with non-state enterprises, giving them greater flexibility. This
model of reform in China in the 1980s has been described as a ‘dual-track
system’ (Naughton, 2007, pp. 91–2). It preserved the traditional system of
central planning, which guaranteed stability, and allowed the government
to achieve key targets, while at the same time allowing a market to develop
for the allocation of particular goods. This led to a two-tier pricing system,
with many goods having a low state-set planned price and a higher market
price.4 The creation of Special Economic Zones (SEZs) in 1979 was a further
example of the dual-track approach, which allowed foreign firms to enter
China without affecting the industrial activities of SOEs.
Several factors including rising inflation, anger at corruption, and growing
expectations of political reform led to increasing urban discontent during
1988–9 that culminated in government repression at Tiananmen Square in
4
The pricing system created incentives for rent seeking and corruption, with SOEs sometimes
able to buy inputs cheaply via the plan and then sell them at higher market prices.
14
1989. In the aftermath, conservatives attempted to reverse the reforms but

were unsuccessful. In 1992 Deng Xiaoping’s Southern Tour launched a new
phase of reform. In October 1992 the Communist Party supported a ‘socialist
market economy’, endorsing the extension of the market to all the major
economic sectors. The growing significance of market relations in the 1980s
had rendered the system of central planning obsolete, and by the end of
1993, material balance planning had been abolished altogether, and the dual
system disappeared with a reunification of prices.
The second phase of reform saw China extending market relations do-
mestically and negotiating to join the WTO internationally. The process of
reforming state enterprises began with a new Company Law passed at the end
of 1993. The state sector was also downsized to focus on strategic industries
and large firms with the policy of ‘grasping the big and letting go the small’.
Privatization, often through management buyouts, became common from
the mid-1990s, and the significance of the private sector in the economy in-
creased. The 1990s also saw significant changes in the banking and financial
system with the creation of the Shanghai and Shenzhen stock exchanges in
1992. There were also major reforms related to the external sector as China
prepared the way to join the WTO. In 1993 the foreign exchange regime was
unified, and current account convertibility was established. Trade was fur-
ther liberalized with significant tariff cuts and a reduction in the proportion
of imports subject to quotas.
A third phase of reform and development began in 2001 after China be-
came a member of the WTO. The rate of economic growth accelerated, as did
the growth of exports, until the global financial crisis in 2008. The boom in
exports, coupled with continuing inflows of foreign direct investment (FDI),
generated large balance of payments surpluses so that China accumulated
foreign exchange reserves and the government began to relax some of the
constraints on capital flows. Domestically, the period saw further growth
in the private sector and changes in the way that SOEs were managed to
increase their focus on profit and productivity. The position of SOEs in in-
dustries, which the government considered strategic, was consolidated, and
a group of firms were identified as ‘national champions’. During this period,
the government also began to encourage Chinese firms to ‘go global’ through
outward foreign direct investment (OFDI).
The global financial crisis of 2008 interrupted the spectacular growth of
the Chinese economy, and exports fell in 2009. Growth resumed with a ma-
jor stimulus package introduced by the government in 2008, and since this
was targeted particularly at investment in infrastructure, it gave a boost to
SOEs.
With the growth of world trade slowing down, the Chinese government
started to give greater emphasis to the expansion of the domestic market and
15
consumption rather than investment and exports.5 This led to new phase of
development referred to as the ‘New Normal’, with growth between 2012
and 2019 of around 6 or 7 per cent a year as opposed to 10 per cent, and
a rebalancing of the economy in favour of domestic consumption. There is
more emphasis given to the quality of economic growth, particularly in terms
of its environmental impacts, which had been largely ignored in previous
periods.
Partly as a response to the problems caused by slower economic growth,
President Xi Jinping launched the Belt and Road Initiative (BRI) in 2013
(Chen, S., 2020).6 The BRI involved ambitious plans to build new infrastruc-
ture such as railways and roads, port facilities, and energy pipelines. With
excess capacity growing in a number of industries within China, the large-
scale infrastructure projects planned under the BRI provided new markets for
Chinese producers of steel, cement, aluminium, railway equipment, as well
as projects for Chinese construction companies. The Silk Road Economic Belt
would also help to rebalance the Chinese economy towards the West and
away from the coastal areas where growth had been concentrated since the
reform process began in 1979.
Some 60 countries were originally identified as part of the BRI. In 2015,
the Chinese government launched its Action Plan on the Belt and Road
Initiative.7 It became a centrepiece of Chinese foreign policy under Xi
Jinping and the Communist Party of China amended its constitution, in
2017, to include a pledge to pursue the initiative, thus cementing its
significance.
This chapter does not attempt a comprehensive review of Chinese eco-
nomic development and economic policy. The focus is on those aspects
which are particularly relevant to understanding China’s impact on the
global economy. As such it begins with reforms that have affected trade
and FDI, before discussing the changes in the financial sector, enterprise
reform, and developments in the Chinese labour market. The final section
considers the impact of rapid growth on the environment and the demand
for resources in China.
5
The share of exports in GDP peaked at around 35 per cent in 2006–8 while the share of
investment peaked at 48 per cent in 2011 (Naughton, 2019, p. 22 & p. 30).
6
This had its origins in two speeches made by President Xi Jinping in Kazakhstan and Indone-
sia, proposing the development of a new Silk Road Economic Belt linking China, Central Asia,
South Asia, Russia and Europe by land and a twenty-first-Century Maritime Silk Road, linking
China with South-East Asia, South Asia, the South Pacific, the Middle East and East Africa by sea.
It was originally referred to as the ‘One Belt, One Road’ (OBOR) initiative. The official English
translation from the Chinese was changed to the Belt and Road Initiative (BRI) in 2016.
7
Available at: http://english.www.gov.cn/archive/publications/2015/03/30/content_
281475080249035.htm (accessed 23 June 2020).
16
1.1 Growing Integration with the Global Economy
One of the most striking features of China’s economic transformation has

been the increased integration with the global economy and its emergence as
the world’s largest exporter, a major destination for inward FDI and a growing
source of OFDI.
During the Maoist period, China emphasized self-reliance, particularly af-
ter the break with the Soviet Union in the early 1960s. In the 1960s and
1970s, China was one of the most closed economies in the world, with total
trade (exports plus imports) never exceeding 10 per cent of GDP (Naughton,
2007, p. 377). The system of state control of foreign trade meant that the State
Planning Commission’s import plan covered over 90 per cent of all imports,
and that exports were also comprehensively planned (Branstetter and Lardy,
2008, p. 634) Both inward and outward FDI were virtually non-existent dur-
ing the Maoist period. In 1978 twelve state trading companies controlled by
the Ministry of Foreign Trade were the only firms allowed to engage in in-
ternational trade or invest outside China (ibid., Table 16.1). There were also
severe restrictions on FDI in China during the 1970s.
This started to change during the first phase of economic reform with a
push to expand exports and attract foreign investment. One of the first steps
taken was the creation of four SEZs in Shenzhen (next to Hong Kong), Zhubai
(next to Macao), Shantou (on the coast facing Taiwan), and Xiamen (across
the Taiwan straits from Taiwan). These zones were open to foreign investors
who wanted to establish plants in order to export goods from China without
being subjected to the restrictions on FDI and the bureaucracy and taxes that
applied to investments elsewhere in the country. These experiments were
extended from the mid-1980s with a second wave of liberalization which
declared fourteen new Open Port Cities, all of which set up Economic Trade
and Development Zones (ETDZs) that offered the same kind of incentives
as the SEZs (Naughton, 2007, pp. 406–10). In 1986 significant liberalization
of FDI regulation was applied throughout China. These ‘22 Regulations’ re-
duced corporate tax rates for foreign firms and lifted restrictions on profit
remittances. Export-oriented projects and those using advanced technology
were eligible for further benefits.
The result was a dual system, with a distinction drawn between ‘processing
trade’ and ‘ordinary trade’. The latter applied to products for sale on the
Chinese market or used as inputs for production for the domestic market
which, after the removal of the state monopoly of foreign trade, were subject
to a complex system of tariffs, quotas, and import licences which remained
quite restrictive during the 1980s (Branstetter and Lardy, 2008, pp. 634–5).
17
‘Processing trade’ which applied to exporters was largely free of restrictions

on imports.
Despite these measures, FDI inflows remained modest during the 1980s.
Most FDI was in joint ventures, and wholly foreign-owned firms were only
allowed in the SEZs. During the first phase of the reforms, FDI was largely
confined to export manufacturing, and foreign firms had little access to
the domestic market. Inflows were largely dominated by Hong Kong and
Taiwanese firms relocating labour-intensive activities to the SEZs and to the
southern provinces of Guangdong and Fujian, which received a number of
concessions from the central government in the early 1980s to pursue their
own, more market-oriented, policies (Thoburn et al., 1991).
During the second phase of reform in the 1990s, steps were taken to open
up the economy further in preparation for membership of the WTO. This
involved significant reductions in the protection given to production for the
domestic market. Average tariffs fell from 43 to 15 per cent, and the propor-
tion of imports covered by quotas and licences from nearly half to less than
10 per cent between the late 1980s and 2001 (Branstetter and Lardy, 2008,
p. 635).
The government also began to selectively open the domestic market to
foreign investors in this period. Urban real estate was opened up to foreign
investment. There was also a third wave of new ETDZs, with eighteen ap-
proved in 1992–3 (Naughton, 2007, p. 409). In 1995, the dualistic system,
which encouraged FDI in some sectors while protecting Chinese firms in oth-
ers, was formalized with the publication of The Catalogue Guiding Foreign
Investment in Industry, which listed those sectors where foreign investment
was encouraged, restricted, or prohibited (Breslin, 2009, p. 87). This led to a
surge in inward investment in the 1990s with US, Japanese, and European
firms now beginning to invest in China on a significant scale. Total inflows
of FDI increased more than tenfold in current dollars, from $4.4 billion in
1991 to $44.9 billion a decade later, although a substantial part of this FDI
consisted of ‘round-tripping’, which involved Chinese firms taking money
out of the country to Hong Kong, Macao, and offshore financial centres, and
bringing it back as FDI.8
China became a member of the WTO in 2001, and committed itself to
further tariff reductions in subsequent years. Further liberalization of the
Chinese FDI regime was also required in order to meet WTO membership
requirements. Before joining the WTO, China had required foreign investors
to meet certain local content requirement or balance their trade by offsetting
8
Estimates of the scale of round-tripping vary from around a quarter to more than a half of
total FDI flows to China in the 1990s and early 2000s (Xiao, 2004).
18
their imports with exports. Approval of FDI projects was also often contin-
gent on conditions regarding technology transfer or the establishment of
a research centre in China. The WTO’s Trade Related Investment Measures
Agreement outlawed many of these practices, and China agreed to abide by
these rules when it became a WTO member (Branstetter and Lardy, 2008,
pp. 651–2). Despite this, China’s FDI policy remained restrictive compared
to that of other countries.9
The decade that followed China’s accession to the WTO saw a substantial
increase in its integration with the global economy. Exports grew rapidly be-
cause Chinese exporters could now access foreign markets under the same
conditions as other WTO members. The average growth of exports dou-
bled from less than 15 per cent per annum in the 1980s and 1990s to over
30 per cent in the mid-2000s (UNCTADStat). Although imports also grew
rapidly, reflecting the growing demand for raw materials and the significant
imported content of many of the manufactured goods that China exported,
imports lagged behind exports and China’s trade surplus grew from around
$30 billion a year in 2002–4 to $300 billion by 2008 prior to the global
financial crisis.
Despite the comparatively restrictive FDI regime, the size and growth of
the Chinese economy has made it an attractive destination for foreign in-
vestment. Since joining the WTO, the stock of inward FDI in China has
increased more than eightfold in current dollars, from $203 billion in 2001
to $1,769 billion in 2019. In 2014 China was the largest recipient of FDI in
the world, ahead of the USA, although the latter regained the top position
in 2015 (UNCTAD, 2016, Figure 1.4).
Although China continues to be a major destination for FDI, the relative
significance of foreign firms in the Chinese economy has declined. The stock
of FDI as a share of GDP, and the share of foreign firms in industrial output,
peaked in 2003 (Huang, 2014, Figure 14.4; Davies, 2013, Figure 4). This does
not indicate a decline in foreign investors’ interest in China but rather the
increased competitiveness and growth of Chinese firms.
As a result of persistent trade surpluses and inflows of capital, China’s
foreign exchange reserves grew more than tenfold in less than a decade
(World Bank, World Development Indicators, n.d.). The bulk of the reserves
were held in US Treasury bills, but with low interest rates, this was not a
productive use of reserves, and the Chinese authorities have tried to di-
versify their holdings and find alternative ways of utilizing these surpluses
(see section 1.2).
9
According to the Organization for Economic Co-operation and Development (OECD) FDI
Restrictiveness Index, which covers a number of OECD and non-OECD countries, despite a sub-
stantial reduction in the index for China since 1997, it remained the second most restrictive
country after the Philippines in 2015 (OECDStat).
19
One of these ways was through encouraging OFDI. During the first period
of economic reform, foreign exchange shortages and the priority given to
domestic accumulation meant that OFDI policy was highly restrictive. In
the 1990s the approval procedures were gradually eased, and it became easier
for firms to obtain foreign exchange. However, in the aftermath of the 1997
Asian financial crisis, regulation was tightened once more, and it became
more difficult to obtain foreign exchange for overseas investment.
The Tenth Five Year Plan (2001–5) and the adoption of a series of de-
crees between 2000 and 2002 to regulate and promote OFDI (Shambaugh,
2013, pp. 174–6) marked the start of the ‘Go Out’ or ‘Go Global’ policy of
encouraging Chinese firms to expand abroad. Over the past two decades, gov-
ernment policy towards OFDI has evolved in a number of ways (Rosen and
Hanemann, 2009, pp. 11–12; Sauvant and Chen, 2014; Wong et al., 2020).
The state, although it can and still does intervene in high-profile invest-
ments, plays less of a directive role and acts more as a regulator, allowing
firms to make decisions on commercial grounds. The approval procedures
were gradually eased, and some of the decision-making decentralized to lo-
cal agencies. Access to foreign exchange for firms wanting to invest abroad
has been eased by the State Administration of Foreign Exchange (SAFE).
The government has also increased incentives and support to firms ex-
panding abroad, including finance from the China Development Bank (CDB)
and the Export-Import Bank of China (Exim Bank); subsidies through a
fund managed by the Ministry of Finance (MOF) and the Ministry of
Commerce; tax deductions and exemptions; investment insurance from the
China Export and Credit Insurance Corporation (SINOSURE); and the pro-
vision of information on investment opportunities to Chinese companies.
The Chinese government has also been extremely active in signing bilateral
investment treaties, and in June 2013, it had agreements with 125 countries,
second only to Germany (Sauvant and Chen, 2014, pp. 153–4).
The BRI promoted further international integration through its empha-
sis on reducing barriers to trade and investment; facilities coordination by
building roads, railways, ports, oil and gas pipelines, power grids, optical
cables and other communication networks; and the internationalization
of the Renminbi through currency swap arrangements with other coun-
tries. The geographic scope of the BRI was widened so that at the latest
count there were 145 countries signed up to the initiative.10 Substantial
amounts of funding were made available to finance BRI projects: $100 billion
was provided by the Asian Infrastructure Investment Bank, and $40 billion by
the Silk Road Fund (Yu, 2017, p. 2). It has also been reported that the China
Development Bank and Exim Bank have between them provided $110 billion
10
Figure reported for December 2021. See https://greenfdc.org/countries-of-the-belt-and-road-
initiative-bri/ (accessed 7 March 2022)
20
in loans for projects in BRI countries since 2013, and that the four Chinese
commercial banks have provided a further $150 billion over the same period
(Stevens, 2017, p. 3).
These changes, together with the growing capabilities of Chinese com-
panies, led to the rapid growth of OFDI since the early 2000s. This has
considerably narrowed the gap between inward and outward FDI in China
with outward flows exceeding inflows in some years. Despite the relaxation
of some of the approval procedures for OFDI, the state continues to have
a considerable influence on the scale and type of investment carried out
by Chinese firms.11 The incentives and other state support also provide an
important means of influencing outward investment.
1.2 The Financial Sector
During the pre-reform era, the People’s Bank of China was the only bank
in the country, referred to as the ‘monobank’. The first phase of reform saw
the break-up of the monobank in the early 1980s, to create four state-owned
commercial banks: the Industrial and Commercial Bank of China, which was
responsible for lending and deposit taking in urban areas; the Agricultural
Bank of China, which did the same in rural areas; the China Construction
Bank, focussing on project finance; and the Bank of China, which dealt with
foreign trade and foreign exchange transactions. The People’s Bank of China,
which had previously been both a central bank and a commercial bank un-
der the MOF, became a separate entity, transferring its commercial banking
operations to the ‘Big Four’ (Allen et al., 2008; Naughton, 2007, pp. 454–6).
The second phase of reform in the 1990s saw a new round of banking re-
forms beginning in 1994, to allow the commercial banks more independence
from the government so that they could operate on a more commercial ba-
sis. At the same time, three ‘policy banks’, the CDB, the Exim Bank, and the
Agricultural Development Bank, were created to carry out lending that was
specifically related to government policy objectives and which would not
necessarily generate a commercial rate of return. The CDB and the Exim Bank
later expanded their international operations becoming the major channels
for Chinese loans to Africa and Latin America.
A number of new joint-stock commercial banks (JSCBs) were also created
in the late 1980s and 1990s, many linked to local rather than central govern-
ment and with the participation of both SOEs and non-SOEs. Eleven JSCBs
were created between 1986 and 2001, which increased competition in the
11
Concerns over ‘irrational’ investments in sectors such as real estate, sports clubs, gambling
and entertainment that provided little benefit to the Chinese economy led to restrictions being
imposed on such investments in 2017 (Wong et al., 2020, pp. 20–1).
21
banking system (Naughton, 2007, p. 456). In 1998 the PBC was also restruc-
tured, and shortly afterwards, steps were taken to deal with problems arising
from the weakness of financial supervision and build-up of non-performing
loans in the state banking system (Naughton, 2007, pp. 103–4).
Further reforms to the domestic financial system took place after China
joined the WTO. In 2003 the regulatory functions of the PBC were trans-
ferred to a newly created China Bank Regulatory Commission. As a result
of its accession to the WTO, China agreed to allow foreign banks to operate
in China from 2006. However, other restrictions have meant that the share
of total banking assets controlled by foreign banks in China has remained
minimal.
The Chinese government attempted to insulate the domestic financial
market from international capital markets, maintaining tight capital con-
trols during the early years of economic reform up until the mid-1990s. There
was a dual exchange rate with a high official rate and a much lower market-
oriented rate that was available only to licensed foreign trade organizations.
In 1994 these two rates were unified, and two years later, the government lib-
eralized the current account, signing up to Article VIII of the International
Monetary Fund and announcing its intention to fully liberalize the capital
account by 2000.12 However, the East Asian Financial Crisis which broke out
in 1997 led to a renewed strengthening of capital controls to clamp down
on capital flight.
A new round of liberalization of capital flows began late in 2002, fol-
lowing China’s entry into the WTO. China’s Balance of Payments current
and financial account surpluses surged as both exports and inward FDI grew
rapidly. As a result China accumulated massive foreign exchange reserves
which came to US$3.9 trillion by 2014, the largest total of any country
(World Bank, World Development Indicators, n.d.). Initially much of this was
held in US Treasury securities, of which China has been the largest holder in
recent years. However, the return on these was very low, and the depreci-
ation of the dollar meant that the government was effectively suffering a
loss through holding them.13 In recent years, therefore, it has sought to di-
versify its overseas holdings and encourage investment in assets which can
generate higher returns. This partly explains the liberalization of outward
investment discussed in the previous section, but it has also involved the re-
laxation of controls on other forms of capital outflows. Two sovereign wealth
12
Article VIII of the International Monetary Fund requires currency convertibility for current
account transactions, i.e. primarily those involving transactions in goods and services.
13
Hanemann and Rosen (2013), Figure 8, shows that the implied return on Chinese foreign
assets in the late 1990s and early 2000s was only around 2 per cent. Santiso, ed. (2013) estimates
that in real terms, China was incurring large losses on its foreign exchange reserves, which came
to $125 billion in 2009 as a result of the depreciation of the dollar against the RMB.
22
funds, the China Investment Corporation and the SAFE Investment Com-
pany, were set up to invest a portion of the country’s reserves. China’s policy
banks and commercial banks also became increasingly involved in lending
abroad through medium- and long-term loans and export credits.
Despite the steps taken to liberalize foreign transactions, capital controls
remain pervasive in comparison with other emerging markets, and most
types of capital outflows either require approval or are subject to quota
restrictions (Bayoumi and Ohnsorge, 2013, p. 4). According to various in-
dicators of financial openness, China still has the least open financial sector
of any major economy (Kroeber, 2016, p. 148).
1.3 SOEs and Enterprise Reform
Prior to the start of the reforms, virtually all industrial production in China
was in the hands of the state, either through SOEs directly controlled by the
relevant government ministry or in ‘collective enterprises’ nominally owned
by the employees but in practice controlled by local government or other
state organizations. A key feature of the transformation of the Chinese econ-
omy has been the change in the role played by SOEs and privately owned
firms. It is clear that the private sector has become a much more significant
economic actor since 1978 (Lardy, 2014).
However, it is difficult to analyse this simply in terms of changes in the
shares of SOEs and private firms in output, employment or assets since
the boundary between them is blurred (Milhaupt and Zheng, 2015). First,
Chinese statistics are often contradictory, and the distinctions between dif-
ferent forms of ownership are not always clear, with definitions changing
over time.14 Second, changes in governance and managerial incentives may
be as or even more important as changes in formal ownership in understand-
ing the roles played by state and private firms, so that focussing merely on
the shares of different types of firms may at best only give a partial picture.
Third, firms which are formally privately owned may be highly dependent
on their links with the state: ‘private but not independent’ (Breslin, 2010,
pp. 23–5). Fourth, state-owned firms may vary considerably in terms of the
degree to which they are effectively controlled by the state.
In contrast to the ‘Big Bang’ approach used in the former Soviet Union
and Eastern Europe to transfer SOEs to the private sector, the Chinese govern-
ment adopted a gradualist approach, concentrating initially on changing the
14
See Lardy (2014, Chapter 3) for a detailed account of the problems of estimating the share
of Chinese production according to type of ownership.
23
way in which SOEs were managed and allowing alternative forms of owner-
ship to grow up alongside them. In the 1980s state control was decentralized
to the provincial, municipal, and township levels, which increased competi-
tion between different areas to attract resources (Guthrie et al., 2015, p. 77).
The government also reformed the incentive system, so that managers would
become more concerned with increasing the efficiency and productivity of
their firms. This gave rise to a more market-oriented approach in which man-
agers had increased power to make key economic decisions (Naughton, 2007.
pp. 310–13).
The adoption of a ‘socialist market economy’ in 1992 marked the start
of a decade of radical change during which the state sector was subject to a
wave of market-oriented reforms and SOEs were forced to adapt to market
competition, shut down or move out of the state sector. The process of the
corporatization of SOEs began in 1993, with the setting out of a blueprint for
adopting what was termed a ‘modern enterprise system’. In 1994 a Company
Law was passed, which provided a clearer separation between ownership
and management in SOEs and made it possible to create better incentive
systems for managers. In 1995 the Central Committee of the Communist
Party announced the ‘grasping the large, letting go the small’ policy (Breslin,
2010, p. 8). This maintained central government control of the ‘command-
ing heights’ of the economy while allowing competitive sectors that were of
no strategic significance to be opened up to the private sector. Many locally
owned SOEs and collective enterprises were privatized through employee
buyouts.15 Tens of thousands of ‘zombie’ SOEs that had been kept in pro-
duction by government loans and subsidies were closed down, and millions
of SOE employees laid off. The number of SOEs fell from more than 100,000
in 1993 to less than 30,000 in 2002 (Song, 2014, p. 189).
By the early 2000s, the process of replacing a planned economy with a
‘socialist market economy’ was largely complete, and most prices were de-
termined by market forces. This was followed by a period of consolidation.
In 2003 the State-owned Asset Supervision and Administration Commission
(SASAC) was created to hold the assets of central SOEs, and in 2004, local
SASACs were set up at provincial level to own local-level SOEs. SASAC oper-
ated as a holding company, and this tended to increase the SOEs’ emphasis
on profitability and shareholder value. SOEs were encouraged to merge and
consolidate into large groups. By 2010 the number of core companies owned
15
Although initially these involved worker buyouts, they were soon eclipsed by ‘elite’ forms of
ownership transfers to managers and relatives of government officials (Breslin, 2010, p. 9). Some
nominally collective firms were in any case in fact privately run firms registered as collectives to
take advantage of the benefits that this status brought. In 1998 the government issued a policy
to encourage such firms to ‘take off the red hat’, leading to a significant reduction in the reported
share of industrial production accounted for by collective enterprises in subsequent years (Song,
2014, p. 189).
24
by SASAC had been reduced to 121, but the total number of companies under
SASAC control came to 23,738, an average of almost 200 subsidiaries per core
company (Naughton, 2015, p. 53). In 2001 a target of creating between thirty
and fifty national champions by 2010 was set (Pearson, 2015, p. 33). Not all
national champions were state owned: some, such as the Shanghai Automo-
tive Industry Corporation, were owned by local authorities, and others, such
as Huawei, were privately owned.
The period saw further rapid growth of the domestic private sector, which
increased its share of industrial output from less than 10 per cent in 2001 to
almost 30 per cent in 2008.16 Foreign firms also continue to play a signifi-
cant role in China, and despite the decline in their share in recent years, they
account for 30 per cent of industrial output and almost half of Chinese ex-
ports. Over the same period, the share of SOEs in industrial output fell from
45 per cent in 2001 to less than 30 per cent in 2008 (Song, 2014, Figure 12.5).
Although there has been talk of ‘the state advancing and the private sector
retreating’ in the aftermath of the global financial crisis, what in fact appears
to have happened is that the pace at which the share of the private sector is
increasing has slowed down (Kroeber, 2016, pp. 106–7). The economic stim-
ulus created by the government to deal with the effects of the financial crisis
has been largely implemented through SOEs, giving them a boost (Fan and
Hope, 2013, p. 4).
Pearson (2015) identifies three tiers of business in China. The top tier is
made up of central SOEs in strategic industries such as defence, finance, oil
and gas, petrochemicals, electricity, telecommunications, coal, civil aviation,
and shipping. These industries are considered strategic in terms of national
security. Indeed Chinese political leaders have increasingly used both tradi-
tional national defence and ‘economic security’ to justify public ownership
in these sectors (Tsai and Naughton, 2015, p. 9). These companies control
the ‘commanding heights’ of the Chinese economy and are very large. In
2014, fifty-nine centrally owned Chinese SOEs were listed in Fortune’s Global
500 list of the largest firms in the world in terms of revenue (Kroeber, 2016,
p. 100).
A middle tier is made up of firms in sectors which have been classified
as ‘pillar industries’. These include heavy industrial machinery, automo-
biles, information technology, chemicals and pharmaceuticals, steel, and
base metals. In this tier there is a mix of ownership, including some cen-
trally owned SOEs, large provincial or municipally owned SOEs, and large
privately owned firms (Pearson, 2015, p. 34). Although on average, local SOEs
are much smaller than those under central control, some, such as Shanghai
Automotive Industry Corporation and Hebei Group, China’s largest steel pro-
ducer, are very large companies. Twenty-three local SOEs are included in the
16
These figures refer to firms with annual sales of more than RMB 5 million.
25
Fortune Global 500 list. There are also a number of large privately owned
companies such as Huawei and ZTE,17 and ten of these made it on to the
Fortune list (Kroeber, 2016, p. 100).
The bottom tier comprises the vast majority of firms in China and is made
up of largely competitive industries where barriers to entry are low. This tier
is made up of privately owned, mainly small and medium enterprises. The
state is not directly involved in this tier, acting primarily as a regulator to
protect consumers and workers (Pearson, 2015, pp. 41–2).
One of the major debates about SOEs in China concerns the extent to
which they have the autonomy to pursue their own commercial inter-
ests or are subject to political control by the government and are used
to fulfil the Chinese state’s strategic objectives (Kroeber, 2016, pp. 103–4).
On the one hand, both the corporatization of SOEs and SASAC’s empha-
sis on maximizing (government) shareholder value suggest that SOEs are
likely to pursue commercial goals. On the other hand, the continuing role
of the Communist Party in appointments to the top posts in many SOEs
and the ‘revolving door’ of personnel between the Party, the state apparatus,
and the SOEs suggest that SOEs’ strategies may well be subject to significant
political influence.
While the debate implies that SOEs are either instruments of the
party/state or no different from large private corporations, the evidence sug-
gests a more nuanced picture. First, SOEs in the middle tier are likely to be
allowed more autonomy than those in the top tier of strategic industries
(Pearson, 2015, p. 35). Second, those firms that come under provincial or
municipal authorities, if they are subject to state control, are more likely to be
affected by the strategies of those local authorities than to follow a centrally
mandated government policy (Breslin, 2010, pp. 25–6).18 Even in the case
of strategic sectors, SOE managers have been granted managerial autonomy
and are far from being simply instruments of central state policy.19
1.4 Labour, Wages, and Productivity
Under the centrally planned economy, there was no real labour market in
China. Urban labour was allocated to different work units by the Bureau
17
ZTE is sometimes regarded as an SOE and sometimes as a private company (Milhaupt and
Zheng, 2015, pp. 674–6).
18
Although as Pearson (2015, p. 40) points out, central government does have some leverage
over locally owned SOEs because the National Development and Reform Commission of the
People’s Republic of China (NDRC) maintains the formal right to approve large investments.
19
For further evidence of the extent of managerial autonomy of SOEs, see Milhaupt and Zheng
(2015, pp. 676–83).
26
of Labour and Personnel in accordance with the plan. The work unit was
not only responsible for paying wages to the workers but also for provid-
ing for their health, housing, retirement income, and other social amenities.
This system was referred to as the ‘iron rice bowl’. It ensured full employ-
ment and job security. Workers often spent their entire working lives in
the same unit, and labour mobility was very limited. Wages were set by the
government, according to a national wage grid, which kept differentials low
(Freeman, 2014). In the rural areas, peasants were organized into communes,
brigades, and work teams. The household registration system (hukou) tied
people to their place of origin and was used, particularly after the failure of
the Great Leap Forward (1958–60), to restrict rural-urban migration, which
came to an almost complete halt in the 1960s (Naughton, 2007, pp. 114–16).
There was only limited change in the way that the urban labour market
functioned during the first phase of reform after 1979. Although SOEs were
allowed some flexibility in terms of hiring new workers, they were prevented
from laying off workers, and official government pay scales remained the
main determinant of workers’ pay (Cai et al., 2008, p. 171). The main change
during the first phase of the reforms was the substantial increase in off-farm
employment in rural areas as a result of the growth of TVEs.20 Wages were
kept low, and productivity growth was mainly driven by the reallocation of
labour from low-to higher-productivity sectors, particularly from agriculture
to non-agricultural activities (Yao, 2013, Table 5). This situation changed in
the second phase of the reform from 1992. The demand for labour increased,
and many city governments became aware of the benefits of migrant work-
ers. From the mid-1990s, it became easier for migrants to stay and work in
urban areas without possessing a formal urban hukou. As a result there was
a continuous stream of migrants to the main industrial centres (Yao, 2013,
pp. 66–7).
In 1994 the government passed a Labour Law which provided a unified
framework for labour relations. While on the one hand, it protected core
labour rights, it also allowed for no-fault dismissal of workers where eco-
nomic circumstances required it (Cai et al., 2008, p. 174). This set the scene
for the economic restructuring that took place in the late 1990s, when, as
discussed above, millions of SOE workers lost their jobs. Unemployment
increased dramatically to reach over 11 per cent amongst urban residents
in 2002 (Cai et al., Table 6.3). Employment was no longer guaranteed, and
labour mobility increased significantly. By the turn of the millennium, the
administrative system under which labour bureaus had assigned workers to
20
According to Cai et al. (2008, p. 171), employment by TVEs increased from 28 million in
1978 to 70 million in 1985 and 123 million by 1993.
27
jobs had largely disappeared, to be replaced by market forces as the key de-
terminant of employment and wages (Freeman, 2014, p. 106). The ‘iron rice
bowl’ had been shattered.
Despite the development of a labour market, the wages of unskilled work-
ers in urban areas did not increase significantly, only starting to rise after
2000 (Freeman, 2014, p. 110; Wang and Weaver, 2013). Several factors helped
to keep unskilled wages low in the 1980s and 1990s. First, the population
of working-age persons grew rapidly and significantly faster than the total
population during the 1980s and 1990s (Naughton, 2007, p. 174). Second,
despite the hukou system, there was substantial rural-urban migration dur-
ing the period.21 Third, in the late 1990s, the available labour force included
large numbers of workers dismissed by SOEs.22
Productivity growth accelerated significantly after 1990, particularly in
manufacturing (Yao, 2013, Figure 12). Both the growth of foreign firms,
which brought with them more advanced technology and increased SOE pro-
ductivity as a result of changes in management, and the dismissal of millions
of redundant workers contributed to the increase in manufacturing produc-
tivity in the 1990s. Since wages lagged behind productivity growth, unit
labour costs fell significantly during the 1990s, contributing to the increased
competitiveness of Chinese industry (Yao, 2013, p. 67).
In the twenty-first century, there have been changes in these conditions.
The rate of growth of the working-age population slowed down, and the
total numbers peaked in 2013 (Wildau, 2015). Although migration from rural
areas continued, the growth rate of migrant workers slowed down compared
to that in the 1990s (Li et al., 2012, p. 69). Finally, the number employed in
SOEs has stabilized since 2003 and so no longer constitutes a major source
of surplus labour (Yueh, 2013, Table 3.2).
These factors combined to create a situation in which labour shortages
began to emerge in the more industrialized coastal areas. These were first
identified following the Spring Festival holiday of 2003 and have continued
since then (Pringle 2013). There was a sharp increase in labour militancy
amongst private-sector migrant workers, reflected in an increased number of
strikes as workers became aware of their greater bargaining power (Elfstrom
and Kuruvilla, 2014). Following a wave of strikes in 2004 and 2005, the city
authorities in Shenzhen increased the minimum wage substantially in 2005
21
There are numerous estimates of the level of migration based on different sources and defini-
tions. (See Cai et al., 2008, Table 6.7 for a number of these estimates.) According to the population
censuses, the so-called long-distance ‘floating population’ increased from 7 million in 1982 to
22 million in 1990 and 79 million in 2000 (Naughton, 2007, p. 130).
22
Again, there are different estimates of the numbers involved. The official figures indicate that
28 million SOE workers lost their jobs between 1993 and 2003. Naughton (2007, p. 301) suggests
that this is an underestimate, and Song (2014, p. 191) gives a figure of 44 million between 1995
and 2003.
28
and 2006 (Pringle, 2011, p. 103). Wage increases also spread to other parts of
the country.23
Productivity continued to grow during this period as firms faced increased
competition and gained more access to advanced technology following
China’s accession to the WTO. The bulk of productivity growth since 2000
has been the result of increases within sectors, rather than structural shifts
to more productive sectors (Molnar and Chalaux, 2015; Yueh, 2013, p. 64).
However, since 2003, wages have grown faster than productivity (Ceglowski
and Golub, 2012, Table 1). As a result unit labour costs in China have in-
creased in recent years, giving rise to a lot of discussion about ‘[t]he end of
cheap Chinese labour’ (Li et al., 2012).
1.5 Natural Resources, Energy, and the Environment
A major downside of China’s remarkable economic growth since the late

1970s has been the environmental degradation that it has caused.24 Prob-
lems of air pollution in Chinese cities were highlighted in the run-up to
the 2008 Olympic Games in Beijing, when many polluting factories were re-
quired to suspend production in order to ensure an acceptable air quality. In
January 2013 very severe smog (referred to as ‘the Airpocalypse’) descended
on Beijing, with the concentration of particulates in the atmosphere reach-
ing thirty times the level considered safe by the World Health Organization
(Kroeber, 2016, p. 155). Beijing is by no means the most polluted city in
China. Almost 90 per cent of the large cities in the country failed to meet
air quality standards in 2014, according to the Ministry of Environmental
Protection, with the worst pollution in a number of cities in the province of
Hubei, with its concentration of heavy industries (China Daily, 2015).
23
There has been intense debate over whether or not China’s economy has reached the ‘Lewis
turning point’, when wages start to rise as the labour surplus in rural areas disappears. Nobel-
winning economist Sir Arthur Lewis argued in the 1950s that economic growth involves a transfer
of surplus labour from low-productivity agriculture to a more productive industrial sector (1954).
The existence of ‘unlimited supplies of labour’ in the rural areas meant that industrial wages can
be kept low and profits reinvested in industry. Eventually as the surplus labour in agriculture is
absorbed, the economy reaches a turning point beyond which agricultural incomes and industrial
wages start to rise. While some economists point to the increase in urban wages as evidence that
the economy has already reached this turning point in China, others argue that there is still
significant surplus labour in rural areas. Various attempts have been made to resolve this apparent
paradox.
24
Various estimates have been made of the costs of environmental degradation in China,
which vary from 2–6 per cent of GDP (World Bank, 2007).
29
Water pollution has also been a major problem in China. Many of the
country’s river systems are highly polluted as a result of discharges of un-
treated industrial and municipal waste. The water quality of seven major
Chinese rivers deteriorated significantly up to the early 2000s (He et al.,
2012, Figure 1). In 2005 an explosion at the Jilin Petrochemical Corporation
led to a major spill of toxic chemicals (primarily benzene) into the Songhua
River. This is only the most dramatic example of such pollution incidents
in China in recent years. Problems of water quality are also accentuated by
water shortages, particularly in Northern China.
Internationally, China’s growth has led to increasing attention being
given to its role in greenhouse gas (GHG) emissions. In 2007 it became the
world’s biggest emitter of GHGs, overtaking the USA, although emissions per
head of population remain much lower than in the USA.25 Efforts to reduce
the energy intensity of output and the share of coal in the energy mix have
succeeded in reducing carbon emissions per unit of GDP since 2005, but total
carbon emissions from China continued to rise until they were temporarily
interrupted by the Coronavirus pandemic in 2020.
Rapid economic growth inevitably brings with it increased levels of emis-
sions and waste production, as well as increased demand for energy and
resources. However, the extent to which it does so depends on the composi-
tion of output and on the technologies used in production.26 These in turn
can be affected by a country’s overall strategy of development and the en-
vironmental policies that it applies. An emphasis on economic growth and
industrialization at all costs, with little attention to the environmental im-
pacts, tends to lead to high levels of environmental degradation and resource
depletion.
At the start of the economic reforms in China, a number of factors con-
tributed to high levels of environmental degradation, resource use, and
energy consumption relative to the country’s level of output. The emphasis
on industrialization in the Maoist period meant that the share of industry
in total output was far greater than that of other countries at the time, and
that less polluting service sectors were much smaller. Moreover, the type of
industry that developed in China tended to be heavy industries such as steel
and cement, which are the most polluting and energy and resource inten-
sive within the industrial sector. On top of this, the bulk of the country’s
power came from coal, the most polluting type of energy. The SOEs, which
accounted for the bulk of production, also tended to be inefficient in their
25
It should also be noted that a significant proportion of Chinese emissions are generated in
the production of goods for export to other countries rather than for local consumption.
26
There is an extensive literature on this which distinguishes between the scale, composi-
tion, and process/technique effects in analysing the environmental impacts of economic growth
(Grossman and Krueger, 1995; Frankel, 2003).
30
use of energy and raw materials. Environmental regulation was not a priority
under central planning.
During the 1980s and 1990s, the changes in the Chinese economy had
two opposing effects. On the one hand, the acceleration of economic growth
increased demand for energy and resources and caused higher levels of pol-
lution; on the other, changes associated with the economic reforms led to
a reduction in resource- and energy intensity and in emissions per unit of
output. There was a shift from heavy industry to light manufacturing of
consumer goods, which is less polluting and energy and resource intensive
(UNCTAD, 2005, Ch. II; Naughton, 2007, Chapter 14).27 Greater efficiency in
SOEs also contributed to a reduction in resource and energy intensity. As a re-
sult the level of emissions grew less rapidly than GDP. Nevertheless, this was
not sufficient to offset the effects of the growth in output, so that the demand
for energy and resources and the absolute level of emissions increased.
Although the first Environmental Protection Law of the People’s Repub-
lic of China was passed in 1979, environmental policy had a very limited
impact during the 1980s and 1990s. The emphasis was very much based on
end-of-pipe measures (He et al., 2012). The National Environmental Protec-
tion Agency was only given ministerial status in 1998, when it was renamed
the State Environmental Protection Administration (SEPA). Although several
environmental measures and regulations were passed by the central gov-
ernment their implementation depended on local governments, which had
little incentive to prioritize environmental protection and tended to focus
on promoting their region’s economic development (Zheng and Khan, 2013,
pp. 759–61).
Significant environmental measures tended to come about in reaction to
major disasters. For example, in 1998, severe flooding in the Yangtze and
Yellow River basins was attributed to deforestation as a result of the extensive
logging of upstream watersheds. This led to the government setting up the
Natural Forest Protection Program in 2000, which banned logging over a
wide area and undertook the reforestation of affected watersheds.
The fact that pollution and energy use did not grow as rapidly as output
in this period was largely an indirect consequence of the economic reforms
rather than a result of government environmental policies. This situation
began to change in the late 1990s, following an increased level of invest-
ment, particularly in infrastructure, which meant that the leading industrial
sectors shifted once more from light manufacturing to heavy and chemical
industries (Naughton, 2007, Chapter 14). These industries tend to be more
polluting and resource- and energy-intensive, so that the gap between the
27
The World Bank estimated that changes in the structure of production accounted for about
two-thirds of the total reduction in energy intensity (1997, p. 47).
31
growth of GDP and environmental impact narrowed. Since changes in the

structure of the economy were tending to increase the negative environmen-
tal impact, the need for improvements in technology to offset these effects
also increased.
A more proactive approach to environmental policy has emerged since
2002 (He et al., 2012). In that year, the Cleaner Production Promotion Law
marked a shift in environmental management away from end-of-pipe con-
trols to a greater emphasis on pollution prevention and the notion of a
‘circular economy’. In 2005 a target was set to reduce the energy intensity
of GDP by 20 per cent by 2010, and to move away from heavy reliance on
coal (Kroeber, 2016, p. 160). The eleventh and twelfth Five Year Plans for
2006–10 and 2011–15 set a new tone, with planned investment in renewable
energy and environmental infrastructure and a series of new environmental
laws and policy instruments (Mol, 2011). In 2008 SEPA became the Ministry
of Environmental Protection, although its influence was still subordinated
to the economic interests represented by institutions such as the National
Development and Reform Commission, other ministries (e.g. industry and
agriculture), and the SOEs.
Over time there has been a growth in environmental activism in China.
Demonstrations and protests around environmental issues have become
more frequent, and there has been an increase in the number of environmen-
tal nongovernmental organizations. Environmental problems are receiving
more media coverage, and the costs of economic growth are getting more
attention (Zheng and Kahn, 2013). This has contributed to more proactive
government policy on the environment.
One of the strategies of the Chinese government has been to increase
the use of renewable energy,28 which has made China a world leader in
hydropower, wind turbines, and solar panels. In 2012 its renewable energy
capacity was roughly equal to that of the USA and Germany combined (Wang
and Zadek, 2016, Table 6). China has also become a major exporter of renew-
able technologies, and is the leading global investor in renewable energy
infrastructure. However, domestically, it continues to rely heavily on highly
polluting coal-fired power stations for much of its electricity output.
It is one of the paradoxes of China’s recent development that while it
still suffers from serious environmental problems at home and contributes
to global environmental problems through its emissions of GHGs, it is also
playing a leading role in the export of clean technologies around the world.
However, there are signs of environmental improvement in some areas
28
This is also seen as a means of achieving domestic energy security in the face of growing
demand (Zheng and Kahn, 2013, p. 758).
32
within China. Air quality in major Chinese cities has improved somewhat
in recent years, with lower atmospheric concentrations of sulphur dioxide
and particulates (PM10 ) (Zheng and Khan, 2013, Figure 1; World Bank and
Development Research Centre, 2013, Figures 3.11 and 3.12). However, major
challenges remain. The Chinese government is now giving more priority to
environmental protection, as reflected in a new Environmental Protection
Law that came into force in 2015, and measures to ensure more effective
implementation of its policies such as incorporating environmental aspects
into the performance evaluation of local officials, increasing fines for non-
compliance, and expanding the right to information (UNDP China, 2015,
p. 12). It is no longer the case that the Chinese strategy is one of growth
at all costs. However, even with the ‘new normal’, with its emphasis on the
quality as opposed to the rate of growth, Chinese demand for resources and
energy will continue to grow in absolute terms for the foreseeable future.
1.6 Conclusion
The Chinese economy has been radically transformed since 1979, from a
closed, centrally planned economy to a much more market-based economy,
which is highly integrated into the global economy in terms of trade and
financial flows. In terms of ownership, it has changed from an almost ex-
clusively state-owned to a mixed economy in which both private domestic
and foreign capital play significant roles. It has gone from a low-wage, low-
productivity economy, in which workers remained with the same production
unit and were guaranteed a basic standard of living via the ‘iron rice bowl’, to
one in which there is a high degree of labour mobility, rapidly growing pro-
ductivity, and an increasingly active labour movement which has seen wages
rise in recent years. These impressive changes have not been without signif-
icant costs in terms of increased inequality and environmental degradation
within China.
China’s transformation has also had major impacts on the global econ-
omy over the past four decades. The next four chapters discuss these in detail.
Chapter 2 looks at the impact of China’s emergence as a global manufactur-
ing powerhouse. One of the impacts of China’s industrial growth has been to
create massive demand for raw materials, and this is discussed in Chapter 3.
Since the start of the millennium, Chinese firms have been ‘going out’, set-
ting up subsidiaries and carrying out projects around the world, and the
implications of this are analysed in Chapter 4. Finally, China has also be-
come increasingly involved in international finance as an investor, lender,
and aid donor, as discussed in Chapter 5.
33
2
The Workshop of the World
One of the most visible signs of China’s re-emergence as a global economic

power has been the growth of Chinese industry, which has played a key
role in China’s economic development over the past four decades. Since the
late 1970s, Chinese industrial production has grown more than fortyfold,
increasing its share of global manufacturing from less than 2 per cent in
1980 to more than 25 per cent in 2019 (see Figure 2.1). It now produces
50 per cent of the world’s steel (Lu, 2016), 60 per cent of its cement, 60
per cent of all shoes, 70 per cent of mobile phones, and 80 per cent of air
conditioners (Economist, 14 Mar. 2015).
China’s role as the ‘workshop of the world’ is also reflected in the growth
and scale of its exports of manufactures. In 2009 it overtook Germany as the
world’s largest exporter, and by 2015, it was responsible for almost a fifth of
global exports of manufactured goods, although it has fallen back slightly
since then (see Figure 2.1). Any cursory glance at the origins of the goods
in our shops will turn up countless examples of products labelled ‘Made in
China’.
The first section of this chapter describes the ways in which Chinese man-
ufacturing has grown and changed over the various phases of economic
reform since 1979. The remaining parts of the chapter look at the factors
that explain the competitiveness of manufacturing in China, the key char-
acteristics of Chinese manufactured exports, and the ways in which China
is integrated into global production networks. The chapter concludes with a
brief discussion of the impact of China on the global economy through its
effects on the production, export, and prices of manufactured goods.
2.1 The Development of Chinese Manufacturing
How then did China go from being a minor industrial power at the
end of the 1970s to become the ‘workshop of the world’ in the early
35
30
25
20
15
10
0
1980 1985 1990 1995 2000 2005 2010 2015 2019
MVA Exports
Figure 2.1. China’s share of world manufacturing value added and world manufac-
tured exports, 1980–2019 (%)
Source: MVA–UNIDO, Yearbook of Industrial Statistics, various years; Exports—WTO Statistical
Database.
twenty-first century? China was already relatively industrialized for a

low-income country in the 1970s, with industrial production accounting
for almost half of total output in 1978 (Naughton, 2007, p. 154). This
was mainly in the hands of state-owned enterprises (SOEs) and biased to-
wards heavy industries such as cement, steel, and chemical fertilizers, which
were capital intensive and technologically relatively complex. Production
of simple labour-intensive consumer goods such as clothing and footwear
was limited. Consumer demand was repressed by high taxes on goods re-
garded as luxuries, such as electric fans and wristwatches, and a number
of products including soap, cloth, and bicycles were rationed (Naughton,
2007, p. 81). Industrial output was characterized by the problems com-
mon in centrally planned economies, such as a focus on quantity rather
than quality, lack of competition, obsolete products, and low levels of ef-
ficiency in terms of both resource use and labour productivity. In the late
1970s, manufactured exports were minimal, and they consisted mainly of
textiles.
The first phase of economic reform in China produced significant changes
in the manufacturing sector driven by domestic demand. There was a rapid
growth of production by township and village enterprise (TVEs) to meet
the pent-up demand for consumer goods. Although collectively owned,
35
TVEs were not subject to the same level of state control as SOEs, and their
growth increased market competition. They were also much more labour
intensive. As incomes increased in rural areas and growing numbers of
workers migrated to urban areas in the 1980s, demand for simple consumer
goods grew. As a result there was a significant shift in the structure of Chinese
manufacturing, away from heavy industry and towards the production of
labour-intensive consumer goods (Naughton, 2007, pp. 329–32).
Neither exports nor foreign direct investment (FDI) played a major role in
manufacturing growth in the 1980s. Although manufactured exports grew
five-fold in the 1980s, this was from a low base, and China’s position in
global trade remained marginal, accounting for less than 2 per cent of world
exports (see Figure 2.1). Even a decade after China adopted its open-door
policy, foreign-invested firms accounted for less than 3 per cent of the value
of industrial output (Davies, 2013, p. 17), and 12.5 per cent of China’s to-
tal exports in 1990 (Lardy, 1995, Table 6). The bulk of FDI consisted of
Hong Kong and Taiwanese firms relocating labour-intensive manufacturing
activities in industries, such as textiles, garments, footwear, and toys, to the
southern coastal provinces, including the Special Economic Zones (SEZs).
Although manufacturing output grew rapidly in the 1980s, this was not
associated with rapid growth in labour productivity, which increased little
prior to 1990 (Yao, 2013, p. 35). Output also failed to keep pace with the
growing demand for consumer goods, which led to an increase in inflation
in 1988–9.
During the second phase of reform, China embarked on a major effort to
attract FDI in the early 1990s. There was a substantial increase in foreign in-
vestment in manufacturing, as foreign firms were now given access to the
domestic market. As incomes rose, consumer demand shifted from basic
items such as food and clothing to durable consumer goods such as radios,
TVs, and refrigerators. This led to a wider range of investors from the USA,
Europe, and Japan entering China so that by the early 2000s, foreign-invested
firms accounted for around 30 per cent of manufacturing output (Song, 2014,
Figure 12.3).
Foreign transnational corporations (TNCs) brought technologies that
were more advanced with them, which helped to increase productivity in
manufacturing. Also, as noted in Chapter 1, a major shake-out of SOEs oc-
curred during the second phase of reform, which led to large numbers of
workers being laid off in the late 1990s, further contributing to increased
productivity.
The surge in inward FDI in the early 1990s also contributed to an ac-
celeration of the growth of exports. The share of foreign-invested firms
in exports increased from less than a third in 1995 to a half by 2001
(Lardy, 2014, Figure 3.3). By the early 2000s, more than a quarter of
36
industrial production was being exported.1 China’s share of world exports

of manufactures increased from less than 2 per cent in 1990 to almost 5 per
cent by 2000 (Figure 2.1). The composition of exports also shifted, with a
growing proportion made up of electrical and electronic products assembled
in China, as opposed to simpler consumer goods.
Another factor that contributed to industrial growth in the 1990s was
a major revival in infrastructure investment. During the 1980s this had
lagged behind economic growth, but in 1993, there was a significant in-
crease to around 6 per cent of gross domestic product (GDP). This received
a further boost in the late 1990s, when the Chinese government increased
public investment to offset the effect of the Asian Financial Crisis of 1997
(Naughton, 2007, Figure 14.3).
Since China joined the World Trade Organization (WTO) in 2001, invest-
ment has become a major driver of growth. The share of gross fixed capital
formation in GDP has increased from an average of 33 per cent in the 1990s
to 39 per cent between 2001–8 and then to 45 per cent from 2009–14 as a
result of the fiscal stimulus introduced by the government in response to the
global financial crisis (World Bank WDI database, n.d.). This reflected heavy
government investment in infrastructure, including the expansion and mod-
ernization of ports to support the growth of exports, in electricity generation
and in telecommunications. The highway network was also extended to the
interior of the country (Kroeber, 2016, pp. 83–4).
Industrial policy sought to create a more integrated industrial structure by
promoting local supply chains to reduce dependence on imported inputs. In
the case of exports, there was a decline in the share of processing trade in
total exports, and an increase in the proportion of Chinese inputs incorpo-
rated into exported products. This helped increase backward linkages within
the manufacturing sector. As a result manufacturing has become increas-
ingly capital intensive and oriented towards heavy and chemical industries
(Ferchen, 2011).
Another aspect of industrial policy in the period since China joined the
WTO was an effort to upgrade local technology. This involved providing sub-
sidies for research and development (R&D) and rewards for filing patents, as
well as requiring foreign investors to transfer technology to Chinese firms as
a condition of entry to China. In 2006 this was launched under the rubric
‘Indigenous Innovation’. R&D as a share of GDP more than doubled, from
less than 1 per cent in 2000 to just over 2 per cent in 2013 (World Bank,
WDI, n.d.).
1
A significant proportion of these exports had a high level of import content and so exports
were not as significant in terms of the value added in the manufacturing sector in China as their
share of industrial output might suggest.
37
Joining the WTO in 2001 gave a significant boost to China’s exports of

manufactures. Whereas exports had grown by 14.6 per cent per annum be-
tween 1991 and 2001, this increased to 27.3 per cent between 2002 and 2008,
before being hit by the global financial crisis (Yao, 2013, p. 24). As a result
China’s share of world exports of manufactures rose from just over 5 per cent
in 2001 to 12.7 per cent in 2008 (WTO Database, n.d.). Despite the global
slowdown after 2008, Chinese exports continued to grow, albeit at a slower
rate, so that by 2015, China accounted for 18.9 per cent of world exports of
manufactures (Figure 2.1).
Although China’s share of world exports of manufactures increased, this
did not mean that its manufacturing became more dependent on exports.
The share of industrial output that was exported remained constant at
around a quarter up to the global financial crisis, and then it fell to less than
a sixth from 2011 onwards.2 The structure of exports continued to evolve
away from traditional labour-intensive products such as textiles and cloth-
ing, towards electrical and electronic products, other types of machinery,
and iron and steel.
Whereas foreign-owned firms were the main drivers of industrial produc-
tion in the 1990s, the domestic private sector became increasingly significant
in the 2000s. The share of industrial output accounted for by domestic busi-
nesses increased from less than 10 per cent in 2001 to around 30 per cent
a decade later (Song, 2014, Figure 12.5). Foreign firms’ share of industrial
output peaked in 2003 at around 36 per cent (Davies, 2013, p. 17), and was
overtaken by private Chinese firms in 2009 (Song, 2014, Figure 12.5).
Although local governments continued to compete to increase inflows of
FDI, the priority for central government shifted to improving the quality
of FDI, particularly in relation to technology. The large tax advantages that
foreign firms received, compared to locally owned companies, began to be
phased out from 2008. Leading TNCs were encouraged to locate R&D fa-
cilities in China, and high-technology sectors were targeted for investment
(Davies, 2013, p. 15).
This period was one of increasingly intense competition as Chinese pri-
vate firms competed with both foreign investors and SOEs in some sectors.
High levels of investment led to a massive expansion of industrial capac-
ity, particularly in large-scale capital-intensive industries. This has led to the
emergence of excess capacity in a number of industries in China including
steel, cement, flat glass, aluminium, leather, and textiles. The high level
of competition and overcapacity have increasingly led firms to seek new
markets overseas where there is less competitive pressure and to export
underutilized plant and equipment.
2
Own calculation from UNIDO data on industrial output and WITS data on exports according
to the International Standard Industrial Classification (ISIC).
38
Since around 2012 the shift to a ‘new normal’ in China has marked
a new phase in terms of the country’s industrial development. Economic
rebalancing internally involves an increase in the share of GDP going to
consumption, as opposed to investment and exports. Externally it involves
a reduction in the large current account surpluses which China generated in
the previous phase of development and which have been a cause of trade
tensions with other countries.
As far as industry is concerned, the ‘new normal’ implies a slower rate of
growth, with services accounting for an increasing share of GDP. It also puts
more emphasis on innovation and improving technological capabilities, as
opposed to high levels of investment in fixed assets. It will see China moving
up the value chain to obtain sustained productivity growth, a strategy set
out in the twelfth Five Year Plan (World Bank, 2014, p. 30) and developed
further with the launch in 2015 of ‘Made in China 2025’, an ambitious plan
to build one of the world’s most advanced and competitive economies based
on innovative manufacturing technologies (Wübbeke et al., 2016). Although
the rate of growth of both manufacturing output and exports is likely to be
lower than in the past, they will continue to grow at a significant rate with
major impacts on the global economy.
2.2 What Makes Chinese Manufactures So Competitive?
What factors have made it possible for China to increase its share of the world
market for manufactured products so dramatically since the early 1990s? In
other words, what makes China so competitive internationally? This is a
source of considerable debate, in particular over the extent to which export
growth has been stimulated by an undervalued exchange rate and ‘unfair’
trade practices by the Chinese government (Kroeber, 2016, pp. 59–64). The
issue is highly political because many countries have used anti-dumping
measures against Chinese exports.
2.2.1 Wages and Productivity

A major factor in the competitiveness of Chinese industry has been relatively
low wages, combined with significant technological catching-up with more
developed economies. In 1978, when China began to open its economy, the
average level of urban wages was only 3 per cent of US wages, and it was
considerably below that in other Asian countries such as Thailand and the
Philippines (Li et al., 2012, p. 57). Wages increased very little in USD terms
for the next two decades, and only began to increase significantly after 2000.
Meanwhile productivity in manufacturing grew rapidly in the 1990s as
39
a result of high levels of investment, reforms of SOEs, increased imports

of technology, and the growing involvement of foreign investment (see
Chapter 1).
As a result unit labour costs in Chinese manufacturing fell significantly,
both in absolute terms and relative to those in other countries.3 However,
since the mid-2000s, the trend has reversed, with wages rising faster than
productivity, and unit labour costs rising in both absolute and relative terms.
Despite this, unit labour costs in China remained much lower than those in
the USA or neighbouring Asian countries, such as Malaysia, Thailand, and
the Philippines (Ceglowski and Golub, 2012).4
2.2.2 Economies of Scale and Scope

Other factors which are often cited as contributing to the competitiveness
of Chinese production are the size of the domestic market and the devel-
opment of specialized industrial clusters. These can reduce production costs
through economies of scale and scope. However, since a large proportion of
Chinese exports of manufactures comes from firms which produce mainly
or exclusively for export, these are unlikely to be affected by the size of the
Chinese market. Indeed it is very likely that products produced for export
are quite different in terms of quality and specifications from those sold on
the domestic market.
The advantages of industrial clusters, which characterize some Chinese
exporting industries, are more significant.5 There are many examples of spe-
cialized industrial clusters of for instance women’s underwear in Shantou
(Guangdong), electronic products in Dongguan (Guangdong), transport
equipment in Jinan (Shandong), and lighters in Wenzhou (Zhejiang). One es-
timate suggests that clustering explains almost a sixth of the price advantage
of Chinese products (Navarro, 2006, Table 5).
The factors considered so far reflect real cost advantages over its com-
petitors that China enjoys. However, there is a commonly heard view that
increased competition from Chinese goods is not just a reflection of eco-
nomic realities but is largely created by ‘unfair’ practices on the part of the
Chinese government. These views have been very prominent in the USA over
the past decade in response to the growth of imports from China and the
large US trade deficit with China. This has led to accusations that China
3
Between 1990 and 2009, unit labour costs in manufacturing fell by 66 per cent (Yao, 2013,
p. 67). Unit labour costs fell from over 70 per cent of US levels in the early 1980s to about
30 per cent in the mid-1990s (Ceglowski and Golub, 2007 cited in Li et al., 2012, p. 63).
4
Since 2009 there have been significant increases in wages in China, which are likely to have
reduced this advantage in terms of labour costs.
5
For a discussion of industrial clusters in China, see Frattini and Prodi (2013).
40
is a ‘currency manipulator’ and unfairly subsidizes exports and dumps its

products in overseas markets.
2.2.3 The Exchange Rate

The extent to which exports are competitive does of course depend not only
on domestic cost conditions but also on the exchange rate. Many commenta-
tors have argued that China has maintained an undervalued exchange rate,
and that this has been a crucial factor in its export success. Indeed, in recent
years, the Chinese government has come under pressure, particularly from
the USA, to revalue its exchange rate in the hope that this would reduce the
US trade deficit with China.
The impact of the exchange rate on Chinese exports should not be ex-
aggerated. The rapid growth of exports started well before complaints were
made about undervaluation. The exchange rate before 1979 was highly over-
valued, and a substantial devaluation occurred as part of the liberalization of
the 1980s. In 1994 the RENMINBI (RMB) was pegged to the USD, and the rate
remained basically unchanged for the next decade. The appreciation of the
Japanese yen relative to the USD in the 1990s significantly increased costs in
Japan and made China a more attractive base for production.
In the first decade of the millennium, the RMB became undervalued rela-
tive to the USD. Although the exact extent of the undervaluation is difficult
to calculate, some estimates suggest that it could have been about 20 per cent
(Cline and Williamson, 2008 quoted in Knight and Ding, 2012, p. 282).6
Since 2005, when the peg to the USD was removed, the RMB has appreci-
ated considerably (Yao, 2013, pp. 96–7). In 2015 the IMF announced that the
Chinese currency was no longer undervalued (Mitchell and Donnan, 2015).
The extent to which undervaluation contributed to the boom in Chi-
nese exports during the 2000s is unclear. When China joined the WTO in
2001, this gave much better access to foreign markets because of lower tariffs,
which would have boosted exports anyway. Also, as discussed in section 2.3,
because a large proportion of Chinese exports were made up of imported in-
puts, part of the advantage of an undervalued exchange rate would be lost
because it would make imports more expensive in local currency.7
6
Chin (2013) shows that estimates of RMB undervaluation vary considerably depending on
the methodology and data used. By way of illustration of the difficulties of arriving at an exact
figure, Morrison and Labonte (2013, p. 21) quote four studies of the extent of undervaluation of
the RMB relative to the USD in 2009 at 12, 25, 40, and 50 per cent.
7
Cheung et al. (2010) find no relationship between the RMB real exchange rate and exports
in aggregate. However, when they separate out ordinary exports from processing exports (see
Chapter 1 for an explanation of the distinction), they find that the exchange rate does have the
expected impact on ordinary exports. However, in the case of processing exports, the relationship
is the opposite to what would be expected, with a depreciation of the exchange rate leading to
41
2.2.4 Government Subsidies

The other common complaint against China is that it subsidizes producers
in various ways enabling them to export at below the true cost of produc-
tion. As well as direct export subsidies, which are not permitted under WTO
rules, critics point to other government policies that also help to reduce costs
for exporters. These include subsidized water and energy, and the provision
of land cheaply or for no cost at all. SOEs, in particular, were also provided
with cheap loans and were subject to a soft budget constraint. Some crit-
ics also regard the system of value added tax (VAT) rebates for imported
inputs as an export subsidy (Navarro, 2006, p. 9). In fact, although pro-
viding access to imported inputs at world market prices free of any import
duties and taxes was crucial in enabling certain export industries to develop
in China, the VAT rebate system does not constitute ‘unfair’ support for
exporters. Indeed, not providing such rebates would in effect be a tax on
exports.
The extent to which China subsidizes its exports and Chinese firms are
able to export at below cost is highly controversial. More anti-dumping and
anti-subsidy complaints have been brought at the WTO against China than
any other country. However, although these illustrate importing countries’
concerns about imports from China, they do not provide a real measure of
the extent to which China’s exports have been a result of government subsi-
dies. China has challenged many of these actions in the WTO, and in 2014,
it successfully argued that twelve US countervailing duty investigations were
not justified under WTO rules.8 While subsidies were important in the early
stages of China’s export expansion, they have become less significant over
time. Direct export subsidies were abolished with the country’s accession to
the WTO. Other forms of subsidies, such as cheap energy and support for
loss-making firms, have primarily benefitted SOEs, but SOEs have accounted
for a declining share of exports and by 2013, only contributed 11 per cent of
the total (Lardy, 2014, Figure 3.3).
In summary, then, the competitiveness of Chinese exports has been based
primarily on low production costs, reflecting the low level of wages and
rapid productivity growth as a result of high levels of investment, technol-
ogy transfer, economies of scale and scope, and skills upgrading. The role
of state subsidies has become less significant since China joined the WTO,
a reduction in exports. This could reflect the increased cost of imported inputs when the RMB
depreciates.
8
See ICTSD, ‘WTO panel Grants China Victory in US Dispute over State-Owned Enterprises’,
Bridges, 17 July 2014. These cases all involved Chinese SOEs which, the USA claimed, were being
unfairly subsidized.
42
although it remains important to some firms and sectors.9 The exchange

rate plays a role in that it determines the conversion of RMB costs to those
in USD or other international currencies, but since the mid-2000s, the degree
of undervaluation has declined.
2.3 Key Features of Chinese Manufactured Exports
There are three questions which need to be asked about China’s exports of
manufactures when considering its role as the ‘workshop of the world’. First,
given the high import content of such exports, is China better described as
the ‘assembly line of the world’? Second, is it simply an exporter of low-
cost, labour-intensive products or has it been able to upgrade its production
to more technologically sophisticated products? Last, is China simply an ex-
port platform for foreign companies or have locally owned firms also become
involved in production for global markets?
It is certainly true that products carrying a ‘Made in China’ label may
only be assembled in China from parts imported from other Asian and West-
ern economies. The classic example of this is the Apple iPhone. Of the total
value of an iPhone exported from China, the greatest proportion consists of
parts and components from South Korea (43 per cent), the USA (12 per cent),
Taiwan (11 per cent), Germany (9 per cent), and the rest of the world (22 per
cent). The share actually produced in China via the final assembly of the
iPhone accounts for only 3.5 per cent of the export value.10
If the iPhone were representative of China’s exports as a whole, the figures
discussed so far would greatly exaggerate the significance of China as a global
manufacturing powerhouse. The question, as posed in a recent article by
Koopman, Wang, and Wei, is ‘How much of China’s exports are really made
in China?’11 This question arises because Chinese exports began to grow
significantly with the establishment of SEZs, where firms were able to im-
port inputs duty-free in order to produce for export, and because processing
exports, which enjoyed the same privileges, account for a large share of
exports.
9
Girma et al. (2008) find that production subsidies had an impact on the level of existing
exporters’ exports but a minimal effect on the probability of a firm becoming an exporter. They
find that the effect of subsidies on exports has decreased since China joined the WTO. They
also report that subsidies have most effect on exports in capital-intensive industries and on firms
located in non-coastal regions.
10
Own calculation from figures provided in OECD (2011) Box 2. For similar estimates for the
iPhone and iPad, see Kraemer et al. (2011).
11
This was the original title of a 2008 National Bureau of Economic Research Working Paper
(No. 14109), which was subsequently published as Koopman et al. (2012).
43
This suggests that a better way to look at Chinese exports is to measure the
value added within China rather than the gross value of the exported prod-
uct.12 Because of the high import content of processing trade exports, this
figure is likely to be considerably lower than the reported value of Chinese
exports. Estimates by the Organization for Economic Co-operation and De-
velopment (OECD) and the WTO show that for China, in 2011, the domestic
value-added content of manufactured exports was around 60 per cent of the
gross value of exports, significantly lower than that of the USA or Japan
(78 and 82 per cent, respectively). Several other studies have also found that
Chinese exports contain a high share of foreign content, and consequently
only 50–60 per cent of the value of gross exports was actually created within
China (Chen et al., 2012, 2020; Dean et al., 2011; Koopman et al., 2012;
Upward et al., 2013; Wen, 2018).
All of the studies which have looked at domestic value added in Chi-
nese exports over time agree that the share has increased since the start
of the century. According to OECD–WTO figures, the share of imported in-
puts in Chinese manufactured exports fell from over half in 2000 to around
40 per cent in 2011, with most of the reduction coming after 2005. This
is not surprising, since the share of processing exports in total exports has
been falling since the late 1990s. There is also evidence that the share of do-
mestic value added in processing exports has tended to increase over time
(Koopman et al., 2012, Table 3; Chen et al., 2012, Table 1; Chen et al., 2020,
Table 2).
One implication of the high import content of Chinese manufactured ex-
ports is that the figures on China’s share of global exports quoted earlier tend
to exaggerate its role as a trading power. In 2009, for example, when China
accounted for 9.4 per cent of global gross exports, its share of value-added
exports was only 8.3 per cent (Kwan, 2014, Table 1). Nevertheless, even when
this is taken into account, it remains the case that China’s share of world ex-
ports has increased significantly over time, and it has become a major centre
for global industrial production.
Another important implication of looking at trade in terms of value added
rather than gross trade flows is that it can significantly alter perceptions of
bilateral trade balances between countries. For instance, China’s large trade
surplus with the USA is substantially reduced when account is taken of the
fact that much of the value of Chinese exports is value added from other
12
Trade flows are usually measured in gross terms; in other words, they measure the total value
of products crossing national borders. This gives rise to an element of double counting when there
is a lot of trade in inputs for use in products that are subsequently exported. When country A
exports parts to country B for assembly, with the assembled product exported to country C, the
value of the exports of parts is counted twice, first as exports from A to B and then as part of the
value of the assembled product being exported from B to C.
44
Asian countries. For example, in 2009, China’s trade surplus with the USA,
which was reported to be $189 billion, dropped by a third when calculated
in value-added terms (Kwan, 2014, Figure 1).
When China began to export manufactured goods in the 1980s, the initial
focus was on labour-intensive consumer goods such as clothing, footwear,
toys, and sports goods. Over time the range of goods exported grew to include
consumer durables such as laptops, mobile phones, and TVs; intermediate
goods such as steel and chemicals; and capital goods including machinery,
trucks, and locomotives.
There has been a lively debate about the ‘sophistication’ of Chinese ex-
ports. The growing share of medium- and hi-tech products in China’s exports
does suggest a process of upgrading in which they are becoming increasingly
sophisticated. This debate has major implications, both for China itself in
terms of the impact of exports on structural change and economic growth,
and for other countries in terms of which economies and industries are likely
to face serious Chinese competition.
The ‘sophistication’ of exports can be defined in a number of differ-
ent ways. There are several classifications of industries or products which
identify those that use high, medium, or low technology. One commonly
used classification is that of Lall (2000), which classifies products into
primary products, resource-based manufactures, and low-, medium-, and
high-technology manufactures.13 Other measures that have been used are
indices of similarity or dissimilarity between Chinese exports and those of
developed countries (Schott, 2008; Wang and Wei, 2010) and the Hausmann
et al. (2007) index of export sophistication (EXPY14 ) (Rodrik, 2006; Xu, 2010;
Jarreau and Poncet, 2012).
Figure 2.2 shows the share of China’s manufactured exports according to
Lall’s classification of technology level. The share of high-technology prod-
ucts, accounted for mainly by electrical and electronic products, increased
significantly between 1995 and 2005, while that of low-technology products
fell by a similar amount. Since 2005, the shares of different product groups
have remained constant.
There is also evidence that China’s exports have become more like those
of the developed countries over time (Schott, 2008, Table 12; Wang and
13
The OECD has a classification of manufacturing industries which distinguishes between
high-, medium-high-, medium-low, and low-technology industries, based on R&D intensity. This
is more aggregated than the Lall classification. See Yang (2016), Tables 5 and 6.
14
This index assumes that countries with higher per capita income tend to export products
that are more sophisticated. A product’s level of sophistication can, therefore, be calculated as the
weighted average of the per capita income level of those countries that export the good (referred
to as PRODY). The sophistication level of a particular country’s export basket (EXPY) is then the
weighted (by share in exports) average PRODY of its export basket, so that the higher the share
of high PRODY (i.e. sophisticated) products in its exports, the higher the value of EXPY.
45
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
19 5
19 6
97
19 8
20 9
20 0
20 1
20 2
03
20 4
05
20 6
20 7
08
20 9
20 0
11
20 2
20 3
14
20 5
16
20 7
18
19
9
9
9
9
0
0
0
0
0
0
1
1
1
1
19
19
20
20
20
20
20
20
20
Low tech Medium tech High tech
Figure 2.2. Share of China’s manufactured exports by technology level, 1995–2019

Source: Own elaboration from UNCTADStat data.
Wei, 2010, Table 2.1) and that they have been characterized by an increasing
EXPY (Jarreau and Poncet, 2012). It has been claimed that China’s exports
are more sophisticated than would be predicted from its per capita income,
and that this has contributed to the rapid growth of the Chinese economy
(Rodrik 2006).
Claims about the sophistication of Chinese exports have been challenged
on a number of grounds. First, although the range of products that China
exports is relatively sophisticated, it tends to export low-quality varieties of
each type of product, as indicated by lower prices than those charged by
exporters from higher-income countries (Schott, 2008; Xu, 2010). Second,
most of China’s exports come from the coastal provinces, which have con-
siderably higher levels of income than the average for the country as a whole,
which is used to predict the sophistication of exports (Xu, 2010). A third ar-
gument is that even though China is exporting high-tech products, such
as laptops and mobile phones, the production processes that take place in
China are relatively labour-intensive assembly and packaging rather than
high-technology design and sophisticated component manufacturing (Amiti
and Freund, 2010).
This last argument is related to the importance of processing trade in
Chinese exports, as discussed previously. It is clear that processing trade
46
is particularly prevalent in higher-technology products such as computers,

electronic components, telecommunications equipment, and audiovisual
apparatus. As a result only about a third of the total value of exports of
these products are made up of Chinese value added (Koopman et al., 2012,
Table 6). One estimate comparing the distribution of Chinese exports ac-
cording to their level of technology found that when the exports were
measured in terms of their domestic content rather than in terms of gross
exports, the share of high-tech industry fell from 30 to 10 per cent (Kuroiwa,
2014, Table 2). This lends further support to the view that conventional
measures have tended to exaggerate the level of sophistication of Chinese
manufactured exports.
However, this does not imply that there has been no upgrading of Chinese
exports over time. Although lower than when measured in terms of gross
exports, the share of high-technology industries in Chinese exports mea-
sured in terms of domestic value added still doubled between 1990 and 2005
(Kuroiwa, 2014, Table 2). Similarly, the other indices of export sophistication
used in the literature also show that Chinese exports have become more so-
phisticated over time, and this cannot be attributed entirely to the role of
processing trade.
Wang and Wei (2010) conclude that the major factors contributing to the
increased sophistication of exports have been the growth of human capital
and the role of government policies. This is not surprising, given the rapid
growth in incomes, increased levels of human capital, expenditure on R&D,
and other government policies to encourage upgrading, such as the creation
of High-Technology Development Zones since the mid-1990s (Yueh, 2013,
p. 258; Wang and Wei, 2010). This suggests that competition from China
is likely to grow over time, particularly for upper-middle-income and high-
income countries.
Finally, as was pointed out in section 2.1, foreign-invested firms played
an important role in Chinese exports, especially processing exports. They
have been particularly significant in exports of high-technology products
such as computers, electronic components, office equipment, and telecom-
munications equipment, where they account for more than 80 per cent of
exports (Koopman et al., 2012, Table 6). Many of the foreign firms export-
ing from China are from other Asian countries, particularly Taiwan, South
Korea, Hong Kong, and Japan. The Taiwanese electronics contract manu-
facturer, Foxconn, has been China’s leading exporter since 2001 (Selden
et al., 2013).
On the other hand, foreign firms have very little involvement in exports
of steel, fertilizers, ship-building, and railroad equipment (Koopman et al.,
2012, Table 6). The share of foreign firms in total exports peaked at almost
three-fifths in the mid-2000s before falling to less than half in 2013, whereas
47
the share of private domestic firms increased from 1 to 39 per cent in 2000–13
(Lardy, 2014, Figure 3.3).
2.4 China’s Integration into Global Production Networks
To understand the main characteristics of China’s exports of manufactures,

namely the relatively sophisticated products exported, the significant role
played by foreign-owned firms, and the high level of foreign value added in-
corporated into exports, it is necessary to consider the way in which Chinese
industry is integrated into global production networks and global value
chains,15 and more specifically into an Asian manufacturing network.
In the 1960s the so-called ‘flying geese’ model saw the spread of industry
from Japan to the newly industrializing East Asian countries of South Korea,
Taiwan, Hong Kong and Singapore as wages and other costs rose in Japan and
more labour-intensive industries relocated to lower-wage countries. With
rapid growth, increased technological capabilities and rising wages in the
newly industrializing countries (NICs), they too began to upgrade production
and move out of the more labour-intensive activities by the 1980s (Gaulier
et al., 2007, p. 30). This began as China was opening up for export-oriented
manufacturing with the creation of the SEZs, and the 1980s saw a rapid relo-
cation of industries such as clothing and footwear from the NICs to China.
During the 1980s China replaced Taiwan as a major source of US footwear
imports (Naughton, 2007, p. 417), and Hong Kong relocated much of its
garment production to the Pearl River Delta and elsewhere, to concentrate
on logistics, marketing, and finance rather than unskilled manufacturing
activities.
While the relatively simple division of labour in traditional industries,
such as clothing, footwear, and toys, meant that they relocated production
wholesale to China, in more complex industries, such as electrical and elec-
tronic products, computers, and telecoms, standardization enabled firms to
fragment the production process, while reductions in the costs of transport
and communications made it possible for different activities to be carried
out in distinct locations. This led to the emergence of a much more complex
division of labour characterized by intra-product specialization.
Initially China was able to participate in the more labour-intensive seg-
ments of the value chain, particularly in the final assembly of products
using imported components. This was made possible by the processing
15
Although there are distinct intellectual traditions and bodies of literature associated with
global production networks and global value chains, the two approaches have much in common.
Since the discussion draws on both sets of literature, the terms are used interchangeably here.
48
trade regime and accounts for the very high share of foreign value added
in Chinese exports of electrical and electronic products. Over time, China
expanded from assembly activities to the production of lower-technology
peripheral products, such as computer keyboards, and then to an increasing
number of parts and components. As technological capabilities and skills
in China increased and foreign firms’ confidence in moving production to
China grew, China was able to upgrade its production, and Chinese-owned
firms were able to become increasingly involved in some global production
networks.
The extent to which China is integrated into global production networks
and global value chains can be measured by looking at the share of foreign
value added in their exports (upstream links) and the extent to which their
exports are incorporated into other products abroad and then re-exported
(downstream links). On this basis, China is one of the leading developing-
country exporters to be integrated into global value chains, behind only its
neighbours Singapore, Hong Kong, Malaysia, and South Korea (UNCTAD,
2013, Figure IV.13). It is far more integrated into global value chains than
other large developing countries such as Brazil or India.
Although this has so far been described as integration into global produc-
tion networks or value chains, it would be more accurate to describe China
as an example of integration into a regional East Asian network or value
chain. One indication of this is that half of the processing trade imports to
China in the mid-2000s came from Japan, South Korea, and Taiwan, and
70 per cent from East Asia as a whole. In contrast, the USA and Europe, com-
bined, accounted for less than 10 per cent of processing imports (Tong and
Zheng, 2008, p. 74). This has given rise to what has been described as a trian-
gular trade pattern between East Asia, China, and the West, in which now,
instead of exporting finished products directly, the East Asian economies ex-
port parts and components to China, which in turn exports finished products
to the USA and Europe (Tong and Zheng, 2008, p. 73; Gaulier et al., 2007,
pp. 56–8).
The picture is continually evolving, however, and China has become
much more than simply a platform from which other East Asian countries
export to developed-country markets. Increasingly there are two-way flows
of trade in parts and components between China and its neighbours, so that
imported inputs used in Chinese exports may themselves include some parts
originally produced in China. Regional integration is likely to be further
boosted by the signing of the Regional Comprehensive Economic Partner-
ship (RCEP) involving China, ten ASEAN countries, Japan, South Korea,
Australia and New Zealand in November 2020.
Although growing vertical integration within China has recently reduced
upstream links into global and regional value chains, this has been offset
49
by the increased use of Chinese intermediate inputs in the exports of

other countries (downstream links) (Garcia-Herrero and Nguyen, 2019a and
2019b). Also, despite significant technological upgrading, China remains de-
pendent on core technologies from other East Asian countries, particularly
in high-tech industries (Tang and Zhang, 2009; Gaulier et al., 2007, Table 8;
Yang, 2016).
Viewing China in the context of its role within East Asian production
networks has important implications. While the country’s rising share of
manufactured imports to the USA and the EU might appear to show that Chi-
nese exports have displaced those of Japan and the NICs, the picture is more
complicated. The value of these exports contains a significant proportion of
imported inputs, which creates a complementary relationship between the
export performance of China and that of other East Asian countries. It also
suggests that the growing role of China in global trade cannot be understood
solely in terms of Chinese macro-economic variables, such as the exchange
rate, wage levels, and inflation, but also needs to be informed by an analysis
of the evolution of global production networks/global value chains and the
way in which China is integrated into these.
2.5 Global Impacts of the Growth of Chinese Manufacturing
What has been the impact on the global economy of the emergence of China
as a manufacturing centre? If it were just a case of foreign companies re-
locating the final stages of their value chains from other Asian countries,
such as Hong Kong or Taiwan, to mainland China, the global impacts would
have been limited to some reconfiguration of trade flows, with goods previ-
ously imported from elsewhere in Asia now apparently being imported from
China. However, this would exaggerate the real changes in location that took
place, since much of the value added embodied in Chinese exports would
have been produced elsewhere. There would have been an impact on Asian
countries off-shoring production to China, but this would not necessarily
be negative since the relocated production processes would be relatively low
skilled, and this could be part of a process of industrial upgrading by those
countries.
This indeed is what began to happen in the 1980s and continued into
the 1990s with the transfer of production from Hong Kong, Taiwan, and
South Korea to China. For example, the two major categories of goods im-
ported to the USA from China at the end of the 1990s were footwear and
baby carriages, toys, and games and sporting goods. In the case of footwear,
in the late 1980s, almost 60 per cent of US imports came from South Korea
50
and Taiwan, with only 2 per cent from China, but by the end of the 1990s,
these proportions had been reversed. Similarly, with baby carriages, toys,
and games and sporting goods, the fall in the share of imports from Hong
Kong, South Korea, and Taiwan from the mid-1980s almost exactly matched
the increase in imports from China (Branstetter and Lardy, 2008, Figs. 16.11
and 16.12).
Another reason why China’s impact on the global economy in the 1980s
and much of the 1990s was limited was its relatively small share of global
manufacturing value added (MVA) and global exports of manufactures
(Figure 2.1). However, the situation began to change in the late 1990s, and
China’s share of world MVA and world exports of manufactures increased
five-fold over the next two decades. By the mid-2010s China accounted for
almost a quarter of world MVA and a fifth of manufactured exports. It was
no longer a minor player in terms of its impact on global manufacturing.
The world began to take notice of China’s growing impact on the global
economy at the time of its accession to the WTO in 2001. In the immediate
aftermath of this event, a number of studies were published which analysed
the effects of its increased international integration on the rest of the world
(Lardy, 2004; Yang, 2003; Rumbaugh and Blancher, 2004; Ianchovichina and
Martin, 2004; Prasad and Rumbaugh, 2003). These were generally optimistic
and emphasized the positive impacts of China’s growing role in the global
economy in contrast to concerns expressed about the negative effects of in-
creased competition from China in the media and some business sectors in
both developed and developing countries.
China’s growth since the early 2000s has affected the global economy in
several ways. The rapid growth of its exports has had a major impact on the
prices of the manufactured goods that it exports.16 This has been particularly
marked in clothing and footwear, where prices have tumbled in recent years,
but it is also affecting a much broader range of products.
This price effect has a number of positive impacts, in that it helps reduce
inflationary pressures in importing countries and raises the real incomes of
consumers. Where China exports low-cost intermediate or capital goods, this
can help raise profitability and reduce the cost of investment. On the other
hand, falling prices have a negative effect on other exporters of similar prod-
ucts, leading to deteriorating terms of trade and the loss of export markets.
At the same time, domestic manufacturers faced with increased competi-
tion from cheap imports may be forced to retrench, laying off workers or
accepting smaller profit margins.
16
See Kaplinsky (2006) for evidence of the impact of Chinese imports on prices in the EU;
Amiti and Freund (2010) on the impact in the USA, and Fu, Kaplinsky, and Zhang (2012) on the
impact in the EU, the USA, and Japan.
51
China’s expansion also affects other countries’ levels of manufacturing

output and exports. On the one hand, its swift growth and the opening up of
its economy has created a rapidly growing market for exporters from other
countries, particularly for more sophisticated consumer goods and capital
goods. It has also led to an increase in imports of intermediate inputs for pro-
duction for both the domestic market and exports. On the other hand, the
highly competitive nature of Chinese manufacturing can displace producers
in other countries’ domestic and export markets. This has caused concern
about ‘deindustrialization’ in many countries.
Such effects differ considerably across countries. As far as manufactured
exports are concerned, countries which tend to specialize in the same prod-
ucts as China are most likely to be negatively affected, while those whose
exports correspond most closely to Chinese demand for imported prod-
ucts stand to benefit. Initially, this meant that the main beneficiaries were
the high-income countries and the more advanced Asian economies that
are integrated into Asian production networks with China, while the losers
were developing countries with significant manufactured exports compet-
ing with China, including lower-income Asian countries and Latin American
countries such as Mexico and those of Central America. Countries which had
developed textile and garment exports under the Multi Fibre Arrangement17
were particularly badly hit, as this was phased out in the early 2000s. Over
time, as China upgrades its exports, middle-income and even some high-
income countries are facing more competition in industries such as steel and
transport equipment.
As this analysis implies, there are considerable differences in the impact of
China on different industries at different times. In the early 2000s, it was the
manufacturers of labour-intensive products that were most affected by Chi-
nese competition, but over time this has extended to medium-technology
sectors such as steel and vehicle manufacturing. On the other hand, man-
ufacturers of products such as laptops and mobile phones have been able
to take advantage of low-cost labour in China to assemble their products,
making them more competitive.
The global effects of Chinese growth differ not only between countries but
also in terms of the impact on different groups within countries. Since China
has an abundant supply of unskilled labour, it is workers with low levels of
education and skill who are most affected by Chinese competition in both
developed and developing countries. This is consistent with the stagnation
of wages and rising unemployment amongst the unskilled in the USA and
17
The MFA was a system of export quotas for textiles and garments in force between 1974 and
2004, which restricted the exports of developing countries and led to the spread of the industry
to new producing countries.
52
EU.18 As China moves up the value chain, these effects may also extend to
the more skilled workers as they face more competition.
In the immediate aftermath of the global financial crisis, continued
growth in China as a result of the government’s stimulus package was seen
as making a major contribution to preventing the global economy from
plunging into a deep recession. More recently, however, it has become
evident that, as seen earlier, large-scale industrial investment has led to sub-
stantial excess capacity in many industries. Since China now accounts for
a major share of global production in industries such as steel, aluminium,
leather, and textiles; it also contributes to a situation of global excess capac-
ity. This put further pressure on international prices in these industries and
contributed to increasing trade tensions between China and other countries.
This was most graphically illustrated by the outbreak of the US-China trade
war in 2018.
18
Despite earlier scepticism amongst economists regarding the effects of imports from devel-
oping countries on wages and employment in developed countries, several recent studies have
concluded that competition from Chinese imports has affected either wages or employment or
both. See, for example, Acemoglu et al. (2014) and Autor et al. (2013) on the USA, Auer et al.
(2013) and Bloom et al. (2016) on Europe and Thewissen and van Vliet (2019) on 18 OECD
countries.
53
3
A Voracious Dragon?
China and Global Commodity Markets
China has not only transformed global manufacturing production but has
also had a major impact on world commodity markets. It is often portrayed
in the media as a ‘voracious dragon’ ‘prowling the globe in search of en-
ergy resources’, (The Guardian, 2005) and ‘scouring the world for minerals,
no regime is off limits’ (Financial Times, 2006), with little regard for the in-
terests of the countries that supply them (both quoted in Mawdsley, 2008,
p. 521). On the other hand, China’s demand for resources has also been seen
as a major boon. ‘For commodity producers in Africa, Latin America and
elsewhere, it primarily meant higher prices for their exports, thereby stim-
ulating economic growth’ (Jacques, 2012, p. 412) What lies behind both of
these perceptions is the fact that China’s rapid economic growth and trans-
formation into the workshop of the world has also made it a major factor in
many international commodity markets.
This chapter considers the implications for global commodity markets of
the rise of China and the effects on China itself and the strategies it employs
internationally. During the 1970s China was largely self-sufficient in terms
of raw materials and foodstuffs. This, together with the way in which the
state regulated the domestic market, separating it from international markets
through its monopoly of foreign trade, meant that China had little impact on
global markets. This began to change after the introduction of economic re-
forms, which gradually liberalized foreign trade, as described in Chapter 1. In
the mid-1990s China became a net importer of some key commodities such
as oil and soybeans (UNCTAD, 2005, Figure 2.8). From the late 1990s, with
changes in its industrial structure towards heavy and chemical industries,
China’s share in the global consumption of many commodities increased,
leading to it playing a more significant role in international markets. It also
meant that the Chinese economy became more dependent on imported raw
A Voracious Dragon?
materials, giving rise to new government strategies to ensure the security of

supplies.
While China’s impact on global commodity markets is often discussed
in undifferentiated terms, whether emphasizing its positive or negative as-
pects, in practice, commodities differ in terms of their demand and supply
conditions and the institutional framework of the markets in which they are
traded. China’s position in the market also varies according to the commod-
ity concerned so that a more disaggregated approach is required. The effect
of China on the oil market is not the same as its effect on the iron ore or
wheat markets.
Several different factors contribute to the growth of demand for com-
modities. The demand for food and beverages is directly related to consumer
demand and is affected by rising incomes and population growth. It may also
be affected by urbanization because consumption patterns differ between
rural and urban areas. Growing food consumption also has an indirect effect
on the vegetable oils and protein meals used as feed in livestock farming and
aquaculture. On the other hand, demand for minerals and agricultural raw
materials such as cotton or wood is driven by the speed and pattern of in-
dustrialization, which in turn is affected by the growth of exports and the
level of investment, particularly in construction and infrastructure in the
case of minerals and metals. Demand for energy commodities depends on
both consumer demand for household heating, cooking, and transport, and
industrial demand for power.
On the supply side, commodities differ in terms of the length of time
required to bring new production capacity on stream and the capital in-
tensity and scale of production.1 Minerals and energy commodities involve
long gestation periods and large capital investment. Often reserves are lo-
cated in politically unstable countries, which can lead to the disruption of
supply. On the other hand, the production of many agricultural products
can be changed on an annual basis by switching between crops. However,
agricultural production is also affected by weather conditions, so supply can
fluctuate unpredictably from year to year. Tree crops have longer gestation
periods, although these are not as long as the time required to bring new
mines or oil wells into production. The production of agricultural commodi-
ties is less capital-intensive and less subject to economies of scale than that
of minerals and energy.
There are also significant institutional differences in the ways in which dif-
ferent commodity markets are organized. Some primary products are traded
on commodity exchanges such as the London Metal Exchange, whereas the
sale of others is based on direct trade between buyers and sellers involving
1
See Farooki and Kaplinsky (2013, Chapter 5) for an extended discussion of the factors that
affect the supply of different types of commodities.
55
longer-term contract negotiations. There are also differences in the ma-

jor firms involved in commodity markets. Global mineral production is
dominated by transnational corporations (TNCs) such as BHP/Billiton, Rio
Tinto, Vale, and Anglo American. While in the past this was also the case
in the oil industry, reserves are now mainly in the hands of state-owned oil
companies in the major producing countries. Global commodity traders such
as ADM, Bunge, Cargill, and Louis Dreyfus (referred to collectively as ABCD)
play a key role in trade in several agricultural products.
Section 3.1 provides a disaggregated analysis of China’s importance in a
number of global commodity markets, and the extent to which China de-
pends on imports of different commodities. This is followed by a discussion
of the impact of Chinese demand on global commodity prices. China’s im-
pact on commodity markets is not confined to its effect on prices, so its
non-price effects also need to be analysed. These include the implications
of Chinese strategies for ensuring a secure supply of key commodities, the
effects of China’s industrialization strategy on the location of raw material
processing, and the implications for exporting countries of a shift in the
market from the Organization for Economic Co-operation and Development
(OECD) countries to China.
3.1 China’s Significance in Commodity Markets
Table 3.1 presents three different indicators of China’s position in global

commodity markets and how this has changed since the turn of the cen-
tury. Columns (1) to (3) show China’s share of global consumption of each
commodity, which provides an indication of its potential effect on world
prices.2 China’s share of world trade (Columns 4 to 6) provides an alterna-
tive indicator of its impact on global markets. This is particularly significant
for commodity exporters, because the Chinese market differs from the tradi-
tional developed-country markets, for example, in terms of the standards
which exporters are required to meet. Finally, Columns (7) to (9) show
the import dependence of China in each commodity which indicates the
strategic significance of imports for China itself.
It is possible to distinguish several groups of commodities in Table 3.1.
The first group is minerals and metals, where China clearly enjoys a dom-
inant position in terms of both global consumption and world imports. It
is also highly dependent on imports to meet domestic demand. The main
driver of demand for minerals and metals is investment in manufacturing,
2
Although a high share in global consumption of a commodity may mean that China has
a significant effect on global prices, in some cases, government policies insulate the Chinese
market from the world market so that the link between Chinese demand and international prices
is broken, e.g. through the policy of self-sufficiency for wheat and rice.
56
A Voracious Dragon?
Table 3.1. China’s significance in commodity markets, 2000, 2010, 2019 (%)
Share of global Share of Share of imports in

consumption world imports China’s consumption
2000 2010 2019 2000 2010 2019 2000 2010 2019
Iron ore 19.6 52.5 55.9* 14.9 57.7 67.1* 39.9 66.2 88.8*
Copper 12.7 38.2 53.6 11.4 34.9 52.3 64.6 66.9 76.7
Aluminium 13.4 39.1 58.1 1.5 52.5 84.0 4.9** 44.9** 60.9**
Oil 6.1 10.8 14.3 4.3 10.6 16.7 40.3 62.7 84.1
Coal 29.9 48.4 51.7 0.4 17.5 18.1 0.2 6.1 7.8
Gas 1.0 3.4 7.8 0 2.2 13.5 0 15.1 48.1
Cotton 22.8 39.2 31.0 0.8 33.0 18.3 1.2 26.9 20.1
Hides & Skin 19.8 28.7 27.9 15.8 43.2 44.9 25.6 46.2 44.9
Roundwood 9.6 10.7 10.2 11.6 29.9 41.6 4.1 9.0 15.0
Sawn wood 2.5 13.8 26.4 3.2 13.6 25.0 38.4 28.7 29.7
Wheat 19.7 17.7 16.8 0.4 0.6 2.0 0.3 0.7 2.7
Maize 19.1 21.6 25.2 0.1 1.0 2.8 0.0 0.5 1.5
Rice 32.2 28.3 28.7 1.0 1.2 5.5 0.2 0.3 1.7
Soybean 16.3 26.1 29.0 25.9 57.2 57.3 47.0 76.4 83.3
Fishmeal 26.4 31.9 35.0 28.8 33.2 43.7 65.6 69.7 71.7
Beef 8.4 9.6 11.9 0.2 0.5 13.9 0.3 0.7 19.8
Pork 44.5 47.4 41.0 4.1 3.7 23.6 0.4 0.5 5.4
Poultry 18.1 16.7 17.7 13.8 4.8 6.4 7.0 3.3 12.3
Bananas 8.2 9.4 11.8 4.1 3.7 8.4 10.7 6.5 14.3
Coffee 0.2 0.6 1.1 0.1 0.4 0.7 37.7 61.0 49.6
Sugar 15.8 8.9 9.5 6.7 4.0 8.0 9.4 15.2 27.1
•2018
** Share of imported bauxite in total bauxite consumption
Sources: Own elaboration from World Bank, Global Commodity Outlook; UNComtrade; World Steel Association,
Steel Statistical Yearbooks; COCHILCO, Anuarios Estadísticos del Cobre y Otros Minerales; US Geological Services;
BP, Statistical Review of World Energy, 2020; International Energy Agency, World Energy Statistics database;
OECD-FAO, Agricultural Outlook 2020–29 Database; FAOSTAT.
construction, and infrastructure (Roberts et al., 2016). Chinese demand for

minerals and metals grew rapidly from the late 1990s onwards, as a result
of urbanization and the accompanying residential construction and invest-
ment in transport and utilities including power generation. China’s share
of global consumption and world imports increased throughout the period.
Since demand grew much faster than domestic supply, China also became
increasingly dependent on imports, so that by 2019, almost 90 per cent of
iron ore and three-quarters of copper used in China were imported.
A second group of commodities in which China is also an important con-
sumer and depends on imports to a significant extent consists of soybeans,
fishmeal, cotton, hides and skins, and sawn wood. The first two are feedstuffs,
where the growing consumption of meat and fish as incomes rise has led
57
to an increase in demand which could not be met by local production. The

other three commodities are agricultural raw materials required by the textile
and garment, leather and footwear, and wood and furniture industries. In
contrast to feedstuffs, much of the growth of demand for these commodi-
ties has been driven by exports rather than domestic demand. As demand
for feed and for wood in China continues to grow, its role in world markets
increased throughout the period. In the cases of cotton and hides and skins,
on the other hand, shifts in the global location of the textile and garment
and footwear industries away from China reversed its increasing share of the
global market after 2010.
Oil and gas constitute a third group of commodities for which, although
China’s current share of global consumption and trade is relatively modest,
domestic demand is growing rapidly as a result of increasing energy use and
car ownership, and the country is highly dependent on imports. China be-
came a net importer of oil in the 1990s and natural gas in the mid-2000s. This
makes these commodities of particular strategic interest to China, which is
likely to have a growing impact on world markets in the future.
A fourth group consists of commodities of which China is a significant
consumer in global terms because of either its large population (grains, pig
meat, and poultry) or its energy mix (coal), but has been largely self-sufficient
owing to the government’s food security strategy or its large domestic re-
serves. China maintained over 95 per cent self-sufficiency in rice, wheat,
maize, pork, poultry, beef, and dairy products for many years (PoultrySite,
2014, based on OECD-FAO, 2013). As a result its share of world trade in these
products has remained relatively low and its impact on global markets is
limited.
Recently beef imports have been allowed to increase to supply almost a
fifth of the total market in 2019, and pork imports have also increased sig-
nificantly because of the outbreak of African Swine Fever in 2018 that led
to a large scale cull of Chinese pigs. As a result China has started to have a
significant impact on world markets for these products.
A final group consists of commodities of which China’s share of both
global consumption and imports are relatively limited, so that its impact
on world markets is minimal. These are mainly tropical products, such as
bananas, coffee, and sugar.
3.2 China’s Impact on Commodity Prices
China’s accession to the World Trade Organization (WTO) in 2001 was fol-
lowed by a decade-long boom in commodity prices (see Figure 3.1). This was
interrupted in 2009 as a result of the global financial crisis, and resumed in
58
A Voracious Dragon?
140
120
100
80
60
40
20
0
96
98
00
02
04
06
08
10
12
14
16
18
19
19
20
20
20
20
20
20
20
20
20
20
Energy Metals and Minerals Agriculture
Figure 3.1. Index of commodity prices in constant 2010 US$ (2010=100)

Source: World Bank, Global Economic Monitor Database.
2010 and 2011. Commodity prices fell significantly after 2011, although they
recovered somewhat towards the end of the decade and they remain higher
in real terms than they were at the close of the twentieth century. That the
commodity boom coincided with a period of rapid economic growth and
growing integration with the global economy in China gave credence to the
view that China was a main driver of the commodity boom. The recent de-
cline in commodity prices coinciding with a slowdown in Chinese growth is
seen as further evidence that the two are connected. On the other hand, the
role of China in global markets differs considerably according to the com-
modity concerned, so the view of China as the key driver of commodity
prices needs to be considered further.
Demand from China is only one of the factors which have affected com-
modity prices. On the demand side, consumption in other markets plays
a role, particularly in those commodities in which China’s market share is
relatively modest. In some cases the growth of demand from China substi-
tutes for demand from other countries, rather than adding to global demand.
Many industries have shifted their production for world markets to China.
Where the industries concerned are resource based, increased demand for
resources in China will partly be offset by a reduction in demand in those
countries where production was previously located, so the growth of Chi-
nese demand will not have the same impact on commodity prices as in cases
where the industry has developed to meet local demand.
59
The extent to which changes in demand affect prices depends on the price
elasticity of supply.3 This differs across commodities and affects the extent
to which an increase in demand results in an increase in price or output.
Commodities with a low elasticity of supply (e.g. minerals) will see prices
increase more as a result of an increase in demand than those with higher
elasticity (e.g. cereals).
Commodity prices are also affected by changes in supply conditions
including the weather, disruptions caused by political conflict or labour
unrest in major producing countries, changes to the cost of inputs, techno-
logical change, and new resource discoveries. Many countries hold stocks
of commodities either for strategic reasons or in order to stabilize prices.
China, for example, has stockpiles of oil, copper, iron ore, wheat, rice,
soybeans, cotton, and other commodities. These have the potential to affect
global prices in the short term through destocking or decisions to increase
reserves.
In addition to the forces of supply and demand in the real economy,
commodity prices are also affected by financial factors. Since commodity
prices are normally measured in US dollar terms, changes in the value of the
dollar can affect the dollar price of commodities. The effect of changes in
the value of the dollar varies between commodities, with the most impact
on oil and gold, followed by metals, and a negligible impact on grains (IMF,
2008, Box 1.4). The growing financialization of commodity markets can also
affect prices. There is general agreement that there has been an increase
in the significance of financial investment in many commodity markets
in recent years (World Bank, 2009, Chapter 2; UNCTAD, 2009, Chapter 2),
with considerable debate over whether or not this has had a significant ef-
fect on prices, in terms of their level or their volatility (UNCTAD, 2011;
Cheng and Xiong, 2014). Again, it seems likely that the effect of financial-
ization on prices differs across commodities (Farooki and Kaplinsky, 2013,
Chapter 6).
3.2.1 The Commodity Boom

To what extent, then, can the commodity boom be attributed to the growth
of demand from China? Most of the studies of China’s impact on global
commodity prices have concentrated on minerals and metals and energy,
3
The price elasticity of supply is the percentage change in output that results from a 1 per cent
change in the price of a good.
60
A Voracious Dragon?
particularly oil.4 Fewer studies also cover the effect of China on the prices of
agricultural commodities.5
Not surprisingly, given China’s large share of global consumption and
imports of minerals such as iron ore, copper, and aluminium (Table 3.1),
its impact on prices has been most marked in minerals and metals. Rapidly
growing demand from China, together with long gestation periods and a lack
of investment in new mines over a number of years, combined to increase
prices. Metal prices increased more than four-fold during the boom, faster
than any other commodity group.
Oil prices play the key role in energy markets, with gas and coal prices
following, albeit with a time lag (IMF, 2015, p. 38). Because China’s share of
both world consumption and imports of oil is still relatively modest in com-
parison to minerals and metals (Table 3.1), the impact of its growing demand
on energy prices has been quite limited, despite its growing dependence on
imported oil. While oil prices rose significantly during the boom, this was
mainly a result of supply-side factors, including limited investment in ex-
ploration and new oilfields, and geo-political problems in major producing
regions, particularly the Middle East (Streifel, 2006).
The prices of agricultural commodities did not rise as much as those of
minerals and energy commodities during the boom. One reason for this is
that it is much easier to increase the supply of particular agricultural products
in the short term since farmers can switch between crops and the invest-
ment requirements are lower and gestation periods shorter than for minerals,
oil, and gas resources.6 Even where Chinese demand is growing rapidly, the
impact on prices is, therefore, likely to be less pronounced than for minerals.
In the case of food and tropical beverages, China’s share of world con-
sumption either did not increase significantly, as in the case of grains; was
relatively low (coffee and sugar); or was largely supplied by domestic pro-
duction (meat products and bananas) (see Table 3.1). The few studies of such
products have concluded that Chinese demand was not a significant fac-
tor in the rise in food prices during the commodity boom (Headey and Fan,
2010; Jenkins, 2011; Villoria, 2012). In the case of grains, the higher prices in
the late 2000s were mainly driven by growing Western demand for biofuels
rather than by demand from China.
4
Studies of the effect of China on hard commodity prices include Cheung and Morin (2007),
Streifel (2006), Roache (2012) and Ghoshray and Pundit (2020) on minerals and metals and oil;
USITC (2006) on oil and aluminium; Yu (2011) on minerals.
5
Jenkins (2011), Farooki and Kaplinsky (2013) and Kolerus et.al. (2016) discuss a range of com-
modities, including examples of minerals, energy, and agricultural commodities. Villoria (2012)
analyses China’s effect on food prices.
6
This is particularly true for annual crops, although some tree crops such as coffee have a
longer gestation period between planting and production.
61
China is likely to have had a more significant effect on the price of feed-
stuffs such as soybeans and fishmeal, owing to its substantial and increasing
share in both consumption and imports of these commodities (Table 3.1).
Fishmeal prices tend to be linked to soybean prices because fishmeal is a sub-
stitute for soybean as animal feed. Although demand in China has grown
significantly, the effect on prices has been counteracted by increased pro-
duction, especially in Argentina and Brazil. So while the impact on prices of
feed has been greater than that on food and beverages, it has been nowhere
near as significant as the impact on minerals (Jenkins, 2011).
Although China accounts for a significant share of world consumption
and imports, in the case of agricultural raw materials, such as cotton, and
hides and skins (Table 3.1), the impact of Chinese demand on prices has
been relatively limited. Because demand was mainly driven by the relocation
of textile and garment and footwear production to China, growing demand
from China did not add significantly to global demand. In fact the prices of
hides and skins fell as other commodity prices were increasing, and cotton
prices did not rise above the levels of the late 1990s until 2010. Timber price
increases were also relatively modest during the commodity boom.
In conclusion then, it is clear that growing demand in China did make
a significant contribution to the commodity boom as far as minerals and
metals are concerned. The rapid growth in demand after a period of low
mining investment which resulted in capacity limits being reached was a
key factor in the surge in prices. The other commodities in which China
played a part in the boom were feedstuffs. These all belong to the first two
groups of commodities characterized by China’s significant share in world
consumption and trade. The commodities in these two groups where there
was little evidence of China fuelling a commodity boom were cotton and
skins and hides, where the growth in demand from China was mainly the
result of a shift in the location of the textile and garment and footwear in-
dustries to China. In the case of energy, the surge in prices was mainly due
to supply-side factors rather than growth of demand from China, reflecting
the country’s relatively low share of world demand and imports of oil and
gas. Finally, China’s impact on the prices of foodstuffs and tropical beverage
was also limited because of the government’s policy of food self-sufficiency
that restricted imports, or because China was a relatively small consumer of
these products.
3.2.2 The ‘New Normal’ and Chinese Demand for Commodities

The commodity boom ended in 2011, and since then, commodity prices
have fallen. This coincided with a declining rate of growth in China and
a shift in development towards the ‘new normal’ of lower growth and a
62
A Voracious Dragon?
rebalancing of the economy away from its heavy dependence on invest-

ment and exports and putting greater emphasis on consumption. The ‘new
normal’ has also included the growth of the service sector and greater at-
tention being devoted to the environmental consequences of economic
activities.
What then are the likely consequences of these changes on China’s de-
mand for commodities and global commodity prices? Both a lower rate
of growth in China and a shift in the structure of output towards ser-
vices will tend to reduce the growth of demand for commodities, which
was linked to the growth of infrastructure, energy, and manufacturing sec-
tors. A declining share of investment would tend to reduce demand for
metals particularly, whereas increased consumption would create more de-
mand for some food products, particularly meat, feedstuffs, and possibly
tropical fruit and beverages. Growing environmental concerns could lead to
restrictions on the growth of highly polluting metal industries and coal-fired
power stations. They could also have a significant effect on the demand for
timber.
It should be noted, however, that although growth has slowed down in
China, it is still rapid compared to other countries. Although the rate of
growth of demand for commodities has declined, in most cases, Chinese
demand is still increasing, both in absolute terms and as a share of global
consumption. It would be a mistake, therefore, to attribute declining prices
to a fall in demand from China.
As the discussion of the commodity boom has shown, Chinese demand
contributed to significant price increases of only some commodities, because
in many cases, the country’s share of global consumption or trade remained
relatively low. For commodities with only limited Chinese demand, it is
unlikely that even if there were a decline in demand, there would be a
significant effect on prices.
In practice, it seems that other factors explain the fall in prices since 2011,
even of commodities for which Chinese demand contributed to the boom.
In the case of metals, there was a substantial increase in supply as a result
of investment in new mines made during the period of high prices coming
on stream (IMF, 2015). This was bound to put downward pressure on prices,
which was increased by the slow growth in demand. In the case of oil, where
China’s impact on demand was in any case less than for minerals, supply-
side factors, including the decision by the Organization of the Petroleum
Exporting Countries to stop trying to maintain the price of oil, and the in-
creased production of oil and gas from unconventional sources (shale and tar
sands) in North America, were major causes of falling energy prices. Falling
oil prices also affected the price of agricultural commodities, both directly
by reducing the cost of inputs, and indirectly because biofuels became a less
63
attractive alternative with lower energy prices, which released land for other
crops.
It is of course true that had Chinese demand continued to grow at the
same rate as it had before 2011, commodity prices would (other things being
equal) be higher, particularly in the case of minerals and metals. It is also true
that a ‘hard landing’ in China, in which gross domestic product growth fell
to around 3 per cent a year, would have a more significant impact (Gauvin
and Rebillard, 2015). However, this does not mean that the reversal of the
commodity boom was a result of changes in China since 2011.
3.3 Non-price Impacts of China’s Demand

for Commodities
The impact of China’s growing demand for resources goes beyond simply
the effect (or lack of effect) on commodity prices. These other effects are a
result partly of the resource-security and industrialization strategies pursued
by the Chinese state, and partly of the specific characteristics of the Chinese
market.
3.3.1 Strategies to Secure Supplies

As Table 3.1 shows, there are a number of commodities whose imports ac-
count for more than half of China’s total consumption and whose import de-
pendence has increased over time. These include oil and key minerals, such
as iron ore and copper, as well as feedstuffs, such as soybeans and fishmeal.7
China’s growing dependence on imported resources has led to concerns over
the security of its supplies. This has led the Chinese government to adopt a
variety of strategies to reduce the risks to supply.
Dependence on imports from a small number of countries, particularly
where these are concentrated in the same region, is seen as a potential threat
to security. Thus one strategic objective is to diversify the sources of im-
ports where possible. This applies not just in terms of countries but also of
suppliers of commodities where a small number of foreign firms have a dom-
inant position in global markets. Here diversification can help to increase the
bargaining power of Chinese buyers.
Another strategy has been to obtain long-term supply contracts with
foreign countries, often involving the provision of Chinese loans and/or
aid. Chinese state-owned enterprises (SOEs) have also been encouraged by
7
Imports also account for more than 50 per cent of Chinese leather consumption, but this
does not have the same strategic significance as the other commodities discussed here.
64
A Voracious Dragon?
government policies to acquire foreign resource companies, explore for new

sources, and invest in foreign mines and oil wells, in the belief that such
ownership will increase the security of supply.
Many of China’s imports of commodities come by sea, and a large pro-
portion pass through the Straits of Malacca. This has led to concern about
interruptions to supplies by sea and efforts to develop alternative overland
supply routes. Another means of reducing the risk of disruption to supply
has been to develop strategic stockpiles of key commodities. China has such
stockpiles for crude oil, copper, iron ore, aluminium, nickel, tin, zinc, and
soybeans.
OIL
The above strategies have been most extensively used in the case of energy,
especially oil. China became a net oil importer in 1993, and since 2009, it
has relied on imports for more than half of its total consumption, increasing
to more than four-fifths in 2019 (Table 3.1). The debate on energy security
in China escalated in 2000, when oil imports increased sharply (Downs,
2004, p. 22). The debate involved a number of participants including the
State Development Planning Commission, the state oil companies, the Min-
istry of Foreign Affairs, the military, and various government think tanks.
The focus of the debate was very much on the supply side, with little atten-
tion to measures to reduce the demand for energy in China. Strategies to
increase security discussed included the diversification of sources of imports,
investment overseas by Chinese oil companies, the creation of a Strategic
Petroleum Reserve (SPR), the construction of international oil pipelines, and
building closer links with oil producing countries.
Historically, China has depended on imports from a small number of
countries, particularly in the Middle East. The effort to diversify sources
of supply has been an important part of the state’s strategy to reduce the
risk of supply disruption, which would have major adverse effects on the
country’s growth trajectory. Given the volatility of the Middle East, the gov-
ernment has tried to reduce its dependence on the region by developing
alternative sources of supply (Qian, 2013, p. 397). Although four countries
(Saudi Arabia, Angola, Iran, and Russia) account for more than half of China’s
imports of crude oil in recent years (Camus et al., 2013, Figure 4.4), their
share has declined significantly since the mid-1990s, as China has diversi-
fied its suppliers to include other African countries, Central Asian suppliers,
and Latin American producers (ibid., p. 12).
The largest Chinese oil SOEs, China National Petroleum Company
(CNPC), China Petrochemical Corporation (Sinopec), and China National
Offshore Oil Corporation, began to invest abroad in the early 1990s before
energy security became a major policy concern (Meidan, 2016, pp. 19–21).
65
The companies became key advocates of overseas investment as a means of

increasing China’s energy security, a strategy which coincided with their
own interest in international expansion. CNPC, asked to prepare a report
on national oil security for the Chinese leadership in 1997, proposed for-
eign investment as a strategy for obtaining resources (Downs, 2004, p. 25).
The Chinese government’s subsequent adoption of the Go Global strategy
(see Chapter 1) was in fact a ratification of what the oil companies were al-
ready doing (Jiang and Sinton, 2011, p. 13). By 2013 Chinese oil companies
were operating in more than forty countries and producing 2.1 million bar-
rels a day abroad, equal to half the domestic production and a fifth of oil
demand in China in that year (Jiang and Ding, 2014, p. 7).
Another strategy used by the government to mitigate the risk of supply
disruption was the creation of an SPR. This was included as part of the Tenth
Five Year Plan (2001–5); by 2020, China plans to have one-hundred-days’
supply in reserve (Shambaugh, 2013, p. 162). The oil companies regarded this
strategy as costly and ineffective, and were concerned that they would be re-
quired to bear part of the cost (Downs, 2004, pp. 32–4). Nevertheless, China’s
SPR has grown substantially, and the government has taken advantage of the
slump in oil prices to increase its size.
A specific strategic concern in China is the country’s dependence on the
Straits of Malacca, through which 77 per cent of oil imports into China pass.
This is seen as a source of vulnerability, and the Chinese government has
built oil pipelines through Central Asia and from Russia and Myanmar. These
will reduce the proportion of Chinese oil imports passing through the Straits
of Malacca to 54 per cent, although the absolute level of imports through
the Straits would continue to grow (Jiang and Sinton, 2011, p 35).
Another way in which the Chinese government has attempted to secure
its oil supplies has been through so-called ‘loans-for-oil deals’. This involves
loans from the Chinese policy banks (see Chapter 5) to either governments
or foreign state-owned oil companies, which are repaid through future oil
exports. This method of making loans to foreign governments which are ser-
viced via long-term oil exports are known as the ‘Angola mode’ because it
was used to finance substantial Chinese aid to rebuild and develop Angola’s
infrastructure after the civil war (see Chapter 6, Box 6.1). Other countries
which have benefitted from such energy deals include Bolivia and Venezuela
(Jiang and Sinton, 2011, Annex 2). Foreign state oil companies that have
received Chinese loans in recent years include Petrobras in Brazil, PetroE-
cuador in Ecuador, Rosneft and Transneft in Russia, Kazmunai Gas (KMG) in
Kazakhstan, Turkmengaz in Turkmenistan, and GNPC in Ghana (Jiang and
Sinton, 2011, Annex 2).
The effectiveness of these strategies in increasing energy security in China
has been questioned (Downs, 2004; Chen, 2011). A large share of the oil
66
A Voracious Dragon?
produced abroad by Chinese companies is not shipped to China but sold

on international markets. Oil pipelines may be as vulnerable to attack as sea
routes in the case of a military conflict. Countries can renege on international
loans, even when they are backed by oil. Nevertheless, these strategies have
been an important aspect of the way in which the growth of Chinese demand
has affected the global oil industry.
MINERALS AND METALS

There are similar trends in minerals. Iron ore and copper are the two key
minerals on whose imports China is most dependent (see Table 3.1). In 2011
iron ore accounted for 75 per cent of all China’s imports of mineral ores, and
copper for a further 10 per cent (Camus et al., 2013, Figure 3.3). China holds
significant stockpiles of both commodities.
Australia and Brazil are the world’s major exporters of iron ore, account-
ing for more than half of global supply. Three companies, Rio Tinto, BHP
Billiton, and Vale, dominate global iron ore production and account for
up to 60 per cent of China’s iron ore imports (Du, 2012). China obtains
almost 70 per cent of its iron ore from Australia and Brazil, but is keen to
diversify its sources and is increasing its imports from smaller suppliers. The
National Development and Reform Commission published a report recently
calling for more investment in overseas mining projects in order to reduce
the monopoly power of the Big Three producers (SMH, 2014). China has also
diversified its sources of copper imports since the mid-1990s (Camus et al.,
2013, Figure 4.10).
Chinese mining companies have expanded overseas, although not on the
same scale as the Big Three oil companies. Whereas the oil companies are
central-government-controlled SOEs, some of the mining companies oper-
ating abroad come under provincial authorities or are private.8 They tend to
be smaller than the oil companies and less subject to state policies because
they are not seen as being of such strategic significance. Nevertheless, com-
panies such as Minmetals, Chinalco, Shanghai Baosteel, and Wuhan Iron
and Steel have invested substantially in overseas mines.
There are a few examples of ‘loans-for-mineral’ deals involving China, al-
though not on anything like the scale of those for oil. The most significant is
the Sicomines agreement on copper and cobalt with the Democratic Republic
of Congo (see Chapter 6, Box 6.2). Elsewhere, Minmetals has entered into an
arrangement with the Chilean state company CODELCO to supply copper,
8
Jinchuan Group, China’s largest nickel producer, comes under the Gansu province govern-
ment, and Nanchuan/Bosai, in bauxite, and the steel and mining Luanhue Industrial Group are
both privately owned (Shankleman, 2009, pp. 23–5).
67
and in Zimbabwe, profits from diamond mining have been linked to Chinese
loans.
SOYBEANS AND FISHMEAL

The main agricultural commodity for which China depends heavily on im-
ports is soybeans (see Table 3.1). The major suppliers of imports to China are
the USA, Brazil, and Argentina, which dominate the global market, account-
ing for 88 per cent of world soybean exports (Camus et al., 2013, p. 19). This
has meant that China has little scope for diversifying its sources of supply.
Given its large share of world imports, it does enjoy considerable monopson-
istic power in the soybeans market. This was illustrated when it suspended
imports of soybeans from Argentina in 2010, allegedly because of contami-
nation but widely believed to be in retaliation for Argentine restrictions on
imports of manufactured goods from China.
Recent claims that China has been involved in so-called ‘land grabs’
globally as a means of securing agricultural supplies are greatly exaggerated
(Smaller et al., 2012, p. 2; Götz, 2019). The scale of Chinese FDI in agricul-
ture is relatively limited, comprising only 1 per cent of all Chinese FDI (ibid.,
p. 5). China has started to invest in soybean production abroad, but this is
insignificant in relation to the scale of its imports, and is unlikely to have
much impact in terms of security of supply.9
One important development has been the emergence of China National
Cereals, Oils and Foodstuffs Corporation (COFCO) as an important global
player, promoted by the government as a means of reducing the control of
the four large commodity traders: ADM, Bunge, Cargill, and Louis Dreyfus
over agricultural trade. In 2014 COFCO acquired control of the Dutch com-
pany Nidera and Noble Agri Limited in Argentina, giving it access to core
world grain value chains (Turzi, 2015).
China is also highly dependent on imports of fishmeal, which is used
as feed in aquaculture and for pigs and poultry. It is not as strategically
important as soybeans, but there have been reports recently that several
Chinese feed companies are interested in acquiring overseas fishmeal pro-
ducers to gain more control over both the limited availability and the high
cost (Gao Fu Mao, 2016). One of the best-known examples of Chinese in-
vestment in fishmeal is that of the China Fishery Group which, through a
9
A major investment planned by the Beidahuang Group of $1.4 billion in irrigation infrastruc-
ture in return for a 20-year contract to grow corn, wheat, soy, and dairy in Rio Negro province of
Argentina fell through (Smaller et al., 2012, Annex 1). A Jilin Grain Group project for 1 million
hectares of soybean production in Kazakhstan is in the planning stage (Smaller et al., 2012, Annex
1). Several projects have also been announced in Brazil (CEBC, 2011, Appendix 2).
68
A Voracious Dragon?
series of acquisitions since 2006, now controls around a sixth of Peruvian

fish exports (Fairlie, 2014).10
IS CHINA ‘LOCKING UP’ GLOBAL SUPPLIES?

China’s efforts to enhance the security of its supplies of raw materials has
led to concern that it is locking up key resources, making it more difficult
for the West to gain access to them.11 This is a zero-sum view of the ef-
fects of China’s strategy, but the reality is more complex. In many cases
China’s involvement, whether through FDI or loans linked to resource pro-
curement, has expanded and diversified sources of supply and made markets
more competitive globally (Moran, 2010; Kotschwar et al., 2012). Even if
such arrangements were to effectively lock up part of the global production
of a commodity, their size is relatively limited so that only a small part of
the global supply would be affected.
The impact of China’s growing significance on key global commodity
markets is by no means uniform (Economy and Levi, 2014, pp. 36–45). In-
ternational trade in some commodities such as copper and oil is still largely
conducted through spot markets, and this has not changed as a result of
China’s increased involvement. However, China’s presence has transformed
the iron ore market. In the past, annual contract negotiations took place
between the three major mining companies (Rio Tinto, BHP Billiton, and
Vale) and the largest Japanese, South Korean, and Taiwanese steel compa-
nies, and these determined the prices at which iron ore was traded. In the
mid-2000s a consortium of Chinese companies, led by Baosteel, began to lead
negotiations on the steel side. At the same time, many smaller Chinese com-
panies bought iron ore on the spot market, and this resulted in the growth of
the significance of trade at flexible market prices.12 This led to greater price
volatility and was one factor behind the interest of China’s steel companies
and the government in acquiring equity shares in iron ore mines abroad.
What the case of iron ore illustrates is that although the growth of China
is having an impact on commodity markets, it does not always do so in
predictable ways. China is not necessarily able to exercise control over com-
modities of which it is a major consumer, and its presence has often led
10
Peru is the world’s leading producer of fishmeal. China Fishery Group recently experienced
financial problems and put its Peruvian operations up for sale, but reports suggest that they are
likely to be bought by another Chinese company (Peru Reports, 2016).
11
This has been a concern of the US-China Economic and Security Review Commission of
the US Congress for a number of years. See, for example, USCC (2012). An alternative view sees
China’s raw material strategy as a reflection of its vulnerability and insecurity rather than as a
predatory grab for resources (Jiang, 2009, p. 58). As a latecomer to the global energy and mineral
market, China has had to concentrate its efforts on countries which have potential for increasing
reserves in the future and whose existing reserves are not already under the control of others.
12
There is also evidence of a similar shift to more flexible market-based pricing in bauxite in
recent years (Economy and Levi, 2014, p. 40).
69
to increased competition. The fear that it is able to lock up resources is

exaggerated.
3.3.2 Industrialization Strategies

One of the ways in which countries have traditionally sought to promote
their domestic manufacturing activities is through providing more protec-
tion to downstream processing activities, while allowing imports of raw
materials at low or zero tariff rates. China is no exception, and it applies
higher tariffs to processed manufactured products than to semi-processed
products (WTO, 2010, Chart III.3). It has also used a variety of other indus-
trial policy measures to promote local processing activities, including support
for SOEs expanding their processing, preferential credit for favoured sectors,
favourable government procurement policies, subsidized energy provision,
cheap access to land, and tax incentives (Harrison, 2014).
There are many examples of this leading to China’s imports of certain
products becoming increasingly concentrated at the earlier stages of the
value chain, while imports of more processed products decline in significance
and China even becomes a net exporter of more processed products. China
went from a net importer of steel before 2004 to a significant net exporter,
based on its massive imports of iron ore (Song and Liu, 2012). A similar move
backwards along the value chain has occurred with aluminium products,
with first the development of primary aluminium and then the replacement
of imported alumina with the growth of alumina smelting capacity within
China.
These developments were not confined to minerals; they can be found in
soft commodities as well. In the late 1990s, China imported large amounts of
plywood. Between 1994 and 2004, domestic plywood production increased
more than eight-fold, and in 2001, China became a net exporter. It now
imports large quantities of raw logs and barely processed wood products to
feed its plywood industry (White et al., 2006, p. 6).
In the soybean value chain, China embarked on a major expansion of
crushing capacity from the late 1990s, building new plants in the coastal
provinces to process imported soybeans. As a result, imports of soybeans grew
rapidly while imports of soybean meal fell (López et al., 2010, pp. 18–19) A
similar trend occurred in the cassava value chain, where China’s capacity to
produce modified starch increased massively from the early 1990s onwards
(Kaplinsky et al., 2011).
As a result of such strategies, China’s imports from developing countries
came to be increasingly concentrated on unprocessed primary products as
opposed to more processed, resource-based products. Whereas between 1995
and 1999, its imports of primary products were 15 per cent less than imports
70
A Voracious Dragon?
of resource-based manufactures from developing countries by 2010–14, they

were more than 50 per cent greater than those of resource-based products.13
There have been some signs in the past few years that China has become
more willing to accept more processed raw materials and imports of pri-
mary products were only 40 per cent greater than those of resource based
manufactures between 2015 and 2019. This was partly a result of growing
domestic environmental concern about the high levels of pollution gen-
erated by processing industries in China. Hebei Province, where some of
China’s most polluting industries are located, is planning to relocate parts
of its steel, cement, and glass production overseas in response to central
government imposing rules to reduce pollution (Zhang Yu, 2014).
Another factor which is encouraging more processing in the countries
where the resources are located is concern in developing countries about the
colonial nature of their bilateral trade with China, based on the exchange
of primary products for Chinese manufactured goods. This pattern of trade
runs counter to the emphasis on South-South cooperation between China
and other developing countries. Investing in downstream processing can be
a way of gaining credibility with the governments of the host countries. Jiang
and Sinton (2011, p. 14) give the example of Chinese oil companies investing
in refineries as a means of strengthening their relationship with host govern-
ments. Chinese companies have also made promises regarding investment in
alumina and aluminium smelting in countries with large reserves of bauxite,
as a means of securing supplies (Hendrix, 2014).14
Although it is too early to say how far these changes will lead to a shift in
the composition of China’s imports from developing countries, the figures
do indicate a fall in the ratio of primary products to resource-based man-
ufactures since 2012, which if continued could prove significant in terms
of the opportunities that the Chinese market offers to resource-exporting
economies.
3.3.3 Characteristics of the Chinese Market

The fact that China is a developing country affects not only supply condi-
tions but also the nature of the demand faced by exporters. In particular, it
is likely that the standards required of exporters to developing countries are
less demanding than when they export to developed-country markets. This
applies to firm-driven standards on quality, government-driven standards on
product safety, sanitary and phytosanitary measures, and civil-society-driven
13
Own elaboration from UNCTADStat data using the Lall (2000) classification of primary
products and resource-based manufactures (see Chapter 2).
14
This has been prompted by the ban on exporting unprocessed minerals imposed by the
Indonesian government in 2014. Indonesia was a major supplier of bauxite to China.
71
standards on environmental impacts and labour issues (Kaplinsky et al.,

2011). Because many of these standards tend to increase with a country’s
income level, it is not surprising to find that they are lower or less-effectively
enforced when it comes to exports to developing countries.
Chinese standards tend to be less demanding than those required for
sales to the OECD countries. In the case of forestry, for example, the pres-
sure on producers to promote biodiversity and sustainable production which
exporters to the EU face is largely absent in China, and there is evidence
that a significant portion of imported timber is in any case produced ille-
gally (Kaplinsky et al., 2011). Less stringent standards can make it easier for
exporters to sell to the Chinese market than to the developed countries.
Chinese companies operating overseas are much less likely to come under
pressure at home over their environmental impact or violations of labour
and other human rights. This is reflected in comparisons of corporate so-
cial responsibility (CSR) performance by Chinese companies with those of
the OECD countries. A study by the UN Secretary General’s Special Rep-
resentative for Business and Human Rights found that Chinese companies
recognized fewer labour and human rights and generally recognized them
at a lower level than companies from developed countries (Ruggie, 2007).
A generally lower level of concern about such issues is also behind the
frequent claims that Chinese companies are more willing to operate in
countries with undemocratic regimes and where human right violations are
common.
Although Chinese companies lag behind those from the North in terms
of CSR, over the past decade, there has been a significant growth in CSR
amongst leading Chinese firms. This has partly been a result of their in-
creased involvement in global markets, but it has also been encouraged by
the Chinese government, which has introduced a variety of guidelines for
Chinese companies operating abroad (Wang and Zadek, 2016, pp. 46–54).
3.4 Conclusion
Although it has often been claimed that China’s growth was a key factor
in the commodity boom and China has been blamed for the more recent
drop in commodity prices, the evidence provided in this chapter indicates
that this is an oversimplification. It applies most clearly to the case of min-
erals, with China accounting for a large share of global consumption and
imports, but other factors have played a more significant role in energy and
soft commodities. The corollary is that the economic slowdown in China
cannot explain the fall in prices since 2011. China’s demand has continued
to grow, and even in the case of minerals and metals, where its contribution
72
A Voracious Dragon?
to the earlier boom in prices was most evident, increased supply rather than
reduced demand from China has been the main factor causing prices to fall.
Although economists have tended to concentrate on prices, China has
also had other impacts on commodity markets. Political analysis has drawn
attention to the strategic implications of China’s growing presence. Some see
its efforts to secure supplies of key raw materials as a threat that could lead to
Western countries being locked out of these markets. The discussion in this
chapter indicates that such fears are exaggerated.
Another feature of the growth of Chinese demand has been the
reorientation of trade from the traditional South-North pattern, with an in-
creasing share of South-South trade. Although the rhetoric of South-South
trade implies a more equitable trading relationship than that which his-
torically characterized North-South trade this is not necessarily the case, as
for most developing countries trade with China involves exporting primary
commodities and importing manufactured goods. In several value chains,
there is evidence that the shift in the market to China has in fact led to
the downgrading of exports to less-processed raw materials. This has been a
common source of concern about trade relations with China. A second char-
acteristic of the Chinese market is that standards tend to be lower than or not
as strictly enforced as in the West. While this may make it easier for exporters
to access the market, it can have negative effects in the exporting country.
73
4
Going Global
Chinese Firms Abroad
China’s growing presence in the global economy is reflected not just by

its involvement in world trade in manufactures and commodities, as dis-
cussed in Chapters 2 and 3, but also by the activities of Chinese firms ‘on the
ground’ through foreign direct investment (FDI) and infrastructure projects.
This chapter documents the scale and growth of outward investment and
projects, and the main Chinese actors involved, paying particular attention
to the key factors that have led to the international expansion of Chinese
firms.
4.1 China’s Outward FDI
There is no doubt that China’s outward foreign direct investment (OFDI) has
grown rapidly since the start of the twenty-first century and the adoption of
the Go Global policy. However, quantifying the scale and significance of this
growth is made difficult by problems associated with the available statistics
(see Box 4.1).
Box 4.1 PROBLEMS IN MEASURING CHINA’S OFDI
The official source of data on OFDI is the Ministry of Commerce (MOFCOM), which
since 2003, has adopted the OECD and IMF definitions and methodologies for esti-
mating foreign investment. These figures may underestimate the true level of Chinese
FDI, because only information from firms registering their investment with MOFCOM is
collected, and many firms, particularly smaller ones, do not do so (Shen, 2013). In addi-
tion, as was mentioned in Chapter 1, there was significant ‘round tripping’ by Chinese
firms because the advantages enjoyed by foreign firms investing in China made it prof-
itable for companies to export capital from China to bring it back as foreign investment.
Going Global
By its very nature, it is difficult to know the extent of round tripping, but estimates sug-
gest that it might have accounted for 15–20 per cent of total OFDI in the mid-2000s
(Lunding, 2006, p. 3). The tax advantages given to foreign firms were withdrawn in
2008, reducing the incentive for Chinese firms to practice round tripping.
The data problems which affect the figures on aggregate OFDI from China are multi-
plied when it comes to the level of investment in individual countries. Official statistics
only record the initial and not the ultimate destination of OFDI. Because so much
Chinese investment is channelled through Hong Kong and various tax havens, in-
vestment in other countries is underestimated (Garcia-Herrero et al., 2015; Anderson
et al., 2021). When China’s reported figures on outward investment in OECD countries
are compared with those of partner-countries on inward investment from China, the
average stock according to China’s figures is 40 per cent lower (OECD, 2008, Box 3.1).
Figure 4.1 shows that Chinese OFDI was very limited throughout the
1980s, increased somewhat during the 1990s, and then grew rapidly, fol-
lowing China’s accession to the World Trade Organization (WTO) in 2001.
There was a further increase in OFDI following the global financial crisis in
2008, which led to a spate of mergers and acquisitions by Chinese firms.
FDI outflows peaked in 2016 and then fell in the later years of the decade
following the introduction of new controls in response to falling foreign
exchange reserves and a global decline in FDI flows. The Chinese govern-
ment identified excessive outflows of FDI into sectors such as entertainment,
real estate and football clubs as a major factor in the fall in reserves and re-
sponded by making it more difficult to obtain foreign exchange and bank
loans for non-priority investments (Blanchard, 2019, p. 83). Despite this the
total stock of Chinese outward investment continued to increase, albeit at a
slower rate than in earlier years.
China’s share of global investment flows has increased from negligible
levels in the 1980s and 1990s to around 0.5 per cent in the early 2000s to an
average of over 11 per cent between 2016 and 2019 (UNCTADStat, n.d.). This
made China the third-largest foreign investor in the world, after the USA and
Japan in that period.
Since China has only recently become a significant player in terms of out-
ward investment, its share of the global stock of OFDI lags some way behind
its share in new flows. By 2019 China’s total stock of FDI, over US$2,000
billion, accounted for 6.1 per cent of the global stock (UNCTADStat, n.d.) but
this was only a sixth of the stock of EU outward investment and a quarter of
that of the USA.
These figures suggest that despite the hype surrounding China’s invest-
ment, it has not yet achieved a leading position in global terms. Given
the problematic nature of official data on Chinese OFDI, is it possible
that this conclusion is based on gross underestimation of the real level of
China’s international engagement? Other evidence suggests not. Between
75
5000
500
50
0.5
0.05
0.005
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
OFDI Flow OFDI Stock Contracted Projects
Figure 4.1. Chinese stock and annual flow of outward FDI and turnover of contracted
projects fulfilled, 1982–2019 (US$ billion)
Source: UNCTADStat and China Statistical Yearbook, 2020.
2016 and 2019, China’s share of the value of global cross-border mergers
and acquisitions (M&As) and greenfield FDI announcements came to about
10 per cent and 9 per cent, respectively (UNCTAD, 2020, Annex Tables 6
and 13), slightly less than its share in outward investment flows. This again
indicates that China lags some way behind the EU and USA in terms of its
involvement in FDI.
Another indicator of the extent of China’s overseas expansion is the
number of Chinese companies ranked amongst the world’s leading transna-
tional corporations. Although the number of Chinese firms on lists of the
world’s largest companies, such as Forbes’ and Fortune’s, has grown sig-
nificantly in recent years, this is due to the scale of their production in
China itself. Until recently few Chinese companies could be considered
truly transnational corporations (TNCs) in the sense of having extensive
overseas operations. Only two Chinese corporations were in the top 100
non-financial companies in the world, ranked in terms of their foreign as-
sets in 2015: the China Ocean Shipping Company and the China National
Offshore Oil Corporation (CNOOC) (UNCTAD, 2016, Annex Table 24). The
recent growth in operations abroad has seen the number increase to nine by
2019, including major Chinese companies such as China National Petroleum
Company (CNPC), Sinopec, Sinochem, Tencent, Huawei and Legend
(UNCTAD, 2020, Annex Table 19). However the level of globalization of the
76
Going Global
leading Chinese companies is significantly lower than that of the world’s

leading multinationals (Wang, 2019, p. 35).
The main destination for Chinese OFDI is Hong Kong, which has consis-
tently accounted for more than half the total stock. Although some of this
involves the acquisition of assets in Hong Kong by Chinese companies, there
is a question of whether Chinese investment there should be regarded as for-
eign investment at all. First, a significant part involves round tripping by
Chinese firms (see Box 4.1). Second, since Hong Kong reverted to China in
1997, although it is treated as a separate economic entity for both regulatory
and statistical purposes, Chinese investment there is different from OFDI as
normally conceived.
Tax havens, particularly the Cayman Islands and the British Virgin Islands,
have also been an important destination, accounting for around a quarter of
the total stock of Chinese OFDI in 2006, although their share has fallen since
then (MOFCOM, 2016, Table 2). Since much of this investment either repre-
sents round tripping or is in holding companies, the ultimate destination of
the investment is unknown.
Leaving aside investment in Hong Kong and the Caribbean tax havens,
more than 60 per cent of the stock of Chinese FDI was in developing coun-
tries in the period before the Global Financial Crisis. However a surge in M&A
and greenfield investments during and in the aftermath of the crisis saw the
share of Chinese OFDI going to developed countries increase to more than
half of the total stock by 2014 (MOFCOM, 2016, Table 2). Recently grow-
ing restrictions on Chinese companies in several developed countries (Wang,
2019), including the USA, the UK, and Australia, as illustrated by the restric-
tions on Huawei and the file sharing app TikTok (owned by the Chinese firm
ByteDance), have seen a drop in investment flows from China to developed
country markets and a return to a greater emphasis on the Global South.
Moreover, developing countries still account for a larger share of OFDI from
China than from the OECD countries.
State-owned enterprises (SOEs) have played a key role in the growth
of Chinese OFDI. In 2006 centrally controlled SOEs accounted for more
than four-fifths of the stock of outward investment. The remaining fifth
was shared between locally controlled SOEs and various types of non-SOEs,
including limited liability companies, private firms, wholly foreign-owned
companies, and joint ventures between Chinese and foreign firms (OECD,
2008, p. 77). Although the share of central SOEs had fallen to just over a
half of the total stock by 2015 (MOFCOM, 2016, Figure 16), when local SOEs
and subsidiaries are added it is clear that the state still controls the bulk of
Chinese FDI.
77
The continued dominance of SOEs in Chinese OFDI is reflected in the list

of China’s largest firms ranked by foreign investment. In 2015, nineteen of
the twenty largest companies from China, ranked by FDI, were SOEs, as were
forty-five of the largest fifty.1 The Chinese companies with the largest pres-
ence overseas included the major oil companies, CNPC, CNOOC, Sinopec,
and Sinochem, and mining companies such as Aluminum Corporation of
China and Minmetals, all of which are state-owned. The most important
private firms in terms of their investment overseas were Huawei and Midea
Group, which ranked thirteenth and twenty-third in 2015. Foreign invest-
ment by private firms is growing (Wang, 2019), and private firms are now in
the majority in terms of the number of firms investing overseas, but because
of their smaller scale, they account for a much lower share of the value of
OFDI.
4.2 Overseas Projects by Chinese Companies
Although much of the research on the international expansion of Chinese

companies focuses on OFDI, this is by no means the only way in which
Chinese firms have internationalized. Indeed some of the most controversial
examples of foreign involvement by Chinese companies, such as the Merowe
Dam in Sudan, have not involved OFDI at all. Such large-scale infrastructure
projects which, while they involve the presence of Chinese companies for a
number of years while the project is under construction, do not lead to a per-
manent establishment that defines it as FDI. As Figure 4.1 shows, the annual
value of overseas projects completed by Chinese firms has been somewhat
higher than OFDI flows since the early 1980s. The origins of China’s involve-
ment in projects abroad were part of the government’s aid programmes under
Chairman Mao.2 Before 1979 such projects were agreed on a government-
to-government basis and carried out by Chinese ministries through their
construction enterprises. The projects were located in a relatively small num-
ber of countries.3 One of the best-known examples was the TanZam railway,
which was built in the 1970s to give Zambia an alternative route to the
1
Own elaboration from list of largest non-financial Chinese TNCs ranked by OFDI stock
(MOFCOM, 2016, Table 12).
2
See Low and Jiang (2003) on the development of the international activities of Chinese
construction companies.
3
In the period 1976–9, contracts were signed with only eleven countries (NBS, 1996, Tables
16–18).
78
Going Global
sea avoiding white minority-ruled Southern Rhodesia (Zimbabwe), after the

latter’s unilateral declaration of independence from Britain.
Projects continued to be closely tied to Chinese aid until the mid-
1980s, when central government SOEs were allowed to bid for international
projects, which weakened the link with China’s aid programme. From then
onwards SOEs were able to expand internationally for commercial ends, and
were successful in bids for World Bank and Asian Development Bank projects.
The number of countries in which Chinese firms had contracts increased to
over a hundred by the late 1980s. In the 1990s there was further expan-
sion as a growing number of Chinese firms, including provincial SOEs and
other regional firms, became involved in overseas projects, so that by the
late 1990s, they had contracts in more than 180 countries. The number of
Chinese workers employed on these projects increased from 20,000–30,000
in the 1980s and early 1990s to around 400,000 in recent years (NBS, 2019,
Table 11.21). The total value of contracts completed in 2019 came to $173
billion, almost 50 per cent more than the OFDI flow in that year. Despite
their significance, such projects have received much less academic attention
than Chinese OFDI.
Developing countries have always been the focus of Chinese economic co-
operation projects with over 90 per cent of the value of completed projects,
reflecting the original link with Chinese aid. In the 1980s the Middle East
became an important destination, reflecting the construction boom in the
oil-exporting countries. Neighbouring countries in Asia were also signifi-
cant markets. While Asia remains the most important market, the shares of
Africa and Latin America have both increased over the past two decades (see
Figure 4.2).
1998–2000 2016–2018
Rest of the World Rest of the Hong Kong

7% World 3%
Latin America 10%
1% Latin America
8%
Hong Kong
Africa
27%
23%
Rest of Asia
Africa
48%
Rest of Asia 31%
42%
Figure 4.2. Geographical distribution of value of completed projects, 1998–2000 and

2016–18
Source: National Bureau of Statistics of China.
79
As was the case with OFDI, SOEs have played a major role in the growth of
overseas projects. Soon after the start of the reform four large SOEs were iden-
tified to specialize in engineering and construction projects abroad (OECD,
2008, pp. 81–2).4 The number and size of Chinese contractors operating
overseas grew steadily from the mid-1980s. They have been able to leverage
the experience gained at home with the Chinese government’s massive in-
frastructure programme to build capabilities which make them formidable
competitors internationally.5 They are now amongst the largest in the world
in terms of their overseas operations. A total of seventy-four Chinese com-
panies were ranked in the top 250 international contractors in terms of their
international revenue in 2019, more than from the whole of Europe and
twice as many as from the USA (ENR, 17–24 Aug. 2020, p. 40).
SOEs continue to play a leading role in international contracting. In 2010,
eighty-five centrally owned SOEs accounted for 36 per cent of the value
of foreign projects (Ohashi, 2013, p. 92). The remainder is dominated by
companies under provincial or local government ownership. Of the largest
twenty Chinese companies in terms of their international contracting rev-
enues, only one, Qingjian Group Co. Ltd, is privately owned. More than
forty of the largest fifty contractors are SOEs.6 The largest Chinese compa-
nies operating abroad were the China Communications Construction Group,
the Power Construction Corporation of China, the China State Construc-
tion Engineering Corporation, the China Railway Construction Corporation,
the China Railway Group, and the China Energy Engineering Corporation,
which are all in the international top twenty; they are also all state-owned
companies.
4.3 Strategic Objectives of the Chinese State

in Going Global
Discussing relations between China and the Global South, Breslin (2013) dis-
tinguishes between the strategic diplomatic or political objectives and the
strategic economic objectives pursued by the Chinese state, and the com-
mercial objectives of Chinese firms. This section considers the state’s strategic
4
These were the China State Construction Engineering Co. Ltd, the China Civil Engineering
and Construction Corporation, the China Road and Bridge Engineering Co. Ltd, and the China
Complete Set Equipment Import and Export Co. Ltd.
5
For example, China Gezhouba Group Corporation was set up in 1970 to build the Gezhouba
Dam, the first large-scale hydropower project in China. Similarly, the Three Gorges Corporation
was founded in 1993 to build the project of the same name. These are now amongst the leading
international dam builders (Hwang et al., 2015).
6
Own elaboration from the Chinese companies included in the Engineering News-Record
(ENR) list of the Top 250 International Contractors (ENR, 2020).
80
Going Global
aims in relation to the international expansion of Chinese companies, while

section 4.4 discusses the commercial factors which have led these firms to
operate beyond China’s borders.
4.3.1 Political Objectives

In terms of political factors, Chinese firms’ operations abroad can be seen as
a means of extending China’s ‘soft power’ and rewarding friendly regimes.
Several authors point to the importance of political considerations during
the early period of growth of Chinese FDI after 1980 (Cai, 1999; Hong and
Sun, 2006). Moreover, because in the 1980s Chinese projects were mainly
linked to China’s aid programme, these were also likely to be particularly in-
fluenced by political considerations. Investment and infrastructure projects
in Hong Kong in the 1990s were seen as a means of strengthening the Chi-
nese government’s political influence there in the lead up to the UK returning
the territory in 1997. This also influenced China’s involvement in some
strategically significant Third World countries.
One of China’s long-term diplomatic objectives has been to isolate
Taiwan. Paradoxically, although Taiwan is a major investor in mainland
China, with more than US$50 billion invested, there was no recorded in-
vestment from the People’s Republic of China (PRC) in Taiwan until 2010,
and levels have remained low since then. Relations with Taiwan have also
affected Chinese FDI in other countries, since a number of countries recog-
nize Taiwan and, therefore, under the PRC’s One-China policy, cannot have
diplomatic relations with the mainland. All projects targeting Taiwan and
the countries that recognize it are subject to a separate approval procedure,
regardless of the size of the project, and have to be reported to the State
Council (OECD, 2008, p. 88).
The election in Taiwan of President Ma of the Kuomintang Party in place
of the more nationalist Democratic Progressive Party (DPP) in 2008 led to an
informal truce between Beijing and Taipei in terms of competition for diplo-
matic recognition. During Ma’s time in power, there were no further switches
of diplomatic relations. The return to power in Taiwan of the DPP follow-
ing the 2016 presidential elections brought this truce to an end, and since
then, several countries have broken off diplomatic relations with Taiwan and
recognized the PRC.
4.3.2 Strategic Economic Objectives

Although there have been significant changes in the framework govern-
ing outward investment and overseas contracts, the state’s strategic eco-
nomic objectives have remained unchanged. These are to build up globally
81
competitive Chinese companies, and to contribute to China’s national

economic development. While the ways in which Chinese firms’ foreign
operations contribute to China’s economic development may change over
time, the overall aim has remained the same.
During the early years of China’s economic reforms, policy on outward in-
vestment remained highly restrictive. There was debate over the desirability
of OFDI amongst the Chinese leadership, with some arguing that it would
encourage corruption, capital flight, and capitalist influence (Economy and
Levi, 2014, p. 48). The need to conserve scarce foreign exchange and the
priority given to domestic accumulation meant that OFDI was not encour-
aged. Firms that wanted to invest abroad needed to earn foreign exchange
before they could do so. Until the mid-1980s, only state-owned foreign trade
corporations could engage in OFDI. In 1979 the China International Trust
and Investment Corporation was created as a ministerial-level corporation
which was allowed to invest abroad (OECD, 2008, pp. 81–2). OFDI projects
were considered on a case-by-case basis, and there was no overall framework
governing outward investment until 1984–5 when firms other than trading
corporations were allowed to apply for projects; however, the availability of
foreign exchange remained a constraint, and OFDI was limited (Rosen and
Hanemann, 2009, Appendix 2).
On the other hand, the scarcity of foreign exchange was a factor which
encouraged China to bid for projects abroad (Ohashi, 2013). After the re-
form the government tapped into the experience acquired through earlier
aid programmes and began to encourage projects and labour service con-
tracts to generate foreign exchange and create employment opportunities.
In 1978 the Ministry of Foreign Economic Liaison and the State Capital Con-
struction Commission produced a ‘Report on the Development of Overseas
Construction Contracted Projects’. This was approved by the State Council in
1978, and four SOEs which had been involved in earlier aid projects were put
in charge of such projects. In 1979 these companies had orders for projects
worth over $50 million in countries such as Egypt, Somalia, and Hong Kong
(Ohashi, 2013, p. 89).
The Chinese government began to encourage OFDI more actively during
the second stage of reform in the 1990s (Blanchard, 2019; Wang, 2019). It
became easier for firms to obtain foreign exchange and the approval pro-
cedures were gradually eased. Between 1991 and 1997 the State Council
identified over a hundred SOEs in strategic industries such as energy, mining,
automobiles, electronics, iron and steel, chemicals, and pharmaceuticals as
potential ‘global industry champions’ to lead the internationalization of Chi-
nese business (OECD, 2008, p. 120). The firms were given preferential access
to finance to help them to expand abroad and increase their international
competitiveness.
82
Going Global
Efforts to promote global Chinese companies played a major role in the

adoption of the Go Global policy at the turn of the century with the Tenth
Five-Year Plan (2001–5) and a series of decrees between 2000 and 2002 to reg-
ulate and promote FDI (Shambaugh, 2013, pp. 174–6). The Tenth Five-Year
Plan on Inward and Outward FDI specifically referred to the development
of internationally competitive multinational enterprises as one of the objec-
tives of the Go Global strategy (quoted in Sauvant and Chen, 2014, p. 142).
The Belt and Road Initiative, launched in 2013, provided further support
for the overseas expansion of Chinese companies and has been seen as an
upgraded version of the Go Global strategy (Yu, 2017, p. 3).
The nature of the contribution of Chinese firms’ international expansion
to China’s development has varied over time as the strategic needs of the
economy have evolved. In the 1980s a shortage of foreign exchange required
the concentration of resources on promoting domestic accumulation, and
there was little scope for capital outflows. In the 1990s exports came to play
an important role in China’s development strategy, with OFDI and overseas
contracts favoured when they could help to open up markets and promote
exports of goods and labour. In a speech to the Fifteenth Party Congress in
1997, President Jiang Zemin said: ‘We should encourage and help relatively
competitive enterprises with various forms of ownership to invest abroad in
order to increase export of goods and labour services’ (quoted in Shambaugh,
2013, p. 175).
When the Go Global strategy was explicitly adopted in the Tenth Five-
Year Plan its contribution to Chinese development included investment in
natural resources. This coincided with the growing dependence on imported
raw materials and concerns about resource security discussed in Chapter 3.
Acquiring resources abroad through OFDI was seen as a way of ensuring more
secure supplies. Chinese energy companies were required by the National
Development and Reform Commission (NDRC) to obtain upstream supplies
through acquisitions abroad (Salidjanova, 2011, p. 7). In 2004 the gov-
ernment introduced subsidized loans for priority projects that developed
natural resources in short supply in China, or that led to exports of domestic
technology, products, equipment and labour, and for M&A projects with
potential for strengthening Chinese firms’ international competitiveness
(OECD, 2008, p. 85).
Since 2012, with the ending of the commodity boom, the slowdown in
Chinese economic growth, and the accumulation of massive foreign ex-
change reserves, strategic priorities for OFDI have been changing towards
a greater emphasis on increasing overseas demand and exporting capital to
create opportunities for Chinese firms. The BRI was intended not only to
improve access to European markets, but also to provide opportunities for
Chinese construction companies and producers of aluminum, cement, steel
83
and railway equipment to utilize growing excess capacity and expand abroad
(Zha et al., 2019).
A further strategic objective that has become increasingly important is
obtaining foreign technologies through the acquisition of, or joint ven-
tures with, more technologically advanced companies in the West. As China
seeks to upgrade technologically it has not only sought to increase R&D
within China but also encouraged Chinese firms to set up R&D activities
abroad and collaborate with foreign R&D institutions and innovative en-
terprises (Sauvant and Chen, 2014, p. 143). This was set out explicitly in
the Twelfth Five-Year Plan on Inward and Outward FDI, published in 2012,
which identified three priority areas for OFDI. These are natural resource
projects to secure stable, sustainable supplies of energy and raw materials; in-
vestments that help to promote technological upgrading in China through
the acquisition of foreign know-how and brands; and investments to expand
China’s presence in overseas markets (NDRC, quoted in Sauvant and Chen,
2014, p. 144).
One indicator of the state’s strategic priorities in terms of promoting the
international expansion of Chinese firms is the distribution of government
loans to finance OFDI and build-own-operate-transfer projects.7 Irwin and
Gallagher estimated that almost four-fifths of such loans were for oil and
mining projects between 2003 and 2012, indicating that the acquisition of
natural resources was by far the state’s most important objective in that
period. They estimate that about 15 per cent of loans were motivated by
market access, particularly to support infrastructure projects in power, while
only 4 per cent were related to technology acquisition (Irwin and Gallagher,
2014). Since 2012 it is likely that these two objectives have become more
important.
4.4 The Commercial Objectives of Chinese Firms
It is possible to identify a number of commercial motives that lead firms to

expand abroad. The literature on FDI distinguishes between four types of in-
vestment: natural resource seeking, market seeking, efficiency seeking, and
strategic asset seeking (Dunning and Lundan, 2008, Chapter 3). Resource-
seeking investment often occurs when growth at home outstrips domestic
sources of raw material supplies. Market-seeking investment takes place to
supply foreign markets, often where trade barriers or high transport costs
7
The latter only includes projects where the Chinese company has a long-term involve-
ment and is not just a contractor providing goods and services rather than investing (Irwin and
Gallagher, 2014, p. 7).
84
Going Global
make it difficult to access the market through exports. Efficiency-seeking

investment occurs to exploit national differences in production costs, par-
ticularly labour costs, or to take advantage of economies of scale by locating
particular stages of production in different countries to supply global mar-
kets. Finally, strategic asset-seeking investment involves M&As made by firms
seeking to broaden their range of capabilities. It has been noted particularly
in the case of investment by firms from emerging markets in more advanced
economies.
How important have each of these motives been in the international ex-
pansion of Chinese firms? How significant are commercial factors relative to
strategic diplomatic and economic drivers in explaining OFDI?
4.4.1 Resource Seeking

Acquiring oil and mineral rights abroad is not only a strategic economic
objective of the Chinese government; it is also an important commercial ob-
jective for Chinese firms. Like other companies in the extractive industries,
Chinese SOEs need to acquire new reserves to expand and to replace the re-
serves that they deplete. Given increasing resource scarcity, it is difficult for
them to do so within China. Downs (2008, p. 79) quotes PetroChina’s chief
financial officer saying in 2003: ‘We can hardly expect big production in-
creases at home. Overseas production will become the new driving force in
the future.’ They also need to expand the number of countries in which they
operate, in order to diversify their operational risks.
Before 1991 most of China’s resource-seeking investment was in devel-
oped countries, particularly Australia and Canada. Since then, and particu-
larly since the start of the new millennium, there has been a shift in emphasis
towards developing countries, which now account for the greater part of
Chinese OFDI in natural resources.
Resource-seeking investment is undertaken by two types of firms: those
that are themselves based in the primary sector; and those whose major oper-
ations are in downstream industries that depend on particular raw materials.
The Chinese oil companies CNPC, CNOOC, and Sinopec belong to the first
group, and have established a wide range of operations outside China in-
cluding oil exploration, service provision, the operation of oilfields, and oil
refining (Shankleman, 2009). The upstream part of the business has tended
to be the most profitable, and this has been accentuated in China by price
controls on refined products, which squeeze downstream profits. This means
that the companies could raise their overall profitability by expanding up-
stream production overseas to mitigate the losses that they were making on
their refining operations in China (Downs, 2008, p. 79).
85
There are numerous examples of the second type of firm investing in

mining abroad. For example, several of China’s major steel companies have
acquired iron ore mines to supply their manufacturing plants in China.
The first major investment by a Chinese company in Latin America was
the Shougang Group’s acquisition of the Marcona mine in Peru in 1992,
to ensure adequate supplies of iron ore for its expanding steel industry
(González-Vicente, 2013). Other Chinese steel firms which have invested in
mines abroad include the Baosteel Group Corporation, Sinosteel, and Wuhan
Iron and Steel (Shankleman, 2009, Tables 6 and 9).
Historically resource-seeking was the most important motive for Chinese
firms investing abroad, although its significance has declined in recent years
(Qin, 2019). One indicator of this is the proportion of Chinese OFDI and
overseas projects going to extractive industries. Unfortunately, because the
official Chinese statistics on OFDI do not record the ultimate destination
of investment, they do not provide an accurate indication of the distribu-
tion between sectors. According to the Ministry of Commerce (MOFCOM)
statistics, the most important sector for Chinese FDI is leasing and business
services, but this category includes holding companies which invest in third
countries, regional headquarters, and special-purpose vehicles, making it is
impossible to identify which sectors are really involved (OECD, 2008, p. 76).
Leaving aside leasing and business services, in the period before the Global
Financial Crisis around a quarter Chinese OFDI was in mining.8 Since the
crisis this share has fallen by about a half by 2018.
These figures probably underestimate the real level of Chinese OFDI in
extractive industries. Data drawn from company-level information indicate
that over 70 per cent of Chinese FDI between 2005 and 2010 went into the
energy or metals sectors9 . Again the share of OFDI going to these sectors has
fallen during the second decade of the twenty-first century to just over a half
between 2011 and 2015 and a quarter between 2016 and 2020. Neverthe-
less it is still the case that resource seeking remains an important motive for
Chinese FDI.
The significance of resources as a determinant of Chinese OFDI is also
borne out by a number of econometric studies of the geographical distribu-
tion of investment, which find that resource-rich countries receive relatively
high levels of Chinese investment (Buckley et al., 2007; Cheung and Qian,
8
Zhan (1995, Figure 3) estimates that 24 per cent of Chinese OFDI between 1980 and 1994 was
in natural resources. More recent data, from MOFCOM, shows the share of mining at 25 per cent
of the stock of OFDI in 2006. Agriculture, forestry, and fisheries account for a further 1–2 per cent
of the total.
9
Own calculation from the China Global Investment Tracker database. These figures overes-
timate the true share of extractive industries since energy also includes power generation while
although metals includes mining, some investments are in manufacturing activities such as steel
or aluminum.
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2009; Kolstad and Wiig, 2012; Wang and Yu, 2014, Zhang and Roelfsema,
2014; Dollar, 2017). This factor is particularly significant in explaining
Chinese investment in developing countries. Some of these studies also find
that the role of resources in explaining the pattern of investment has be-
come more significant in the first decade of the twenty-first century. This
reflects the Chinese economy’s growing dependence on imported resources,
as discussed in the Chapter 3.
More direct evidence of the motives of Chinese firms investing abroad is
provided by firm surveys. These have found that resource seeking is impor-
tant for a substantial minority of firms. In a 2005 United Nations Conference
on Trade and Development (UNCTAD) survey of Chinese firms, 40 per cent
of firms regarded this as an important motive (UNCTAD, 2006, p. 168, n.61).
Another survey by the China Council for the Promotion of International
Trade (CCPIT) (2011) reported that 28 per cent of firms considered accessing
natural resources a decisive or important factor in their investment deci-
sions, and this was the third most important decisive factor identified.10 One
limitation of these surveys is that they do not take into account the scale
of investment involved. Since resource-seeking FDI tends to be dominated
by large SOEs, the proportion of the value of investment motivated by re-
source seeking is likely to be greater than the proportion of firms citing it as
a motive.11
In the case of international projects carried out by Chinese firms, only a
minority can be directly identified as resource seeking from the point of view
of the firms concerned. According to the China Global Investment Tracker,
the oil, coal, and gas industries accounted for just over a fifth of the value
of Chinese projects since 2005.12 It is of course possible that projects are
indirectly linked to the acquisition of resources, as in the case of resources
for infrastructure deals, but the commercial objective of the firm building
the infrastructure, as opposed to the strategic objective of the Chinese state,
is not to obtain resources.
4.4.2 Market Seeking

Market seeking has also been a significant motive for Chinese firms abroad.
Initially this involved investment in local branches or distribution centres
to facilitate exports from China (Cai, 1999, p. 85). Later, manufacturers that
10
Note that these surveys do not require firms to identify the most important motive for OFDI,
and that they may select several important factors.
11
Huang and Wang (2013, Table 3) report that whereas over 40 per cent of the number of
projects approved by NDRC since 2003 were motivated by resource seeking, these accounted for
more than 50 per cent of the value of investment.
12
There may have been some projects in mining, but most of what is classified as metals
appears to be steel and aluminum plants rather than mining.
87
faced trade barriers invested in setting up local assembly plants or produc-

tion facilities. Whereas most firms from emerging markets tend to engage
in market-seeking investment in neighbouring countries because China’s
major export markets are in developed countries, it has also been involved
in extensive market-seeking investment in the North (UNCTAD, 2006, p.
158). The Haier Group, for example, has set up plants in the USA and
Europe to avoid quota restrictions and potential anti-dumping measures
(OECD, 2008, p. 98).
Intense competition in the Chinese market has led to falling profit mar-
gins in some sectors, motivating firms to look for new markets abroad. This
has been particularly significant in mature industries such as textiles and gar-
ments, footwear, bicycles, and electrical appliances, with significant excess
capacity (OECD, 2008, p. 98).13 The Chinese construction industry also ex-
perienced a high degree of competition at home, which has contributed to
the expansion of operations overseas (Corkin, 2008).
Another type of OFDI which can also be classed as market seeking has
occurred where Chinese producers have taken advantage of other countries’
preferential access to developed-country markets. In the period up to 2005,
when the WTO Multi-fibre Arrangement was in force, plants were set up to
take advantage of the unused quotas held by some countries, while investors
in Africa looked to supply the US market on preferential terms through the
African Growth Opportunities Act. Chinese textile manufacturers have in-
vested in Turkey to supply the EU market and have set up clothing factories
in Fiji for the Australian market (OECD, 2008, p. 98).
Studies of the geographical distribution of Chinese OFDI have generally
found a positive relationship with the size of the market (as measured by
gross domestic product) and/or with Chinese exports to the country (Buckley
et al., 2007; Cheung and Qian, 2009; Cheng and Ma, 2010; Kolstad and
Wiig, 2012; Wang and Yu, 2014, Zhang and Roelfsema, 2014). This supports
the significance of market-seeking investment, and is particularly associated
with Chinese OFDI in the OECD countries (Kolstad and Wiig, 2012), and
investment by private firms (Ramasamy et al., 2012).
Firm surveys confirm that market seeking is an important motive for Chi-
nese firms investing abroad: 85 per cent of those responding to the UNCTAD
survey in 2005 regarded it as important or very important (UNCTAD, 2006,
p. 167, n. 48). In the 2010 CCPIT survey, 86 per cent of firms considered the
market potential of the host country either a decisive or an important factor
in their decision to invest (CCPIT, 2011, Table 1.2). Other factors included
13
Overcapacity in China’s home-appliance industry has been estimated at over 30 per cent for
washing machines, 40 per cent for refrigerators, 45 per cent for microwave ovens and 87 per cent
for televisions (OECD, 2008, Chapter 3, n.67) which has put pressure on manufacturers to find
new markets.
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in the survey related to market-seeking motivation were circumventing trade

barriers (66 per cent) and a sluggish domestic market (57 per cent).
The bulk of the engineering and construction projects carried out by
Chinese firms abroad can be considered to be primarily market seeking. The
most important sectors in which Chinese contractors are involved are trans-
port, housing construction and power engineering, which accounted for
more than three-fifths of the value of completed projects in 2014 (CAITEC
et al., 2015, Figure 2.7). By its very nature, infrastructure can only be
supplied locally. Faced with intense competition at home, Chinese construc-
tion companies have been keen to obtain new markets abroad, which has
led them to bid for contracts around the world, and not just those that are
financed by the Chinese government.
4.4.3 Efficiency Seeking

Not surprisingly, given the low wages and high productivity of Chinese
manufacturing, offshoring to lower-cost locations (efficiency-seeking invest-
ment) has not been a major feature of Chinese FDI up to now.14 A study of
293 foreign projects by 216 firms approved by the NDRC between 2003 and
the first half of 2011 found only seven that can be classified as efficiency
seeking, and these accounted for only 0.7 per cent of the total value of in-
vestment (Huang and Wang, 2013, Table 3). Surveys of Chinese firms have
consistently found that factors associated with efficiency seeking, such as
low labour costs in host countries, have not been very important.15
In the case of foreign construction projects, the clearest evidence that
these are not motivated by a desire to exploit cheap labour in the host coun-
try is the fact that one of the most common complaints against Chinese firms
is that they bring their own workers rather than creating employment op-
portunities for locals. While the extent to which this takes place may have
been exaggerated by some critics, the fact that it takes place at all indicates
that cheap local labour is not a motivating factor for Chinese construction
companies.
Following the sharp increases in wages in coastal areas of China since the
mid-2000s, some Chinese companies have set up in neighbouring countries,
14
The econometric studies discussed earlier do not discuss the efficiency-seeking motive as an
explanation for Chinese OFDI.
15
Access to low-cost labour was the least significant of nineteen factors driving OFDI, accord-
ing to the first survey of Chinese FDI by the Asia Pacific Foundation of Canada and the China
Council for the Promotion of International Trade (APFC/CCPIT, 2005, p. 16).
89
such as Vietnam and Cambodia,16 where wages are lower than in China. An
econometric study of Chinese OFDI in the ASEAN countries between 2005
and 2016 found that low labour costs were a significant factor in attracting
investment in the region (Ma et al., 2020). Some authors, including former
World Bank Chief Economist Justin Lin, have suggested that such investment
could also occur in Africa in the foreseeable future (Lin, 2011). However,
there is little evidence of this occurring on a significant scale to date (see
Chapter 7). The last APFC/CCPIT survey of Chinese investors ranked ‘mak-
ing use of overseas low-cost labour’ last of twenty-one objectives of future
planned investment by Chinese firms (APFC/CCPIT, 2013, Figure 21).
4.4.4 Strategic Asset Seeking

Strategic asset seeking arises when firms invest abroad in order to acquire as-
sets such as technology or brands to overcome the disadvantages that arise
from being latecomers in global competition. It has received a great deal of at-
tention in the literature on Chinese OFDI (Child and Rodrigues, 2005; Deng,
2007, 2009). One of the best-known examples is that of Lenovo, which be-
came a major global PC producer as a result of its acquisition of IBM’s PC
division in 2005. Other examples include Nanjing Automotive’s takeover
of MG Rover in 2005, and Geely’s purchase of Volvo from Ford in 2010
(Salidjanova, 2011, p. 9).
This type of investment usually involves OFDI in more developed
economies. It also tends to take the form of mergers or acquisitions of as-
sets rather than greenfield investment. As discussed earlier, M&A has been a
significant form of Chinese firms’ OFDI in recent years.
How significant is strategic asset seeking in the overall picture of Chinese
OFDI? Over a quarter of the projects approved by NDRC since 2003 could be
classified as technology seeking, and these have made up over 20 per cent of
the value of investment (Huang and Wang, 2013, Table 3). Although there are
several high-profile examples, the fact that the same cases crop up time after
time suggests that they may be more the exception than the rule. Sutherland
(2009, p. 23) concludes that ‘to date strategic-asset-seeking OFDI has been
rather limited, even from the select national team business groups’.
Turning to overseas contracts, it is highly unlikely that these have in-
volved a significant level of strategic asset seeking. Whereas this motive is
usually associated with activities in more developed economies, as noted
16
Examples include Wuxi Huanyauan Garment Co. Ltd, which operates a textile factory in
Vietnam, exporting to the European and US market, and Ningbo Shenzhou Knitting Co. Ltd,
which exports clothing from Cambodia to the USA (OECD, 2008, Chapter 3, n.72).
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previously, over 90 per cent of the value of Chinese projects has been in
the Global South.
The econometric evidence on strategic asset seeking is mixed. Buckley
et al. (2007) and Wang and Yu (2014) find no evidence that such a motive
affects the pattern of OFDI,17 but Zhang and Roelfsema (2014) do find that
their indicator of the technology intensity of host countries has a positive
impact on Chinese investment, and that this appears to be stronger follow-
ing the adoption of the Go Global policy. Using firm-level data, Ramsamy
et al. (2012) find that strategic asset seeking, as proxied by technology level,
is a significant driver of SOE investment abroad, although not for private
Chinese firms.
One limitation of these studies is that they refer to the period before the
global financial crisis. The crisis opened up new opportunities for Chinese
investors to acquire Northern companies, so while the picture may have
changed somewhat, strategic asset seeking probably remains less important
than resource-seeking or market-seeking investment.18 Looking to the future,
‘upgrading its own brand in international markets’ was cited as the most
important driver of intended OFDI by Chinese firms in 2013 (APFC/CCPIT,
2013, Figure 21) and a survey of more than 200 Chinese companies in 2016
found that branding was the most important motive for going abroad (Wang,
2019, Figure 2.14). This suggests that strategic asset acquisition is becoming
a more significant factor.
Although the evidence discussed so far shows that market-seeking,
natural- resource-seeking, and strategic-asset-seeking motives have all been
significant factors in the growth of Chinese investment, this does not imply
that overseas expansion by Chinese firms does not respond to the gov-
ernment’s strategic priorities. In fact the various surveys of Chinese firms
consistently rank the Go Global policy as one of the major factors that led
them to invest abroad.19 This highlights the fact that the Chinese govern-
ment’s strategy sets the context within which firms make their decisions,
even if they are pursuing their own commercial interests.
17
Anderson et al. (2021) suggest that studies based on official Chinese statistics underestimate
the importance of strategic assets as a motive for Chinese firms because such investment often
occurs through Hong Kong or tax havens.
18
The analysis of NDRC-approved projects by Huang and Wang (2013, Table 3) supports
this. When classified according to their primary motivation, resource seeking accounted for
51.3 per cent; market seeking for 28.4 per cent; and technology seeking for 20.1 per cent of the
value of investment between 2003 and 2011.
19
In the CCPIT survey for 2010, the Going Global policy and relevant favourable support
was rated as either a decisive or an important factor in the investment decisions of more than
90 per cent of those questioned (CCPIT, 2011, Table 1.2). In a 2016 survey it was joint second in
terms of the proportion of firms reporting it as a key factor (Wang, 2019, Figure 2.14).
91
4.5 Is the International Expansion of Chinese Firms State-Driven

or Market-Driven?
What lies behind the international expansion of Chinese firms in recent

years? Given the significant role of SOEs in Chinese investment and overseas
projects, has it been motivated primarily by strategic political and eco-
nomic factors? Alternatively, given the increasing autonomy of SOEs and
the growing involvement of non-state enterprises, is the key driver invest-
ing firms’ commercial interests? Blanchard (2011) identifies two perspectives
in the Western literature on Chinese multinational corporations. The first,
emphasizing the role of political and strategic considerations, he terms the
‘Beijing as Puppeteer’ camp. It sees foreign expansion as primarily deter-
mined by a coherent state strategy rather than by market forces. The second
view, which stresses commercial interests, is described as the ‘Business of
Business is Business’ or ‘BBB’ camp. This implies that the decisions taken by
Chinese firms are primarily motivated by their desire to maximize returns
and can be analysed in much the same way as FDI from other countries.
The international expansion of Chinese firms cannot be explained simply
in terms of a single universal driver, as the Beijing as Puppeteer and BBB views
tend to do. The reality is far more complex (Blanchard, 2011). The domi-
nant factors can and have evolved over time. Chinese OFDI and overseas
projects have become increasingly heterogeneous, in terms of both owner-
ship and the sectors involved. The relative importance of political, strategic
economic, and commercial factors is likely to differ according to whether
a firm is a centrally controlled SOE, a local SOE, a large private firm, or a
small or medium-sized enterprise. It can also differ according to the sector
concerned. The influence of state strategy, and firms’ interests, can also shift
with the stages of the investment cycle.
Several writers have suggested that the dominant motives have changed
over time, with political considerations more important in the early years
but strategic economic and commercial considerations dominating more re-
cently (Cai, 1999; Hong and Sun, 2006). In the 1980s OFDI was relatively
limited and subject to a strict approval process, which meant that only
projects favoured by the government went ahead. Overseas projects were
more important than OFDI in terms of the annual value of finance. Since
these projects were largely funded by the government, they were also po-
litically driven. In the 1990s, government promotion of OFDI came to be
more explicitly determined by strategic economic considerations, particu-
larly in terms of supporting investments and projects that would promote
exports from China. The government continued to exercise control over the
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direction of investment. These strategic economic motives became much

more explicit with the adoption of the Go Global policy in the early 2000s.
The commercial interests of individual companies also became more im-
portant during this period. Further liberalization of the outward investment
regime reduced the degree of control exercised by the government. The re-
forms to the SOEs discussed in Chapter 1 gave them more autonomy to
pursue their commercial interests at home and abroad, and the increasing
significance of private firms in China’s international expansion meant that
commercial factors came to play a more significant role.
There is evidence that ownership matters in Chinese firms’ overseas ac-
tivities. Whereas SOEs tend to be resource seeking, investment by private
Chinese firms is more likely to be market seeking. SOEs are more likely to
engage in strategic asset-seeking investment than private companies are.
There is also evidence that private firms are more risk averse than SOEs in
terms of the countries where they invest (Ramasamy et al., 2012).
The central government is more likely to play a significant role in invest-
ment decisions in a strategic sector such as oil than in, say, the footwear or
furniture industries. It is no accident that despite the changes in ownership
that have occurred within China, SOEs continue to dominate key sectors.
Within the state sector, the government clearly regards some industries as
more strategic than others, and the oil industry stands out in this respect.
On the other hand, in domestic appliances, firms such as Haier and Galanz
have significant foreign investment and although they have received govern-
ment support, they are more likely to be primarily motivated by commercial
interests in securing access to markets.
There may also be a cycle over the period of a foreign investment’s life. At
the time when an investment is being planned, the government may play a
significant role in determining which sectors and countries firms invest in.
Once a firm is operating abroad, the ability of the government to control
the activities of the foreign subsidiary is likely to be much more limited, and
commercial factors are likely to play a more important role in decisions. For
example, the government played an important role in encouraging Chinese
oil companies to expand overseas and even influenced which countries were
targeted, but once established, the companies make decisions on commer-
cial grounds concerning where to sell the oil that they produce, and do not
necessarily export all their output to China.20
In practice, it is difficult to separate strategic economic and commercial
drivers in China’s international expansion. This is particularly evident in the
case of investment in natural resources, which can reflect the Chinese state’s
20
Downs (2008, p. 88) estimates that 40 per cent of the production of Chinese SOEs was sold
outside China in 2007.
93
interest in ensuring secure supplies but also corresponds to the interests of

the companies involved in expanding their reserves. Although oil is of par-
ticular strategic significance for China, and the government encouraged the
major companies to expand abroad in the 1990s as China became a net oil
importer, as discussed in Chapter 3, the first overseas investments by CNPC
were a corporate initiative and preceded concerns over energy security in
government circles (Meidan, 2016, pp. 19–20). The company was later able
to use the banner of energy security to lobby the government for greater au-
tonomy and simpler approval procedures for its activities abroad. Thus the
strategic interests of the government and the commercial interests of the oil
companies have become intertwined.
A similar issue arises with the acquisition of technology. This has been
identified as a strategic economic objective of the Chinese government,
which wants to develop a stronger national technological base. It can also
correspond to a firm’s interest in acquiring strategic assets in order to
strengthen its competitive position.
The relationship between the state and business in China is an increas-
ingly complex one. It is no longer a case of the state imposing a strategy on
business in a top-down manner, whether in relation to SOEs or to the pri-
vate sector. As noted, SOEs have been given greater autonomy to pursue their
commercial interests, and are even encouraged to do so. At the same time,
business leaders have more opportunities to influence government decisions
on OFDI and have called for the approval process to be further liberalized
(Sauvant and Chen, 2014, p. 142).
Political, strategic economic, and commercial objectives have all played
a part in the overseas expansion of Chinese firms over the past thirty years.
Given the fact that the Chinese government has played such a major role
in promoting and regulating FDI, and that much of the investment is in the
hands of SOEs, the role of the state cannot be ignored. Over time, as SOEs
have become more independent and private firms have increased their share
of OFDI, the balance between commercial, strategic economic, and political
considerations in investment decisions has probably shifted somewhat to-
wards the first of these, but strategic political and economic considerations
still play a role. They are also likely to be particularly important in the case
of resource-seeking and strategic asset-seeking investment.
94
5
The World’s Wallet?

China’s Role in Global Finance
At the height of the Eurozone crisis in 2011, China was heralded as the so-
lution to Europe’s debt crisis (The Economist, 2011). European governments
were approaching China, cap in hand, for financial support. This is one in-
dication of China’s growing importance in global financial markets. How
has a country with an income per capita far below that of even the poor-
est countries in the Eurozone acquired the means to be seen as the zone’s
saviour?
Another often-cited indication of China’s global financial prowess is its
role in lending to developing countries. It is widely claimed that China is
now lending more than multilateral and regional development banks to de-
veloping countries, and that it is giving more aid than other donor nations.
How did a country that was a net recipient of foreign aid until the mid-2000s
become a major donor within a decade? How has it gone from a junior part-
ner in institutions such as the World Bank and Asian Development Bank
to the force behind the creation of new financial institutions such as the
Asian Infrastructure Investment Bank (AIIB) and the New Development Bank
(NDB)?
It is the massive growth in China’s foreign exchange reserves that has
made the country a significant player in global financial flows. After joining
the World Trade Organization in 2001, China’s balance of payments sur-
plus surged, as both exports and inward foreign direct investment (FDI) grew
rapidly. As a result China accumulated foreign exchange reserves which came
to US$3.9 trillion in 2014, the largest total of any country, according to the
World Bank, World Development Indicators.
Rather than simply accumulating reserves, the Chinese government has
taken steps to relax some of its restrictions on capital outflows and has
increased foreign investment and lending abroad. Outward financial flows
other than outward foreign direct investment (OFDI) have taken a variety of
different forms. These include portfolio investment, non-concessional loans

and credit lines to foreign governments, export credits, and loans to Chinese
companies to support overseas expansion, as well as official development as-
sistance (ODA), which includes grants, interest-free loans, and concessional
loans. This chapter considers these capital flows under three main headings:
portfolio investment; bank loans and trade credits; and foreign aid.1
5.1 Portfolio Investment
In 2007 the State Council decided to invest about 20 per cent of its foreign
exchange reserves in domestic and foreign alternative investments, and put
$270 billion into two sovereign wealth funds, the China Investment Cor-
poration (CIC) and the State Administration of Foreign Exchange (SAFE)
Investment Company (SIC) (Thomas and Chen, 2011). These, together with
the National Social Security Fund (NSSF), which was authorized to invest
abroad in 2005 in order to diversify the fund’s assets (Herd et al., 2010,
p. 35), became important vehicles for Chinese portfolio investment abroad.2
CIC was set up in 2007 with initial capital of $200 billion from China’s
foreign exchange reserves. It was created after economists from the Ministry
of Finance (MOF), the National Development and Reform Commission, and
the State Council’s Development Research Council criticized SAFE’s manage-
ment of foreign exchange reserves (Koch-Weser and Haacke, 2013, p. 15). It
was established with ministerial rank and reports directly to the State Coun-
cil. In terms of operational control, the MOF has most influence within the
CIC, and its first chair, Lou Jiwei, was a former Vice Minister of Finance
who subsequently became Minister of Finance. In 2019 CIC was the world’s
second largest sovereign wealth fund (SWF), with total assets under manage-
ment of more than $1,000 billion (IE Center for the Governance of Change,
2019)). Its international portfolio increased from $56 billion to $250 billion
between 2008 and 2015 (Sovereign Wealth Center, 2017).
In 2019 SIC, the other major Chinese SWF, managed assets of almost
$700 billion, making it the sixth-largest SWF in the world (IE Center for the
Governance of Change, 2019) The SAFE Investment Company was set up in
Hong Kong in 1997 as a subsidiary of SAFE, which is responsible for manag-
ing China’s foreign exchange reserves, with an initial capital of $20 billion.
1
As was the case for OFDI, there are significant problems in measuring other Chinese financial
flows so that official figures probably underestimate the true extent of such flows. See Horn et al.
(2019) for estimates of what they refer to as ‘hidden debts’ to China.
2
Portfolio investment refers to investment in stocks and shares, which, unlike foreign direct
investment, does not give the investor managerial control over the company in which the in-
vestment is made. The International Monetary Fund (IMF) regards investments where the holding
represents more than 10 per cent of the company as direct investment, and those with less than
10 per cent as portfolio investment.
96
SIC makes both direct and portfolio investments abroad. Although the bulk
of its assets are in government bonds, cash, and other liquid assets, it has
also invested in oil and gas, with a stake in Total Société Anonyme. During
the global financial crisis SIC invested $150–$200 billion in US, European,
and Australian shares. It has also invested in property and utilities in the
UK. At the end of 2012, it was estimated to hold at least $21 billion in FTSE
100 stocks (Santiso, 2013, p. 48).
NSSF was created by the Chinese government in 2000 as a strategic fund
to support future social security expenditure. In 2019 it was also ranked as
one of the top ten SWFs in the world, with assets of over $400 billion (IE
Center for the Governance of Change, 2019). NSSF was only allowed to invest
7 per cent of its assets abroad until 2009, when the allowance was increased
to 20 per cent, giving it a capacity to acquire $30–40 billion in overseas assets
(Koch-Weser and Haacke, 2013, p. 24).
The China-Africa Development Fund (CADFund) was announced by
President Hu Jintao at the 2006 Forum on China-Africa Cooperation, and
set up in the following year under the auspices of the China Development
Bank (CDB), with a specific mandate to finance investment by Chinese firms
in Africa. It is much smaller than the other three Chinese SWFs, with assets
of $10 billion, and is the only one that focuses exclusively on developing
countries.
Although it is an SWF, its investments do not qualify as portfolio invest-
ments as defined by the International Monetary Fund (IMF). It was originally
set up to acquire majority shareholdings in Chinese investments in Africa,
but this was subsequently modified so that it can hold shares of between
10 and 40 per cent (Grimm and Schickerling, 2013). It has invested in a cot-
ton cultivation project in Southern Africa, power generation in Ghana, and
manufacturing in Ethiopia. CADFund also provides advice and information
to Chinese companies considering investing in Africa.
In 2011 these four funds between them accounted for about a quarter of
the total assets managed by all SWFs in the world (Koch-Weser and Haacke,
2013, p. 8). However, SWFs only accounted for 3.6 per cent of the total
global management fund industry in that year (ibid. Table A3), so the share
of Chinese SWFs in global funds would be less than 1 per cent.
Rather surprisingly in view of the rapid growth of Chinese SWFs over
the past decade, Figure 5.1 shows that Chinese portfolio investment did not
grow in the decade to 2015 when it was slightly lower than before the global
financial crisis. A major reason for this is that the two main Chinese SWFs
are managed out of Hong Kong, so their investments are not included in
data for the mainland. Portfolio investment from Hong Kong increased al-
most three-fold over the decade to 2015, and was almost five times the level
of reported investment from the mainland (IMF, 2020). Although portfolio
investment from the mainland increased from the middle of the decade, it
97
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Portfolio Investment Trade Credits Loans
Figure 5.1. China’s foreign assets, 2004–20 (US$ billion)

Source: PRC State Administration of Foreign Exchange, 2020, The Time-Series Data of Interna-
tional Investment Position of China available at: https://www.safe.gov.cn/en/2018/0928/1459.html
(accessed 26 November 2020).
was still only a third of the level of investment from Hong Kong at the end
of 2019 (IMF, 2020). However even the total sum invested by the People’s
Republic of China (PRC) and Hong Kong (after netting out bilateral flows to
avoid double counting) is fairly small, accounting for less than 3 per cent
of the global portfolio investment of over $66 trillion, according to the IMF
(2020).
Chinese finance is popularly perceived as going mainly to the developing
world, but this is certainly not the case with portfolio investment. Over half
of investment at the end of 2019 was in Hong Kong, and the Caribbean tax
havens with the remainder concentrated in developed countries. The most
important developed country destination was the USA, which accounted
for a quarter of the total. The other top destinations were the UK, Japan,
Luxemburg, Germany, France, and Australia (IMF, 2020). This pattern is also
reflected in the distribution of the overseas assets of China’s main sovereign
wealth fund, the China Investment Corporation, mainly in the USA and
other developed countries (CIC, 2020 p. 25).
98
5.2 Bank Loans and Trade Credits
Chinese assets held abroad other than direct and portfolio investment con-
sist mainly of bank lending and trade credits. As Figure 5.1 shows, both grew
faster than portfolio investment up to 2015, but since then trade credits
have levelled off as a result of the slowdown in international trade and bank
lending has slowed. At the end of 2019, outstanding trade credits stood at
$560 billion and loans at almost $700 billion.
China has used export credits extensively to secure foreign markets.3 Glob-
ally it has been estimated that China accounted for about a third of all official
trade-related finance in 2019. Its total official medium and long-term export
credit came to three times as much as that of any other country in that year
(EXIM, 2020).
Overseas lending by Chinese banks has also grown significantly in re-
cent years, particularly since the global financial crisis. According to the
Chinese Banking Regulatory Commission, while eleven Chinese banks had
assets abroad of $227 billion in 2006, by 2012, sixteen banks held total assets
of more than $1 trillion.4 More recently the total foreign assets of Chinese
banks have passed the $2 trillion mark. Chinese banks were responsible for
7 per cent of global cross-border loans, but were much more significant in
emerging markets where they were the major lenders with almost a quarter
of the total (Cerutti et al., 2020, Table 1). The two main policy banks and the
four largest commercial banks in China account for the bulk of foreign loans
(OECD, 2015, p. 15).
The Chinese policy banks, the CDB and the Exim Bank, play a key role
in Chinese lending abroad. It has been estimated that between them they
accounted for more than three-quarters of all direct cross-border lending
between 2000 and 2017 (Horn et al., 2019, p. 17). The largest of the pol-
icy banks is the CDB, which has full ministerial rank and comes under the
State Council. Its original role was primarily to fund major government
infrastructure and industrial projects within China such as the Three Gorges
Dam, the South-to-North Water Diversion Project, the West-East Natural Gas
Pipeline, and the Qinghai-Tibet Railway (Downs, 2011, p. 18). It also provides
loans to many local governments within China. It is able to provide fund-
ing on a much longer-term basis than the commercial banks because of its
quasi-sovereign nature. It does not, however, provide concessional loans.
3
In 2005–8, the total medium and long-term export credit agency financing as a share of
merchandise exports was 3.2 per cent in China compared to 1 per cent or less in Canada,
Germany, Japan, the UK, and the USA (Massa, 2011, Table 1).
4
These figures include those from Hong Kong, Macau, and Taiwan. Since most Chinese banks
do not break down their foreign assets by country, it is impossible to say what proportion of total
assets abroad these represent, although for one bank that does provide figures, they make up
60 per cent of loans (IIF, 2014).
99
From the outset, the CDB’s mandate has been to break through bottle-
necks in Chinese economic and social development. While initially these
were conceived in terms of financing infrastructure and large-scale indus-
trial projects within China, as the economy became increasingly dependent
on imports of key raw materials, a natural extension of its role was to help
to ensure access to foreign sources of energy and minerals.
Since the government’s adoption of the Go Global policy in the early
2000s, the bank has become involved in lending outside China in a signif-
icant way. Between 2005 and 2015, its foreign currency loans grew more
than twenty-fold from $16 billion to $328 billion (Kong and Gallagher, 2016,
Figure 5). It was estimated that at the end of 2015, the CDB accounted for
29 per cent of foreign lending by Chinese financial institutions (Kong and
Gallagher, 2016, p. 21). Nevertheless, domestic lending still represents most
of its business.5
Although it was decided to commercialize the CDB in 2008, this was put
on hold as a result of the global financial crisis and was reversed in 2015.
Its role as a key financier of the Go Global strategy was a factor used to jus-
tify retaining its status as a policy bank (Downs, 2011, p. 23). It is the only
Chinese bank apart from the Central Bank (the People’s Bank of China) to
enjoy full ministerial rank, which reflects the centrality of its role in China’s
economic development strategy (Downs, 2011, p. 6).
The Exim Bank was also set up in 1994, with a mandate to ‘facilitate the
export and import of Chinese mechanical and electronic products, complete
sets of equipment and new and high-tech products, assist Chinese compa-
nies with comparative advantages in their offshore project contracting and
outbound investment, and promote international cooperation and trade’
(China Exim Bank, 2015, p. 5). Like the CDB, it also comes under the State
Council.
The Exim Bank is now the largest export credit agency in the world. It
is, however, considerably smaller than the CDB, both in overall size and in
terms of its operations outside China. In 2013 its overseas lending came to
$96 billion compared to the CDB’s $261 billion (OECD, 2015, p. 15). It is the
only Chinese bank that provides concessional loans, making it the conduit
for a significant part of China’s ODA (see section 5.3), as well as providing
preferential export credits.
The four state-owned commercial banks have also played a growing role in
lending abroad and they have been particularly active in financing projects
as part of the BRI in recent years (Chin and Gallagher, 2019, pp. 259–61). The
most significant of the commercial banks in terms of the size of its overseas
5
In 2015 only 14 per cent of CDB loans were made outside mainland China (CDB,
2015, p. 9).
100
assets is the Bank of China (BOC), followed by the Industrial & Commer-
cial Bank of China (ICBC), and the China Construction Bank (CCB). The
Agricultural Bank of China (ABC) is the least internationalized. However for-
eign assets only account for 9 per cent of the commercial banks’ total assets
(Economist, 2020) and they are far less internationalized than the leading
developed country banks,6
Although the four banks have significant government ownership, they
are expected to operate on a commercial basis. They are also publicly listed
and have more diversified shareholdings than the policy banks do, which
increases the pressure on them to maximize short-term profits.
5.3 China as an Aid Donor
Chinese aid can be traced back to 1950, when it began providing material
assistance to its neighbours North Korea and North Vietnam. Since 1954
China’s external relations have been couched in terms of the Five Principles
of Peaceful Coexistence. These comprise respect for territorial integrity and
state sovereignty; mutual non-aggression; mutual non-interference in inter-
nal affairs; equality and mutual benefit; and peaceful coexistence. Despite all
the changes that have taken place in China over the past six decades, these
principles are still cited.
In the 1950s China was a net recipient of foreign aid but became a
net donor after the Soviet Union cut off its aid in 1960. In 1964, Chinese
Premier Zhou Enlai announced the Eight Principles for Economic Aid and
Technical Assistance to Other Countries in a speech during a tour of African
countries. These sought to distinguish Chinese aid from that given by the
Western powers. They again emphasize equality, mutual benefit, and respect
for the sovereignty of recipient countries. They also stress China’s support
for countries wishing to embark on the road to self-reliance and independent
economic development, and the need to transfer technology effectively.
China expanded its aid programme in the 1960s and 1970s, and aid to
Africa grew significantly. This period was characterized by a number of large-
scale Chinese projects, most notably the Tanzam Railway linking Zambia
and Tanzania, which was started in 1970 and completed in 1975. It also saw
China build a number of turnkey factories to produce textiles, refine sugar,
and so on, and to provide support for agricultural development.
By the mid-1970s, foreign assistance was becoming a significant burden
on the Chinese government’s budget. In the Fifth Five-Year Plan (1976–80),
6
BOC ranks 28th and ICBC 34th amongst global banks in terms of the Bank Internationaliza-
tion Index (Shenglin, 2019).
101
a ceiling was placed on aid spending, which led to a sharp reduction in aid
in the late 1970s and early 1980s.
The major changes that took place in China in the late 1970s led to a new
phase in Chinese aid. First, China reverted to being a net recipient of aid
as a result of significant assistance from Japan, following the signing of the
Treaty of Peace and Friendship between the two countries in 1978. Second,
although China continued its aid programme, it did so on a much-reduced
scale.7 Third, the nature of China’s aid programmes changed, with much
greater emphasis on mutual benefit through economic cooperation. The re-
forms in China led to a greater emphasis on economic efficiency and the
need to generate foreign exchange, and this was reflected in China’s aid pro-
gramme, with more attention given to economic benefits and opportunities
for earning foreign exchange.
Some of these changes were reflected in the Four Principles of Economic
and Technological Cooperation announced by Premier Zhao Ziyang during
a four-week visit to a number of African countries in early 1983. While re-
iterating several of the Eight Principles from two decades earlier, the Four
Principles introduced notions of complementarity between China and the
African economies and the importance of obtaining good economic returns.
The Four Principles do not mention aid, and were seen as a move away from
aid, towards a variety of other forms of economic cooperation (Brautigam,
2009, p. 53).
A further stage in China’s aid policy, described by Brautigam (2008,
p. 206) as the period of ‘gearing up for going global’, began in the mid-1990s.
In 1994 China launched its Grand Plan of Trade and Economic Cooperation,
which proposed that aid should be integrated with FDI, economic cooper-
ation projects, and trade. Central to this strategy was the introduction of
concessional loans by the newly created Exim Bank in 1995. The emphasis
on win-win cooperation, and trade and investment became more central to
Chinese policy. This combination of foreign aid, investment, and trade has
become known as ‘trinity development cooperation’.
Since the early 2000s, China has also played a more proactive role in mul-
tilateral institutions. This has involved efforts to increase its voice and alter
the rules and balance of influence within existing institutions.8 Its rapid eco-
nomic growth and increased foreign reserves have enabled China to increase
its share of votes in key institutions such as the IMF and the World Bank.9
7
In 1989–90 Chinese aid was only a fifth of the level attained in 1975–6 in US$ terms
(Kobayashi and Shimomura, 2013, p. 55).
8
This has been described as the system-altering phase of China’s involvement in international
institutions (Shambaugh, 2013, p. 136).
9
The US Congress refused to ratify IMF reforms which increase China’s share of votes in the
organization on several occasions. It eventually approved these changes in December 2015.
102
It also saw the incorporation of the Chinese Yuan into the basket of
currencies included in the IMF’s Special Drawing Rights in 2015.10
A recent development, which could mark a new phase in the evolution of
Chinese aid, is the creation of new multilateral institutions in which China
plays a leading role.11 In 2015 the AIIB was launched, with headquarters in
Beijing, to provide an alternative source of funds to those of the existing mul-
tilateral institutions, for infrastructure investment in the region. Although
the USA and Japan, the leading countries within the World Bank and Asian
Development Bank (ADB), respectively, have not joined the AIIB, a number
of European countries including the UK have become founding members.
In the same year, the member countries of the BRICS—Brazil, Russia,
India, China, and South Africa—launched the NDB, also known as the BRICS
Development Bank), with its headquarters in Shanghai, aiming to create a re-
serve currency pool of $100 billion and their own credit rating agency as an
alternative to the three US agencies, Moody’s, Standard & Poor, and Fitch
(Snell, 2015, p. 61). Like the AIIB, the NDB focuses on financing infrastruc-
ture in developing countries, and is expected to be particularly involved in
Africa.
The creation of the AIIB and the NDB signals a significant shift in China’s
strategy, from trying to influence existing multilateral institutions from
within to developing new institutions and norms which are more in line
with China’s own perspectives. It also led to a significant increase in total
Chinese aid and in the share of multilateral aid in the total in 2015 and
2016 (Kitano, 2018). It remains to be seen whether these new banks turn out
to complement existing institutions, or emerge as their rivals.
5.3.1 The Scale of Chinese Aid

Many media reports and even some academic studies tend to exaggerate the
level of aid given by China by including in their figures financial flows, which
are not normally counted as aid. Until recently the Chinese government was
reluctant to use the term ‘aid’, preferring to refer to ‘economic cooperation’.
This has changed with the publication of the government’s White Paper,
China’s Foreign Aid, in 2011.
China defines aid differently from the OECD countries involved in the
Development Assistance Committee (DAC), making comparisons between
10
SDRs are a supplementary reserve asset created by the IMF in 1969, whose value depends on
a basket of currencies and which acts as a unit of account.
11
Huang and Wei (2015, quoted in Xu and Carey 2015a, p. 6) identify 2015 as the start of a
new phase in Chinese aid policy in which it becomes a proactive institutional and conceptual
innovator.
103
Chinese aid and that of other countries difficult.12 This is further complicated
by the fact that Chinese figures on aid are provided by a number of different
government ministries and agencies, rather than a single central source.
Estimates of the scale of Chinese aid vary wildly. One study for the Rand
Corporation claimed that in 2011, China pledged a total of $189 billion in
aid to developing countries (Wolf et al., 2013), whereas the OECD reports
that Chinese aid in that year came to less than $2.5 billion (OECD, 2013a,
Table IV.1). These contrasting figures have been arrived at in two very dif-
ferent ways. The Rand figure is based on media reports of financial pledges
made by China, and it includes not only aid but also government-backed
investments, which the DAC defines as Other Official Finance (OOF) rather
than ODA. It also refers to pledges rather than disbursements, so that this is
finance which may (or may not) be forthcoming at some point.
The OECD figure comes from the Fiscal Yearbook of China’s MOF, which
reports ‘ODA-like flows’. This figure does not include concessional loans or
multilateral aid and, therefore, underestimates the level of Chinese ODA
(Kitano and Harada, 2014). Taking these additional elements into account,
Kitano and Harada estimate that Chinese aid, calculated on a basis that is
comparable to OECD data for DAC lenders, came to $4.7 billion in 2011.13
Their figure for gross disbursements of aid between 2010 and 2012, $14.48
billion, is very close to the total of $14.41 billion reported for the same period
in the Chinese Government’s 2014 White Paper on foreign aid.
All of the various estimates of Chinese aid agree that it has grown signifi-
cantly since the early 2000s. China has risen from sixteenth or seventeenth
place in terms of net foreign aid in the early 2000s to seventh, behind the
USA, the UK, Germany, France, Japan, and Turkey in 2017 and 2018 (Kitano,
2019, Figure 6). It still has some way to go to catch up with the five largest
developed country donors in terms of the amount of foreign aid that it gives.
It also provides less than 0.1 per cent of Gross National Income in aid, rather
less than the 0.3 per cent average for DAC countries and the 0.7 per cent
international target (Snell, 2015, p. 21). Given China’s much lower level of
per capita income compared to the OECD countries, this is not surprising.
These figures also give a more realistic picture of the significance of Chi-
nese aid compared to the other types of capital flows that have been discussed
in this chapter. Between 2001 and 2018, the cumulative amount of foreign
aid (estimated on a basis similar to that used by the DAC) was about $65
billion. This compares to a total value of portfolio investment of almost
$500 billion and foreign loans outstanding of over $700 billion at the end
12
See Brautigam, 2011a and Grimm et al., 2011, Table 1, for summaries of the differences
between the Chinese and DAC definitions of aid.
13
Kitano (2016) provides revised estimates for Chinese aid which give a figure of $4.8 billion
in 2011, but lower figures for 2012 and 2013 than Kitano and Harada (2014).
104
of 2018 (Figure 5.1). Since 2014 the annual net disbursements of Chinese
aid have been less than disbursements of preferential buyer’s credit (Kitano,
2019, Table 1)
5.3.2 The Chinese Aid Architecture

Until 2018 when the China International Development Cooperation Agency
was created, the Ministry of Commerce (MOFCOM)’s Department of Foreign
Assistance (DFA) was in charge of overseeing foreign aid and was ‘respon-
sible for the formulation of foreign aid policies, regulations, overall and
annual plans, examination and approval of foreign aid projects and manage-
ment of the project execution’ (PRC, 2011). The administration of foreign
aid was merged with trade in 1982 during the early years of China’s eco-
nomic reforms, and it remained with MOFCOM and its predecessors after
that (Kobayashi, 2008, p. 9). It is an indication of the link between Chinese
aid, trade, and OFDI.
Other ministries also have their own specialized aid programmes. The
Ministry of Health provides medical teams to developing countries; the
Ministry of Education is responsible for scholarships for African and Latin
American students, whereas the Ministry of Agriculture provides technical
assistance in rural areas. Each ministry submits its aid budget to the MOF
for examination and then to the State Council for approval. MOF is the
agency responsible for debt relief, and China’s contribution to international
organizations such as the World Bank, the ADB, and various UN organiza-
tions. Chinese provincial governments have also established various kinds
of partnerships abroad, which, it has been argued, also constitute foreign aid
(Davies, 2008, p. 8).
Since China emphasizes national sovereignty, the formal mechanism
through which aid is given consists of the borrowing government making
a loan request, with a list of projects that is presented to MOFCOM and the
Exim Bank (Kobayashi, 2008, pp. 18–20).14 When the project has been eval-
uated, an intergovernmental framework agreement is signed, which sets out
the terms of the loan, and the Exim Bank signs a loan agreement with a
borrowing-country bank designated by its government. Although this ap-
proach is seen as a means of ensuring that loans are in line with the recipient’s
priorities, it is not uncommon for Chinese SOEs to suggest projects to the
government requesting the loan (Cheng et al., 2012, p. 8; Zhang and Smith,
2017, pp. 2339–40).
14
As noted earlier, China’s concessional loans are channelled through the Exim Bank, which
is responsible for the assessment of projects and the allocation and recovery of loans.
105
The role of the Ministry of Foreign Affairs (MOFA) in relation to aid policy
is to advise MOFCOM (Xue, 2014, p. 31). The Chinese embassy in recipient
countries may play a role in proposing projects and levels of aid to the coun-
try (Lancaster, 2007, p. 4). However, although Chinese embassies come under
the MOFA, the Offices of Economic and Commercial Affairs at the embassies
are often in a separate location and report directly to MOFCOM, rather than
to the ambassador or the MOFA (Corkin, 2011, p. 67; Sun, Y., 2014, p. 22).
Some MOFA officials and scholars have argued that responsibility for China’s
aid programme should be transferred to MOFA because MOFCOM’s focus on
economic gains can have a negative impact on China’s strategic and diplo-
matic interests, but so far the State Council has sided with MOFCOM on the
issue (Zhang and Smith, 2017, p. 2336).
In total there are more than thirty agencies involved in aid in China, and
this has led some commentators to conclude that Chinese aid spending is
disorganized and fragmented, lacking effective coordination (Chaponnière,
2009, p. 61; Lancaster, 2007, p. 5; Watanabe, 2013, p. 76). To deal with
this problem, the government has taken steps to increase the level of co-
ordination between different agencies, establishing an interagency liaison
mechanism for foreign aid in 2008, upgraded to an interagency coordination
mechanism in 2011 (PRC, 2011).
In 2018 the government created the China International Development
Cooperation Agency (CIDCA) ‘to further the effectiveness of aid as a key
foreign policy instrument, to improve the strategic planning and overall co-
ordination of aid, to centralize aid management, to reform modes of aid
delivery, and to better serve China’s overall diplomacy and construction of
the BRI’ (official press release quoted in Rudyak, 2019, p. 4). CIDCA replaced
MOFCOM as the lead coordinating body for Chinese aid and absorbed the
staff of MOCOM’s Department of Foreign Assistance. It also took over the
Ministry of Foreign Affairs role in aligning Chinese aid with the govern-
ment’s overall foreign policy objectives. It is a relatively small agency with
only a hundred staff and a limited budget mainly for administrative pur-
poses, while MOFCOM is formally allocated the majority of the aid budget
and retains a major role in project planning and implementation (Lynch
et al., 2020, pp. 8–9).
5.4 Drivers of Chinese Financial Flows
The debate over whether China’s economic expansion beyond its borders
is primarily a result of state strategy or commercial interests, discussed in
Chapter 4, also comes up in relation to financial flows. The fact that all of
the key actors discussed in this chapter are either government ministries or
106
centrally owned state enterprises, and that finance is a strategic sector, makes
it even more likely that strategic considerations play the dominant role in
finance than in any other sector. However, it would be an oversimplifica-
tion to explain financial flows in terms of a single strategic objective of the
Chinese state. The variety of actors involved, the different interests that they
represent, and the pressures to which they are subject require a more nuanced
analysis.
In the case of SWFs, the primary driver for the creation of CIC and SIC
and the decision to allow the NSSF to invest abroad in the mid-2000s was the
need to find alternative uses for China’s growing foreign exchange reserves
which would give better returns than holding US Treasury Bills. In this sense
the SWFs clearly respond to a strategic economic objective of the Chinese
government.
The official Chinese position is that SWF investments are purely commer-
cial. As Lou Jiwei, the then head of CIC, stated in 2009, ‘Our investment is
to make money. I don’t care how many tons of oil we can ship home, what
I do care about is the stock price’ (quoted in Murphy, 2012, p. 37). This is
reinforced by the first two basic principles, which, CIC claims, underlie its
investment strategy:
• CIC invests on a commercial basis. Its objective is to seek maximum

returns for our shareholder with acceptable risk tolerance.
• CIC is a financial investor and does not seek control of the companies
in its portfolio.
(CIC, Annual Report, 2019, p. 33)
It is sometimes claimed that broader government strategic objectives lie
behind the investments of China’s SWFs and that they are heavily invested in
the natural resources sector (Koch-Weser and Haacke, 2013, pp. 26–9; Dixon,
2019). It is certainly true that after the financial crisis there was a shift from
investment in financial companies to the natural resources sector. However,
this could also be explained in terms of the attractive returns to be earned
on such investments at a time of booming commodity prices, and it was not
necessarily linked to efforts to secure resources. The overall equity portfolio
of CIC is diversified, with the energy sector accounting for only .2.2 per cent
and materials for 3.9 per cent of the total (CIC, 2020, p. 25). Indeed CIC
has reduced its involvement in the energy and materials sectors since 2010,
when they accounted for a quarter of the company’s equity portfolio (CIC,
Annual Report, 2010, Figure 5).
Two factors limit the extent to which CIC can use its investments to fur-
ther the strategic interests of the Chinese government. First, over half of its
portfolio is managed outside the company by external fund managers, and
this proportion has increased over time. Second, CIC and other SWFs own a
107
relatively low proportion of the shares of the companies in which they in-
vest so that they do not give the SWF effective control. This is consistent
with the main objective of SWFs, which is to secure financial returns from a
diversified portfolio.
A much stronger case can be made for the strategic role played by the
policy banks, since they are not constrained to generate financial returns
to the same extent. The rationale for a policy bank is that it should play a
strategic role. As far as their lending abroad is concerned, the CDB and Exim
Bank have been involved in the acquisition of resources, promoting Chinese
exports and supporting the Go Global policy.
One frequently cited indication of the importance of strategic economic
motives in bank lending is the resource-backed loans, which both CDB
and Exim Bank have provided to a number of countries, including Angola,
the Democratic Republic of the Congo, Ecuador, Russia, Turkmenistan, and
Venezuela.15 These are loans to a foreign government or SOEs which are
repaid through sales of a resource, mainly oil and gas. The oil and gas are
sold to a Chinese SOE, with the payment by the SOE deposited in an ac-
count with the CDB or Exim Bank. The loans may be used for projects
which are not related to the resource extraction, such as roads or power
stations.
Although such deals are seen as evidence that policy-bank lending re-
sponds to the strategic interests of the Chinese state, they can also be useful
for the banks themselves, for Chinese oil and mining companies, and for Chi-
nese contractors.16 From the point of view of the government, they are seen
as a way of securing supplies of key resources, particularly oil and gas. They
also help to diversify the use of the country’s large foreign exchange reserves.
For the policy banks, these loans are a source of profit and international ex-
pansion that helps them to diversify their assets. The tying of repayments to
resource exports is also a means of reducing the risk of loan defaulting, par-
ticularly in economically or politically unstable countries. They also dovetail
with the interests of Chinese oil and mining companies in obtaining access
to foreign natural resources in order to expand internationally and increase
their profits. Finally, since the loans are usually tied to the use of Chinese
contractors to carry out the funded projects, they expand the market for
Chinese engineering and construction companies. Downs (2011, p. 58) de-
scribes the role of the CDB in energy-backed loans as ‘the bridge between the
strategic objectives of the Chinese government and the commercial activities
of Chinese firms’.
15
These are sometimes referred to as Resource for Infrastructure (R4I) swaps.
16
What follows is based on Downs (2011) analysis of CDB’s energy deals.
108
The other point illustrated by resource-backed loans is the way in which

the different aspects of the growing integration of China in the global econ-
omy, discussed separately in this book, are often linked. These deals are
reflected in trade flows through Chinese imports of natural resources,17 and
often through exports of machinery and equipment from China for local
infrastructure projects.18 In some cases they are linked to OFDI by Chinese re-
source companies in the host country,19 and they invariably involve projects
carried out by Chinese contractors. Thus the various aspects of China’s in-
ternational projection discussed in Chapters 2 through 4 can all be linked to
the lending activities of the policy banks.
Despite being state owned, the commercial banks enjoy greater autonomy
from the central government than the policy banks, and they are more sub-
ject to pressure to make profits. Their international expansion has, therefore,
been driven more by commercial imperatives, arising in part from the grow-
ing international operations of their customers as more Chinese firms invest
abroad. This has led them to set up branches abroad to support their clients.
They have also acquired shares in foreign financial institutions. In addition
investing abroad helps the banks to diversify and to reduce their dependence
on the Chinese market, where competition is intensifying.
All countries’ aid programmes reflect a variety of motives. Donors’
rhetoric, of course, invariably stresses economic development and poverty
reduction as the major objectives of their aid programmes. However, govern-
ments are rarely, if ever, wholly altruistic in their aid giving. They also seek to
obtain economic advantage, using aid to support trade and foreign invest-
ment by securing access to raw materials, export markets, and investment
opportunities. Governments use aid strategically to support their allies in key
regions, and as an instrument of soft power to enhance their international
image and influence.20
As with other countries, Chinese aid has involved a complex mix of dif-
ferent objectives. Both changes over time and the interests of different actors
play a role in determining the relative significance of the different drivers.
While poverty reduction has been the main declared objective of aid from the
17
Although it is not always the case that the resources are exported to China: they are
sometimes sold on the international market.
18
In some instances they have been linked to Chinese exports of consumer goods. For
example, part of a CDB loan to Venezuela was used to import domestic appliances from Haier.
19
Although there was no formal link between the Exim Bank’s loan to Angola in 2004 and the
creation of a joint venture between Sinopec and the Angolan state oil company Sonangol, it has
been suggested that the loan did help Sinopec to invest in the country (see Chapter 6, Box 1).
20
The concept of soft power, developed by Joseph S. Nye, refers to the ‘ability to shape pref-
erences of others’ and ‘to get others to want the outcomes you want’ (Nye, 2004, quoted in
Shambaugh, 2013, p.209). Soft power is contrasted with hard power, which involves coercion or
the threat of force, and reflects the capacity to attract others.
109
OECD countries for a number of years now, it receives relatively little empha-
sis in Chinese statements on aid. China’s 2011 White Paper on aid does not
specifically mention poverty reduction, referring rather to economic growth
and progress (PRC, 2011, Preface). In the 2014 White Paper, there is a refer-
ence to reducing poverty and promoting the achievement of the Millennium
Development Goals, which include poverty reduction. However, the empha-
sis in Chinese statements on aid continues to be on economic development
rather than poverty reduction (Zhang et al., 2015). This is consistent with
the Eight Principles view that aid should be not ‘a kind of unilateral alms
but something mutual’.
The stress on ‘mutual benefit’ in the Chinese discourse on aid means that
the economic advantages that China derives from its aid programmes are
clearly articulated. As two Chinese scholars point out, ‘by helping recipient
countries build some economic development-related projects, China expects
to reap trade, investment and contract opportunities overseas, especially
for Chinese enterprises going abroad’ (Luo and Zhang, 2014). Aid projects
carried out by Chinese construction companies, for example, have enabled
these companies to gain a foothold in recipient markets, and they have subse-
quently stayed on and won commercial contracts (Brautigam, 2008, p. 206).
The fact that a significant proportion of aid is tied to the purchase of Chinese
goods and services ensures that Chinese firms benefit from Chinese aid.21
However, there is a tendency on the part of some authors to exaggerate the
extent to which Chinese aid is driven by economic interests, particularly in
relation to access to oil, gas, and minerals, and the role of loans for resource
deals in developing countries. This arises from the confusion between Chi-
nese aid and the other forms of official finance discussed earlier. Studies such
as Lum et al. (2009) and Wolf et al. (2013), which show the bulk of flows go-
ing to natural resource extraction and infrastructure, include a wider array of
projects than is normally included in the definition of aid. Most of the loans
involved in these deals are examples of credit for investment or trade and are
not aid according to OECD DAC criteria (Brautigam, 2010, p. 18; Fuchs and
Rudyak, 2019, p. 401).
Whereas strategic economic considerations have played an important role
in bank loans and export credits, Chinese aid has been influenced more by
strategic diplomatic factors. China has consistently used its aid programmes
to obtain diplomatic support from the recipients. In the 1960s, obtaining
admission to the United Nations, and securing the Chinese seat on the
21
There are no figures on the proportion of Chinese aid that is tied. It should be noted that
despite the recommendations of the DAC on untying aid, several OECD countries continue to tie
a significant proportion of their bilateral aid. In 2015 over 40 per cent of US aid and 25 per cent
of Japanese aid was tied, although in the case of the UK, all aid was untied (OECD/DAC, 2017,
Table 6).
110
UN Security Council, which was occupied by the nationalist government in

Taipei (Taiwan), was a major objective of Chinese diplomacy. China sought
support from newly independent countries and offered to replace their Tai-
wanese aid programmes with its own support. In the vote in 1971, fifty-one
of the seventy-six countries that supported the PRC had been recipients of
Chinese aid (Li et al., 2014). China continued to use aid as a tool to obtain
diplomatic recognition and isolate Taiwan until 2008, when the election of
President Ma of the Kuomintang led to a drop in the tension and an infor-
mal truce in the competition between Beijing and Taipei for recognition.22
China also looks to aid recipients for international support within the United
Nations to avoid pressure from the West over its human rights record. This
became particularly important when it was faced with diplomatic isolation
as a result of the killing of civilians in Tiananmen Square in 1989 (Fuchs and
Rudyak, 2019, p. 397).
In contrast to its insistence on recipients observing the One China Policy
and breaking diplomatic links with Taiwan as a condition of aid, China
prides itself on not imposing domestic conditionality on other countries.
This was a major feature of both the Eight Principles (Principle 2) and the
Four Principles (Principle 1). China’s refusal to impose political conditional-
ity on recipients of Chinese aid has been much criticized in the West, where
it has been argued that it undermines other donors’ efforts to improve gover-
nance, reduce corruption, and ensure respect for human rights in developing
countries. Adherence to the principle of non-interference in internal affairs
makes it difficult for China to explicitly use its aid to influence recipients’
domestic politics, even if it wished to do so.
Similarly, China rejects attempts to impose a particular model of economic
development on other developing countries. The talk of a ‘Beijing Consen-
sus’23 as opposed to the Washington Consensus, as promoted by the IMF,
the World Bank, and most Western governments, has not been promoted
by the Chinese government. Indeed it has explicitly rejected the notion of
a model that can be transferred to other countries, arguing that each devel-
oping country should follow its own path, which is determined by its own
particular conditions (Shambaugh, 2013, p. 214; Zhang et al., 2015, p. 23).
Chinese aid can also be seen as a means of enhancing China’s soft power.
A number of aspects of its aid, such as its growing contribution to UN peace-
keeping missions, disaster relief, the large number of medical teams sent to
developing countries, and recently the ‘mask diplomacy’ and ‘vaccine diplo-
macy’ in response to the COVID-19 pandemic serve to improve China’s
22
This truce ended following the victory of the more nationalist Democratic Progressive Party
in the 2016 presidential elections in Taiwan.
23
The term ‘Beijing Consensus’ was popularized by Joshua Cooper Ramo in his 2004 book of
that name.
111
international image and present it as a responsible power. Exchange pro-

grammes which bring foreign students to China and the establishment of
Confucius Institutes to promote Chinese culture and language in many
countries are also means of developing soft power.
In summary then, a variety of factors has contributed to the growth of
international financial flows from China in recent years. Some factors are
clearly linked to the strategic concerns of the Chinese government, whereas
others reflect the investors’ interests. However, it should also be clear that
although the Chinese state cannot dictate the pattern of outward flows, it
does have considerable influence over them, not least through its regulatory
apparatus.
5.5 Conclusion
Despite the rapid growth of China’s foreign exchange reserves and the grow-
ing international operations of its financial institutions, the significance
of China in global financial markets should not be exaggerated. Although
Chinese SWFs are amongst the largest in the world, their investments are
dwarfed by those of other international investors. Even when investment
from Hong Kong is included, China’s share of global portfolio investment
remains quite limited. Despite the growth of its foreign aid, it is still only a
medium-sized donor some way behind the USA, the UK, and Japan. Where
China does play a significant global role is in providing export credits, with
the Exim Bank the world’s largest lender. It is also a significant provider
of OOF to developing countries. This partly reflects the fact that because
Chinese financial institutions are SOEs, most of their lending can be classified
as official flows. However, China’s share of total financial flows (including
private flows) is relatively low.
The significance of China’s growing role in global finance is not due so
much to the scale of its involvement as to the extent to which its financial
flows are under the control of the state. Since the bulk of these flows come
from the SWFs, the policy banks and the state-owned commercial banks,
the state can exercise control over their direction and use. Different types
of finance are used for different purposes. Portfolio investment by SWFs is a
means of utilizing China’s foreign exchange reserves more effectively. Bank
lending has been used to promote Chinese exports, acquire natural resources,
and support its Go Global policy. Aid in the conventional sense has con-
tributed to the growth of China’s soft power in the Global South, as well as
creating business opportunities for Chinese companies.
Although China is not, in overall terms, a dominant feature of the global
financial landscape, its emergence has had some important implications.
112
It does provide an alternative source of finance to traditional investors,

lenders, and donors. This is particularly significant for countries in the Global
South, which, for political or economic reasons, find it difficult to access
more conventional sources. Chinese finance has also helped to increase the
bargaining power with traditional donors of some developing countries and
to create the ‘policy space’ to adopt more heterodox economic strategies
(Prizzon et al., 2016, p. 36).
There are also signs that the growing significance of China (and other
emerging economies) is having an impact on the global governance of devel-
opment finance (Xu and Carey, 2015b; Chin and Gallagher, 2019; Chen, M.,
2020). China’s emphasis on infrastructure for both its loans and its ODA
has not only enabled countries to invest in infrastructure projects that they
might not otherwise have been able to undertake but also contributed to
a reappraisal of the significance of investment in infrastructure by interna-
tional financial institutions and major donors (Cheng, 2015, pp. 217–18).
Further, the use of mixed credits and other innovative forms of finance by
China and other emerging donors has contributed to traditional donors giv-
ing more emphasis to using official support to leverage market-based finance
to meet development goals. This has led to discussion on new concepts of de-
velopment finance, as illustrated by the OECD’s work on indicators of Total
Official Support for Sustainable Development.
Competition from China’s Exim Bank has also prompted expansion in
the role of export credit agencies from developed countries which has led
to greater access to credit and improved terms for developing countries
(Xu and Carey, 2015b, p. 870). The growth of new donors also led to greater
flexibility in the application of the IMF’s debt limit policy and the World
Bank’s Non-Concessional Borrowing Policy in 2009 and 2010 (Xu and Carey,
2015b, p. 873).
The growing importance of China in global finance is significant, not
only for those countries that have received Chinese loans and aid but also
indirectly because of the way in which it is driving broader changes in the in-
ternational governance of development finance and shaking up the current
system. These systemic effects are likely to become increasingly important in
the future as China’s role in the global financial system expands.
113
Part II
China and Sub-Saharan Africa
6
China’s Economic Expansion in Sub-Saharan

Africa
6.1 Introduction
Relations between the People’s Republic of China (PRC) and Sub-Saharan

Africa (SSA) have changed significantly over time, from overtly political to a
much greater emphasis on economic relationships. In the 1950s China sup-
ported liberation movements across Africa in their anti-colonial struggles.
After independence the Chinese government courted the new African gov-
ernments to obtain diplomatic recognition and support for Beijing’s claim
to represent China at the United Nations in place of the Nationalist govern-
ment in Taipei, which was still recognized by the Western powers. After the
Sino-Soviet split in 1960, Africa was also an area in which China competed
with the Soviet Union for influence.
In pursuit of these aims, the Chinese government provided aid to SSA,
the highest-profile example being the Tanzam Railway, built in the 1970s
to provide Zambia with a route to the sea as an alternative to the tradi-
tional route via Zimbabwe, then under white minority rule. Although as
a relatively poor country China’s aid to Africa in this period was consider-
able, trade with the region was limited, and foreign investment non-existent.
Aid was clearly driven by political rather than economic objectives, and
the rhetoric of China’s engagement was one of international solidarity and
anti-imperialism.1
After the death of Mao and the radical economic changes introduced in
China from the late 1970s, Chinese overseas aid fell significantly, and its
involvement in SSA declined. However, following Western criticism of the
repression in Tiananmen Square in 1989, China re-emphasized its relations
with other developing countries, particularly in Africa (Tull, 2006). In the
1
See Strauss (2009) for a discussion of the rhetoric that surrounded the Tanzam Railway.
late 1990s, following Jiang Zemin’s tour of six African countries in 1996, the
region once again began to become a focus of China’s attention.
In 2000 the first Forum on China-Africa Cooperation (FOCAC) was held
in Beijing, and it has been repeated every three years since then, the venue
alternating between China and Africa. Although the political rhetoric sur-
rounding these meetings remains largely unchanged from the Maoist era, the
content has shifted to emphasize the expansion of economic relations, stress-
ing the growth of bilateral trade, the encouragement of Chinese investment,
and the setting up of Special Economic Zones.
China’s growing economic presence in SSA over the past decade has at-
tracted a great deal of attention, much of it critical.2 Two narratives dominate
Western media accounts and the political debate over the drivers of China’s
involvement in Africa. The first sees China’s growing role in SSA as part
of a neo-colonial scramble for African resources, particularly oil and min-
erals. The second emphasizes China’s political ambitions in SSA and sees it
challenging Western influence in the region.3
Acquiring resources, particularly oil and minerals, plays an important role
in China’s economic involvement in SSA, but it is not the sole explanation
of its relations with the region, which are far more varied than this might
suggest. This chapter begins by describing the growth of different forms of
economic relations between China and SSA, looking at trade, foreign direct
investment (FDI), project contracts, loans, and aid. It then considers the
main actors involved on both the Chinese and the African sides. Chinese
involvement is then analysed in terms of the strategic economic and polit-
ical drivers, as well as the commercial factors which account for the close
economic ties both from the Chinese and the African sides.
6.2 The Growth of Sino-SSA Relations
China’s economic relations with SSA have taken a number of forms, which
have grown substantially since the start of the millennium. This section
documents the growth of bilateral trade, foreign investment and projects
undertaken by Chinese firms in the region, and loans and aid provided by
China to SSA.
2
See Mawdsley (2008) for an analysis of the coverage of Chinese involvement in Africa in the
British press.
3
These views have been criticized by a number of commentators, such as Brautigam (2009);
Moyo (2012a); Yan and Sautman, (2013); Sautman and Yan, (2014).
118
China’s Economic Expansion in Sub-Saharan Africa
120
100
80
60
40
20
0
–20
–40
–60
96
98
00
02
04
06
08
10
12
14
16
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20
20
20
20
20
20
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20
20
20
Imports Exports Trade Balance
Figure 6.1. China’s trade with SSA, 1995–2019 (US$ Billion)

Source: UNCTADStat.
6.2.1 Trade
Trade is at the heart of the relationship between China and SSA. As China
became more integrated with the global economy its trade with Africa grew
rapidly. Until the 1990s trade relations between China and SSA were limited.
Figure 6.1 shows the growth of bilateral trade between China and SSA since
the mid-1990s (based on Chinese-reported data). In the late 1990s, total trade
between China and SSA was less than US$5 billion a year. This changed dra-
matically in the new millennium so that by 2014, total trade with SSA had
reached US$190 billion (UNCTADstat). Although Chinese imports from SSA
dropped significantly in 2015 and 2016 because of falling commodity prices
and slower growth in China, and exports to the region followed suit, they
began to rise again towards the end of the decade. Between 1999 and 2019,
imports to China from SSA increased more than seventy-fold, while exports
from China grew fifty-fold.
As Figure 6.1 shows China ran a trade deficit with SSA for most of the
period.4 The slump in the value of imports from SSA in 2015 led to China’s
trade with the region temporarily moving into surplus but this was reversed
from 2017.
4
The overall trade deficit that China ran with SSA between 2000 and 2014 hides considerable
differences between individual African countries. China had a trade surplus with two-thirds of
the countries in the region, and its overall deficit with the region was mainly accounted for by
Angola and South Africa.
119
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
China USA EU(28) Japan
High tech Low tech PP

Medium tech RBM
Figure 6.2. Shares of different products in imports from SSA, 2017–19

Source: UNCTADStat
One of the criticisms levelled at China’s trade with SSA is its ‘colonial’
structure. As Figure 6.2 shows, over 60 per cent of Chinese imports from SSA
between 2017 and 2019 were primary products (PPs). However, this is not
solely a feature of trade between China and SSA: PPs accounted for an even
higher share of Japanese and European imports from SSA. When resource-
based manufactures (RBMs) are included, over 95 per cent of China’s imports
from SSA were either PPs or RBMs.5
Chinese imports from SSA are not only overwhelmingly resource based
but also concentrated in a small number of products, of which the most sig-
nificant are fuels and minerals. In recent years, oil, minerals, and metals have
accounted for around 85 per cent of China’s imports from SSA.6 The top-six
products that China imported in 2017–19 were petroleum, gold, ores and
concentrates of base metals, copper, iron ore and concentrates, and precious
and semi-precious stones. Between them, these six products accounted for
three-quarters of Chinese imports from the region.
Over time it might be expected that the range of products exported from
Africa would diversify as growing trade links lead to new products finding
markets in China. Indeed China provides duty-free access to a growing range
5
This rises to 99 per cent if imports from South Africa are excluded, the same proportion as
for Japan and slightly higher than for the USA and EU.
6
Data in this and the next paragraph are all based on UNCTADstat.
120
of products from the least-developed SSA countries, which by 2010 covered

more than 4,700 tariff items. However, this seems to have had very little
effect in terms of developing new exports with more than 90 per cent of
the value of exports to China in 2012 made up of products that China was
already importing from the region a decade earlier.7
It is hardly surprising that in contrast to its imports, over 90 per cent of
China’s exports to SSA are of manufactured goods. The most important cate-
gory of exports to SSA is low-technology products such as clothing, footwear,
and toys, although over time, more sophisticated manufactured goods such
as domestic appliances, TVs, and mobile phones have grown in significance.
Capital goods have accounted for an increasing proportion of Chinese ex-
ports, doubling their share since the early 2000s to account for about a
quarter of the total.8 Some of these exports are linked to the extractive sector,
as Chinese oil and mining companies abroad import equipment and supplies
from China. Chinese equipment is also proving attractive to African produc-
ers because it is relatively cheap compared to imports from the West and is
often better adapted to small-scale production (Atta-Ankomah, 2014).
How significant for China, then, is SSA as a trading partner? China’s main
trading partners are the USA, the EU, and its East Asian neighbours. Because
of its low income, SSA is still of limited importance to China as a market for its
exports, accounting for only 3.3 per cent of all of its exports in 2019. Its im-
portance has increased since the global financial crisis but remains marginal
in the wider picture. SSA is rather more important to China as a source of
imports, supplying almost 6 per cent of its total imports in 2013 and 2014,
although with the subsequent drop in exports, this fell to 4.5 per cent by
2019.
While trade with SSA is of relatively limited importance to China, this is
certainly not the case from the point of view of the region. Trade with China
has grown at a much faster rate than that with the rest of the world, mak-
ing China the region’s most important export market and source of imports.
In recent years almost a fifth of SSA imports have come from China, while
almost 17 per cent of exports have gone to the Chinese market (Table A6.1).
6.2.2 Foreign Direct Investment

The growing engagement of China in SSA is also reflected in the increased
presence of Chinese firms in the region. While there is no doubt that Chi-
nese FDI has grown spectacularly over the past decade, it is not easy to
7
Estimated from UN COMTRADE data at the 6-digit level of the Harmonized System classifi-
cation.
8
Own calculation from UN Comtrade data on trade according to the Broad Economic Category
(BEC) classification.
121
get a clear picture of the scale of Chinese investment in the region. As

Kaplinsky and Morris (2009, p. 554) note, ‘Official estimates of China’s FDI
flows to SSA are contradictory, confusing and almost certainly understate
their true significance.’ One of the reasons for this is that the Ministry of
Commerce (MOFCOM) data only indicate the initial destination of Chi-
nese FDI (see Box 4.1). Unfortunately, alternative sources of data on Chinese
FDI are equally problematic. Data on inward investment collected by host
governments are often patchy or non-existent in Africa, so that although
it is possible to build a picture for a few countries, there is no way of ob-
taining estimates for the entire region.9 Data from the American Enterprise
Institute/Heritage Foundation’s China Global Investment Tracker give a much
higher estimate of Chinese FDI in SSA (see Figure 6.3) than the figures re-
ported by MOFCOM.10 However, since their figures are based on media
coverage, they may include planned investments, which are announced even
if they never materialize and so overestimate the amount of Chinese in-
vestment that actually takes place. The true figure is probably somewhere
between these two estimates.
100,000
80,000
60,000
40,000
20,000
0
03
04
05
06
07
08
09
10
11
12
13
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20
20
20
20
20
20
20
20
20
20
20
20
20
MOFCOM Flow MOFCOM Stock

CGIT Flow CGIT Accumulated
Figure 6.3. Chinese outward foreign direct investment (OFDI) stocks and flows in
SSA, 2003–19 (US$ million)
Source: MOFCOM, 2020, Statistical Bulletin of China’s Outward Foreign Direct Investment; American
Enterprise Institute/Heritage Foundation, China Global Investment Tracker.
9
A study of Chinese investment in Africa by the World Bank was able to obtain information
from investment promotion agencies in only six countries (Shen, 2013).
10
The total amount of investment in SSA reported in the China Global Investment Tracker is
more than double the amount of Chinese OFDI reported by MOFCOM for the period 2005–19
($89 billion as compared to $38 billion).
122
Despite the weaknesses of the data, they give some idea of the rapid
growth of Chinese FDI in SSA. According to MOFCOM, the stock of foreign
investment increased almost ninety-fold between 2003 and 2019. The
American Enterprise Institute (AEI)/Heritage Foundation data also show a
significant increase in Chinese FDI flows in recent years.
How significant is SSA as a destination for Chinese FDI? According to the
official MOFCOM figures, SSA has accounted for less than 2 per cent of the
global stock of Chinese outward investment in recent years. If Hong Kong
is excluded from the total, SSA’s share of Chinese Outward Foreign Direct
Investment (OFDI) increases to over 7 per cent in 2019 (own calculation from
MOFCOM data).11
How significant is China as a source of inward investment in Sub-Saharan
Africa? In 2018 China was the fifth-most important investor in Africa as a
whole (UNCTAD, 2020, p. 28), and in 2019 it accounted for over 6 per cent of
the total stock of FDI in Sub-Saharan Africa (Table A6.1). In 2018–2019 China
was responsible for almost 12 per cent of new FDI inflows to the region.12
Remembering that the official figures probably underestimate the true extent
of Chinese investment, it is very likely that in practice China has accounted
for an even higher share of all FDI in SSA in recent years. China was respon-
sible for 15 per cent of greenfield investment projects announced for Africa
as a whole in 2018 and 2019 (UNCTAD, 2020, p. 29, Table D).
China has invested in forty-seven out of the forty-nine SSA countries,
but its presence is not evenly spread across the region. Not surprisingly,
South Africa, the largest and most developed economy in the region, is the
most important destination for Chinese FDI in SSA followed by, the Demo-
cratic Republic of the Congo (DRC), Angola, Zambia, Ethiopia and Nigeria,.
Although, overall, the Chinese share of the foreign investment stock in SSA
remains relatively low, in Zimbabwe, DRC, and Mauritius, it now accounts
for more than a fifth of total FDI (Table A6.1).
There is a general perception that the extractive sector is the most impor-
tant target for Chinese FDI in SSA, although the figures vary considerably
between different sources. According to the China Global Investment Tracker
data almost two-thirds of Chinese investment in SSA between 2005 and June
2019 was in oil, gas, and metals.13 Official Chinese sources give a lower
figure with mining (which includes oil and gas extraction) accounting for
22.7 per cent of Chinese OFDI in Africa as a whole at the end of 2018.
11
The China Global Investment Tracker database, which does not include investment in Hong
Kong, comes to a very similar figure with just over 7 per cent of total Chinese OFDI between 2005
and 2019 going to SSA .
12
Own calculation for Sub-Saharan Africa from UNCTAD and MOFCOM data.
13
Although metals may include some downstream activity in manufacturing, the major part
involves mining.
123
This makes it the second most important sector after construction (32 per
cent), but ahead of manufacturing (13 per cent) and finance (11 per cent)
(China Africa Research Initiative based on MOFCOM data). The official
figures probably underestimate the significance of the extractive industries,
although there is evidence that Chinese OFDI in the region is diversifying
into other sectors.
6.2.3 Contracted Projects

A significant part of the growing presence of China in SSA is not captured
either by trade data or by the figures on FDI. Another form that Chinese
engagement in SSA takes is through projects contracted overseas which do
not involve direct investment. The Chinese have been extremely active
building roads, railways, dams, and power stations, as well as public build-
ings throughout the region. The official Chinese figures for the value of
projects completed increased almost twenty-fold between 2003 and 2019 (see
Figure 6.4). Since 2010 SSA has accounted for more than a quarter of the total
value of Chinese-contracted projects around the world, and almost 90,000
Chinese workers were employed on projects in SSA at the end of 2019 (NBS
Database).14 China is far and away the most important source of external
finance for infrastructure in Africa (Sun et al., 2017, Exhibit 1), and Chinese
firms account for over 60 per cent of the region’s engineering, procurement,
and construction from major international contractors (ENR, 2020, p. 40).
As with FDI, an alternative dataset on Chinese contracts in SSA is pro-
vided by the American Enterprise Institute and Heritage Foundation, which
is based on media reports. Although the figures on large-scale contracts cap-
tured by the China Investment Tracker database are lower than the official
figures, they show the same trend, with a seventeen-fold increase in the
decade since 2005, the first year for which data are available.
Over the period 2005–19, the most important markets in the region for
Chinese contractors were Angola, Nigeria, Ethiopia, Sudan, and Kenya. Three
of these are significant oil exporters, while Ethiopia and Kenya both had
major rail projects funded by China. Between them the five countries ac-
counted for almost half the value of completed Chinese projects in SSA over
the period.
As with FDI there is a common perception that Chinese contracts in
Africa are mainly related to resource extraction. Unfortunately, the official
Chinese data on overseas contracts do not give a breakdown of the sectors
involved so that it is necessary to rely on the China Global Investment Tracker.
This shows relatively few Chinese projects in extractive industries. Gas, coal
14
This was down from 130,000 in 2015.
124
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
CGIT NBS
Figure 6.4. Chinese contracts in SSA, 2003–19 (US$ Million)

Source: National Bureau of Statistics of China; American Enterprise Institute/Heritage Foundation,
China Global Investment Tracker.
and oil account for 8 per cent of the total value of contracts.15 Metals, which
make up such a significant share of FDI projects, account for 2 per cent of
the total, so that in all extractive industries only make up around a tenth of
the value of contracts announced between 2005 and 2020. The most impor-
tant sector in terms of Chinese contracts in the region is transport, which
accounts for 40 per cent of the value of contracts announced between 2005
and mid-2020 (Figure 6.5). Rail projects are the most important type, ac-
counting for 40 per cent of the value of transport projects. Energy, which is
the second sector overall, is mainly hydropower, which accounts for over half
of all energy contracts and is significant because this supplies local energy
needs rather than involving resource exports to China. Finally, construction
projects account for 11 per cent of the total.
6.2.4 Chinese Loans and Aid

The Chinese government has made high-profile commitments to providing
finance for Africa at the last four FOCAC meetings, increasing the amount
offered on each occasion. In Beijing, in 2006, it promised to provide US$5
billion in preferential loans and preferential export buyer’s credits to Africa
between 2007 and 2009. A further US$10 billion was promised in preferential
15
It is possible that some of the energy projects where the subsector is not named could be in
extractives.
125
Other Energy Other

8% 5%
Oil
Coal 3%
2%
Gas
3%
Transport
40%
Hydro
17%
Metals
2%
Technology
3%
Agriculture Construction
Utilities
2% 11%
4%
Figure 6.5. Sectoral distribution of the value of Chinese project contracts in SSA,
2005–20
Source: American Enterprise Institute/Heritage Foundation, China Global Investment Tracker.
loans between 2010 and 2012, and US$20 billion between 2013 and 2015.
The FOCAC meeting in Johannesburg in 2015 promised US$60 billion over
the next three years, a pledge repeated at the 2018 meeting in Beijing.
However, beyond these broad-brush announcements it is difficult to get
a clear picture of the amount of Chinese financial flows to Africa. The Chi-
nese government does not publish data on official financial flows on either
a country or a regional basis, and neither does the Exim Bank or the China
Development Bank, which are the main providers of Chinese finance to SSA.
As a result estimates of Chinese loans and aid to the region rely on the efforts
of researchers to collate information from the bottom up on Chinese-funded
projects.
The most comprehensive source of recent data on Chinese lending to
Africa are those collected by the China Africa Research Initiative (CARI).16
Such estimates face a number of problems. They are often based on an-
nouncements which pledge future finance rather than actual financial flows.
They may, therefore, overestimate actual flows, since some pledges are never
fulfilled. Even where loans are made and projects carried out, the timing
of the flows will clearly lag behind the announcements so that the annual
figures will differ from the financial flows that take place in a particular year.
16
Another source used in several studies is provided by AidData but unfortunately at the time
of writing this only went up to 2014.
126
Another problem is that it is not always possible to obtain figures on the

amount of finance involved in a particular project, which means that some
projects that are identified do not get included in the estimates of financial
flows. In addition, relying on media reports may lead to a bias in favour of
larger projects and the omission of smaller loans, which will also lead to an
underestimation of actual financial flows.
Despite these problems, in the absence of official data on Chinese financial
flows to Africa these estimates at least provide some idea of the order of mag-
nitude involved. CARI has been careful in putting together their databases to
follow announcements to try to ensure that commitments have been imple-
mented, and to eliminate double counting through the same project being
announced several times (CARI, 2016).
These figures do not indicate the total amount owed to China at any one
time, because they do not take repayments or debt forgiveness into account.
The World Bank publishes data on the level of debt owed by most SSA coun-
tries to China. However it has been claimed that as much as 50 per cent of the
overseas loans made by China are not included in the World Bank data and
that this ‘missing debt’ has increased over time (Horn et al., 2019, p. 19). The
authors have produced alternative estimates of the total debt owed to China,
based on AidData information up to 2014, supplemented by information
from the CARI Database and other sources.
Figure 6.6 shows both the annual commitments announced by China and
the two estimates of outstanding debt owed to China. As was to be expected
the Horn et al. (2019) figure is considerably higher than that reported by
the World Bank.17 The figure indicates that annual Chinese lending com-
mitments to SSA increased significantly up to 2016 but has dropped since
then. SSA debt to China grew more than twenty-fold since 2005 according
to both sets of data, but the rate of increase has slowed down in recent years.
Angola is the largest recipient of Chinese loans in SSA, accounting for
30 per cent of all loans announced between 2000 and 2018. It was followed
by Ethiopia, Zambia, Kenya, Sudan, and Nigeria, the same countries that
topped the ranking for Chinese projects. Between them, the six countries
accounted for over 60 per cent of all lending to SSA over the period.
Looked at from the SSA side, the countries that are most dependent on
China in terms of the ratio of outstanding debt to GDP are Djibouti, the
Republic of Congo, Angola, Zambia, and Mozambique which all had debt
to GDP ratios of over 10 per cent in 2019 (Table A6.1). Djibouti, the Repub-
lic of Congo, and Angola were also the countries where China accounted
17
A study by the Jubilee Debt Campaign (2018) calculates that African countries owed between
$72 billion and $100 billion to China in 2016. This is between the World Bank figure of $55 billion
and the Horn et al. (2019) figure of $101 billion in the same year, but includes North Africa as
well as SSA. Brautigam et al. (2020, Table 1) give a figure of $80 billion in 2018.
127
120000
100000
80000
60000
40000
20000
0
00
02
04
06
08
10
12
14
16
18
20
20
20
20
20
20
20
20
20
20
SAIS-CARI (annual loan commitments)
HRT (outstanding debt)
World Bank (outstanding debt)
Figure 6.6. Chinese official financial flows to SSA, 2000–19 (US$ Million)
Sources: CARI Loans Database; Horn et. al. (2019); World Bank International Debt Statistics
for the highest proportion of total debt (own calculation from World Bank,
International Debt Statistics).
Chinese loans to SSA are concentrated in the same two sectors, trans-
port and energy, in which Chinese contractors operate. They accounted for
55 per cent of total lending between 2000 and 2018, according to the China
Africa Research Initiative Database, This is consistent with the Chinese gov-
ernment’s view that ‘Backward infrastructure is the bottleneck that hinders
the development of many African countries’ (PRC, 2012, Ch. III). Contrary
to the popular view, a relatively small proportion of Chinese loans have gone
directly to mining or oil and gas projects in SSA.18
One characteristic of Chinese finance in SSA has been the extensive use of
commodity-backed loans also known as resources-for-infrastructure swaps,
18
Industry, mining, and construction accounted for 6 per cent of Chinese loans to SSA between
2000 and 2012, according to AidData, whereas CARI estimate that 12.5 per cent of Chinese
lending between 2000 and 2018 went to mining (CARI Database).
128
whose repayment is made through future commodity exports to China. The

most comprehensive estimate of commodity-backed loans to SSA calculates
that the total amount involved between 2004 and 2018 came to almost
$61 billion, which accounted for over 40 per cent of China’s total lending
to Africa over the period (own calculation from Mihalyi et al., 2020 Annex 1
and CARI Database).19 Most of these involved oil, and some in DRC (copper)
and Zimbabwe (diamonds) involved a share of the profits from mining. In
a few cases (Ghana and Ethiopia) repayment was made through agricultural
exports. Two of the most-discussed examples of such loans have been those
made to Angola in return for oil and the Sicomines agreement in the DRC
(see Boxes 6.1 and 6.2). The way in which these agreements combine aid
and loans highlights the difficulty of distinguishing between them, which
has contributed to the confusion over the scale of Chinese aid to SSA.
How significant then are Chinese official financial flows to Africa? Since
2010 China has been the largest bilateral lender to the region ahead
of the USA (Landry, 2018, Figure 1). SSA has also borrowed more from
China than from the World Bank. It has been estimated that China ac-
counted for 22 per cent of all public and publicly guaranteed (PPG) debt
owed by SSA in 2018. This represented 16 per cent of Africa’s’ total ex-
ternal debt, including non-guaranteed debt owed to the private sector
(Brautigam et al., 2020, Table 1). Thus despite the recent drop in new lend-
ing from China, it remains a key source of finance for the region.
Box 6.1 THE ANGOL AN MODEL
The so-called Angolan Model of Chinese resource-for-infrastructure swaps has received

a great deal of attention in both the media and the academic literature. The Angolan
civil war that ended in 2002 left a large part of the country’s infrastructure destroyed
or damaged. Having refused to agree terms with the IMF in 2001, President dos Santos
approached China in 2002 and was able to obtain a series of loans in subsequent years.
Between 2003 and 2011, Angola accounted for almost half of all China’s commodity-
backed loans to Africa (Brautigam and Gallagher, 2014, Tables 1 and 2).
Under the system, loans provided by the Exim Bank are serviced through oil sales to
China by the Angolan state oil company, Sonangol. A fixed amount of oil is sold quar-
terly at current international prices and the proceeds deposited in an escrow account
in the name of the Angolan government at the China Exim Bank. This account is then
drawn on to pay the interest and repayments due on the loan.
A joint commission between the Angolan government and the Exim Bank agrees
on a list of infrastructure projects to put out for tender. MOFCOM pre-approves Chi-
nese companies that are eligible to tender for projects and the Angolan government
invites at least three companies to bid for each project. At least 50 per cent of project
19
Brautigan et al. (2020, p.6) give a lower estimate of 25 per cent. They point out that Angola
accounts for 75 per cent of commodity-backed loans, so that in the rest of SSA, the share is lower.
129
procurement must be sourced in China. When the projects are completed, the Chi-
nese companies present their invoices to the Angolan Ministry of Finance and these
are paid directly by the China Exim Bank, drawing down on the loan to the Angolan
government.
The terms of the loans by the Exim Bank involved an interest rate of 1.5 per cent
above Libor. This was somewhat more favourable than commercial loans, but not
as concessional as public loans from South Korea or India. The loans were to be re-
paid over periods of fifteen to eighteen years, with an initial grace period of three to
five years, which was considerably better than commercial loans with a repayment
period of four or five years.
In 2004, the Chinese state-owned oil company Sinopec formed a joint venture with
Angola’s state oil company Sonangol called Sinope Sonangol International (SSI), with
Sinopec the majority (55 per cent) shareholder. At the time Shell had been negotiat-
ing to sell its 50 per cent stake in oil Block 18 to the Indian company ONGC Videsh;
however, Sonangol blocked the deal and the concession was awarded to SSI instead.
In 2004/5 SSI also acquired Block 3/80 when Songanol did not renew the concession
previously held by Total. Although there was no explicit link between the Exim Bank
loan and the entry of Sinopec into the Angolan oil sector, the timing suggests that this
may have been a factor.
Box 6.2 THE SICOMINES AGREEMENT IN DRC
The Sicomines deal, originally signed in 2007, is one of the largest and most con-
troversial Chinese commodity-backed loans in SSA. It followed the 2006 elections,
which marked the end of the transition in the DRC following the civil wars of 1996–7
and 1998–2003. It involved a joint venture between the DRC state mining company
Gécamines (32 per cent share) and a Chinese consortium (68 per cent) formed of
two Chinese SOEs, China Railway Engineering Corporation (CREC) and Sinohydro.
In return for the mining concessions for Mashamba West and Dikuluwe, the Chi-
nese agreed to invest $3.2 billion in the mining operation and a further $6 billion
in turnkey transport and social infrastructure projects, such as schools and hospitals,
to be funded by China Exim Bank. These infrastructure projects were unrelated to the
mining operations, but the loan would be repaid from the profits made by Sicomines.
The agreement was initiated by CREC, a large construction SOE which was trying to
diversify into resource extraction and had been investigating opportunities in Latin
America and Zambia without success before the discussions with the DRC started.
Originally, CREC had been interested in a standard mining project, but during the
negotiations the Congolese, influenced by the experience of its Angolan neighbour,
suggested that the agreement included an infrastructure component. In his election
campaign, President Kabila had pledged to undertake a major programme of public
works (les Cinq Chantiers) but was finding it difficult to obtain funding for large in-
frastructure projects from traditional donors. Although the Chinese government had
not initiated the project, the Exim Bank was prepared to fund the infrastructure com-
ponent, and the Chinese partners in the joint venture were designated the principal
contractors for the various infrastructure projects. Only 12 per cent of the work had to
be subcontracted to local Congolese companies.
130
Sicomines was exempt from Congolese taxation while the profits were being used
to pay off the Exim Bank loan and interest, but would then be subject to the normal
terms of the DRC Mining Code. However, objections by the IMF to the size of the agree-
ment because of the effect that it would have on the sustainability of the DRC’s debt
and the prospects for receiving debt relief led to renegotiation, which reduced the in-
frastructure component to $3 billion and removed the government guarantee for the
commercial investment in mining.
In 2012 the Exim Bank pulled out of the funding arrangement, having provided
$1 billion worth of loans to Sicomines, because of disagreement over certain key
points. New negotiations began with CDB, the Bank of China, and the Exim Bank,
but after a two-year hiatus, the Exim Bank agreed to renew its financial support.
Infrastructure projects resumed, and mining production began in late 2015.
6.3 Key Actors in China–SSA Economic Relations
Having looked at the different forms of China’s economic relations with

SSA, it is now possible to identify the various actors involved. This helps
to dispel the myth of a monolithic Chinese presence (Taylor, 2019). At the
governmental level on the Chinese side, the main ministries responsible
for relations with SSA are the Ministry of Foreign Affairs (MOFA) and the
MOFCOM. They jointly chair the Chinese Follow-up Committee of FOCAC.
The MOFA guides diplomatic policies on African issues and the overall deci-
sions of FOCAC, whereas MOFCOM is responsible for trade, investment, and
the implementation of cooperation projects (Li et al., 2013, p. 12).
The two ministries do not always see eye to eye, and there has been con-
flict between them, for example over the control of foreign aid. Although
the creation of CIDCA in 2018 to oversee aid was partly intended to resolve
such conflicts, MOFCOM still plays a key role in the Chinese aid architec-
ture (see section 5.3.2). MOFCOM views concessional loans principally as
a market entry tool for Chinese companies, whereas the MOFA sees them
as a way of improving China’s diplomatic relations with African countries
(Corkin, 2011, p. 73). The picture is further complicated by the role played
by a number of Chinese provincial governments which have developed links
with subnational governments in Africa and actively promote the activities
of their own provincial state-owned enterprises (SOEs) there (Alden, 2007,
pp. 28–30; Chen and Jian, 2009).
Trade between China and SSA involves a variety of firms. As far as SSA
exports are concerned, these are mainly SOEs from both China and the
African exporting countries. On the import side there is a much more diverse
range of companies involved, including Chinese SOEs and private firms.
Firms involved in construction and other infrastructure projects in Africa
131
are significant importers of machinery and equipment to the region. Foreign

companies with subsidiaries in China also import from there to supply their
African markets. Consumer goods are imported by the growing number of
Chinese traders who have set up in Africa. Although there are no reliable
figures on the number of Chinese traders active across the region, it has been
significant enough to generate hostility in a number of African countries
(Cropley and Martina, 2012).
Increasing numbers of African traders are also involved in trade as illus-
trated by the growing African business community in Guangzhou (Haugen,
2011; Yang, 2012). One estimate puts the numbers involved at around 80,000
(Lyons et al., 2013, p. 86). Recently their presence was highlighted by reports
of discrimination against Africans in Guangzhou and elsewhere during the
COVID-19 pandemic, which sparked a wave of criticism of China in SSA.
There may be as many as 10,000 Chinese-owned firms operating in SSA.20
Kaplinsky and Morris (2009) identify four different categories of Chinese firm
active in Africa: central SOEs, provincial and municipal SOEs, private Chi-
nese companies with subsidiaries in Africa, and Chinese-owned small and
medium enterprises (SMEs). Central SOEs come under the control of China’s
central government, and their investments abroad have to be approved by
MOFCOM. They include the oil companies China National Petroleum Com-
pany (CNPC), CNOOC, and Sinopec, as well as China Power Investment and
Sinosteel, which are amongst the largest Chinese investors in SSA.21 The
state-owned commercial bank, Industrial and Commercial Bank of China
(ICBC) is also a significant investor in the region as a result of its acquisition
of a 20 per cent share of South Africa’s Standard Bank in 2007.
Provincial and municipal SOEs (sometimes referred to as local firms) come
under the subnational authorities. The most significant provincially owned
SOEs active in SSA are Shangdong Iron and Steel, owned by the government
of Shangdong Province, and the Jinchuan Group, controlled by the Gansu
provincial authorities. Provincial SOEs have also been particularly active in
the agribusiness sector in SSA (Gu et al., 2016).
There are also some large private Chinese firms such as Sichuan Hongda
(part of the Honglong Group) and Kingho Energy, which have significant
investments in the region. Finally, the Chinese-owned SMEs are often firms
set up by Chinese migrants, so there is a question as to whether they should
be regarded as FDI according to standard definitions.
20
This figure comes from Sun et al. (2017, p. 27) and was arrived at by extrapolating from
research carried out in eight SSA countries. The official MOFCOM database only includes
around 2000 firms that have invested in Africa (Dollar, 2016, p. 41), but this is likely to be an
underestimate.
21
The information on the most important Chinese companies investing in Africa in this
paragraph is based on the AEI/Heritage Foundation, China Global investment Tracker database.
132
Although the activities of SOEs in SSA has attracted most attention, the
vast majority of Chinese firms, possibly as much as 90 per cent of the to-
tal, are private. A recent survey found that the share of private firms in the
total number of Chinese companies ranged from 75 per cent in Angola to
95 per cent in Nigeria (Sun et al., 2017, Exhibit 6). While private firms are
smaller than SOEs so that their share of investment does not match their
numbers, they are becoming increasingly significant players in SSA (Gu,
2011; Shen, 2013). Unlike investment by SOEs, which tend to be concen-
trated in extractive industries and construction, Chinese private investment
in the region is dominated by manufacturing and service industries (Shen,
2013, Figure 2).
Contracted projects involve a variety of construction and engineering
companies. While the first Chinese construction companies in Africa were
mainly large SOEs, more recently a variety of private contractors have
emerged, including some set up by Chinese employees who stayed in Africa
after working for such large SOEs (Wang, 2007, p. 19). The leading Chinese
contractors in SSA are still central SOEs such as China Railway Construction,
China Communication Construction, Sinomach, and Sinohydro.22 Some
provincially owned SOEs such as Shenzhen Energy have also won significant
contracts in the region, as have the private telecommunications companies
Huawei and ZTE.
The most important source of finance from China to SSA has been the
Exim Bank. While it does not provide a regional breakdown of its loans, esti-
mates suggest that a third of its global lending has gone to Africa (Brautigam
et.al., 2020, p. 4). The bank lent $86 billion to Africa between 2000 and
2019, representing more than half of Chinese lending to the region over that
period (CARI Database). The Exim Bank has provided funding for a num-
ber of major infrastructure projects, including the Ethio-Djibouti Railway,
the Nairobi-Mombasa Railway in Kenya, Bagamayo port and industrial zone
in Tanzania, and a terminal for the Jomo Kenyatta International Airport in
Kenya (Lee et al., 2014).
The second most important Chinese lender to Africa is China Develop-
ment Bank (CDB), which does not provide concessional loans. In 2006 the
China-Africa Development Fund (CADF) was set up under the auspices of the
CDB to promote economic cooperation between China and Africa by invest-
ing directly in Chinese firms that operate in Africa or plan to invest there.
CDB lending to Africa between 2000 and 2019 came to $37 billion, a quarter
of all Chinese loans in that period (CARI Database).
Some of the Chinese state-owned commercial banks are also active in
Africa, particularly the China Construction Bank, which has operated there
22
Based on information from AEI/Heritage Foundation.
133
since 2000 and provides support to Chinese construction companies, and

the ICBC, which started to finance projects after taking a stake in South
Africa’s Standard Bank. Some non-financial SOEs in construction have also
been involved in lending in the region.
Chinese aid to SSA comes in a variety of forms. Some takes the form of
concessional loans and is channelled through the Exim Bank, but it is by
no means the only source of ODA from China. Various government depart-
ments such as the Ministry of Health, which is responsible for medical teams;
the Ministry of Education, which handles scholarships for African students;
and the Ministry of Agriculture, which provides technical assistance in rural
areas, are involved in providing aid to SSA (Brautigam, 2008).
6.4 Chinese Interests in Economic Engagement in SSA
China’s presence in Africa is far from monolithic, despite frequent references

in the media to the activities of ‘China Inc.’ in the region. It is true that the
Chinese state plays a significant role in the region through the involvement
of SOEs and the policy banks, as well as through aid from various ministries
such as Health and Agriculture; however, these do not all necessarily con-
form to a coherent strategic plan. Major SOEs are not simply instruments of
state policy; they also pursue their own objectives in terms of growth and
profitability.23 There are also a growing number of private firms investing
in Africa, as well as an increased presence of Chinese traders in the region.
In some cases their activities have even run counter to the Chinese state’s
interests in Africa. This underlines the fact that there is not a single Chinese
interest in Africa.
It is useful to distinguish between three main sets of interests which have
influenced Chinese engagement in the region. First, there are strategic diplo-
matic objectives of the Chinese government, which include the isolation
of Taiwan, obtaining diplomatic support in international fora and increas-
ing China’s soft power in the region, presenting it as an alternative to the
West. These are the central concerns of the MOFA. Second, there are strate-
gic economic objectives, which include the security of supplies of energy
and mineral resources, reducing dependence on trade with the West, and
23
This has been widely discussed in relation to the oil industry. Some authors regard the Chi-
nese state-owned oil companies as instruments of the central government and their activities in
Africa as, by definition, a reflection of the state’s strategic economic interests (Soares de Oliveira,
2008). Others emphasize the considerable autonomy enjoyed by SOEs, arguing that their ac-
tivities are better explained by their own commercial interests (Downs, 2007). Between these
extremes are those who argue that there is considerable overlap between strategic economic and
commercial interests, while recognizing that on occasions, the two can conflict (Taylor and Xiao,
2009; Jiang, 2009).
134
supporting the international expansion of Chinese companies. These issues

are of particular concern to MOFCOM, the Chinese policy banks, and some
SOEs. Finally, there are the commercial objectives of firms and entrepreneurs
seeking new sources of profit and opportunities which are the dominant
concerns of private investors and traders but are also important for many
Chinese SOEs. The relative importance of these objectives has varied over
time and according to the type of economic involvement in the region.
6.4.1 Strategic Diplomatic Objectives

In the second half of the twentieth century, Chinese interest in SSA was
primarily political. While it is widely recognized that economic relations
have become much more significant with the growth of trade, OFDI, Chi-
nese projects, loans and aid in the twenty-first century, some commentators
continue to regard geopolitical factors as the key to understanding China’s
growing economic involvement in the region.24 This view regards China as
a unitary actor pursuing a coherent strategy in Africa. It argues that China
is using aid (broadly defined to include loans from Chinese banks and in-
vestment by SOEs) as a tool of Chinese foreign policy. This is part of a grand
design to displace US and European influence in Africa as part of China’s rise
to global hegemony (Alden, 2007, p. 6). It has also been argued that China
is trying to export its own development model (the Beijing Consensus) to
SSA. This view is often associated with the claim that China has particularly
strong relations with African countries with undemocratic regimes and low
standards of governance.25
However, critics have pointed out that this interpretation of China’s in-
volvement in Africa is flawed in a number of ways. Despite the publication
of two government policy papers on Africa in 2006 and 2015, it is difficult
to see China’s involvement in SSA as part of a coherent strategy. The many
different interests involved contribute to this. Not only are there divergences
between government ministries involved in African affairs, there are also
differences between the interests of the various state bodies and those of
the economic actors, and indeed between different types of economic actor.
China’s growing economic relations with SSA should not be seen as part of
a grand neo-colonial strategy for the region.
24
This section does not try to provide an overall analysis of Chinese foreign policy towards SSA,
but rather it analyses the role of political factors in understanding China’s economic involvement
in the region. The distinction between economic and political drivers is not necessarily clear-
cut. The economic objectives discussed later could be seen as serving political ends in terms of
ensuring continued economic growth in China that is a source of legitimacy to the Communist
Party. See Corkin (2011, pp. 75–7) for a discussion of the difficulties of separating economics and
politics when discussing China and Africa.
25
These claims are discussed in Chapter 8.
135
The claim that China is trying to export its own model of development
to SSA is contrary both to China’s declared policy of respecting national
sovereignty and not imposing conditionality on other countries, and its view
of development, which stresses the need for countries to find their own path
rather than imitating or following other countries. Chinese leaders since
Deng Xiaoping in the 1980s have emphasized the need for African countries
to find their own development path rather than copying China.26
This does not mean that China lacks political objectives in SSA. Nor does
it mean that it does not use its economic strength to achieve those objec-
tives. One area where political factors have played a key role in determining
economic engagement is in relation to Taiwan. Competition with Taiwan
under its One China policy was a consistent feature of Chinese foreign pol-
icy before 2008. Both China and Taiwan used economic incentives to win
over African governments. This led to an increasing number of countries in
the region recognizing Beijing, so that when Malawi switched in 2007, re-
ceiving a US$6 billion financial package from China (Wu and Wei, 2014,
pp. 796–7), only four SSA countries still had relations with Taiwan. When
competition for recognition started again after the end of President Ma’s term
in office in Taiwan in 2016, The Gambia, São Tomé and Principe, and Burk-
ina Faso switched their recognition from Taipei to Beijing,27 leaving Taiwan
still having diplomatic relations with only one SSA country, Eswanti (pre-
viously known as Swaziland). Not surprisingly, countries which recognized
Taiwan got very little in terms of FDI, projects, loans, and aid from the Peo-
ple’s Republic. However, with only Eswanti still recognizing Taiwan, this has
become a less important factor in the PRC’s relations with the region.
Africa remains important to China because of the number of votes that the
region has within the United Nations.28 For example, it has sought the sup-
port of African countries in votes at the UN Human Rights Council, which
are critical of its human rights record (leading African specialist He Wenping,
quoted in Breslin, 2013, p. 1276). China also looked to its relations with
Africa in the aftermath of the repression of the protests in Tiananmen Square
in 1989, when it feared isolation by the West. Again in the run-up to the Bei-
jing Olympics in 2008, when the issue of Tibet came to the fore, China was
able to look for support from some African governments. China has also
sought support from African governments in other international fora. At
26
See Deng Xiaoping’s comments to Robert Mugabe in 1985 and to President Chissano of
Mozambique in 1988, quoted in (Li, 2014, p. 95).
27
The Gambia broke off diplomatic relations with Taiwan in 2013, but Beijing did not establish
relations with it until 2016, after the defeat of the Kuomintang in Taiwan’s presidential elections.
28
In 2014 the fifty-four African states accounted for over a quarter of the members of the UN
(Sun, 2014, p. 4).
136
the first FOCAC meeting in Beijing in 2000, the Chinese Minister of For-
eign Trade and Economic Cooperation Shi Guangsheng thanked the African
countries for their support for China’s accession to the WTO.29
China also seeks to use its economic involvement in Africa to promote its
image internationally. This is a projection of its soft power presenting China
as a different kind of global power from the USA and Europe that is itself
part of the Global South. It emphasizes its common experience with other
developing countries and bases its relations with SSA on ‘sincerity, friend-
ship, and equality’; recognizes the sovereignty of African states; and does
not seek to impose political or economic conditionality (PRC, 2006). This
involves elements of continuity in the rhetoric of official statements since
the involvement of China in Africa in the Maoist period, which emphasized
a common history of exploitation by imperialism and the struggle for devel-
opment, appealing to domestic audiences (Strauss, 2009). Although China
does not seek to impose its own model on SSA countries, admiration for the
Chinese Model in Africa is seen as an important aspect of China’s soft power,
and it provides legitimacy for the Chinese Communist Party at home (Sun,
2014, p. 12).

Economic interests have come to play a much more significant role in Sino-
African relations in the twenty-first century than in earlier periods, and they
are now more important than political factors. One indication of the relative
significance of economic as opposed to diplomatic factors in relations with
SSA is the roles played by MOFCOM and MFA. MOFCOM deals with eco-
nomic aspects, whereas MOFA is responsible for political affairs, and it has
been argued that MOFCOM’s influence has increased relative to that of the
MOFA in recent years (Corkin, 2011). Unlike many other countries, where
aid is seen as part of foreign policy and the foreign affairs ministry plays an
important role, in China, it is MOFCOM rather than MOFA that is the key
ministry in relation to aid.
Oil and minerals are at the heart of the economic relationship between
China and SSA. This is reflected in the composition of its imports from SSA
and the main sectors in which Chinese firms have invested. As discussed
earlier, China’s imports from Africa are almost entirely of PPs and RBMs.
Oil has accounted for more than 40 per cent of all Chinese imports from the
region, and minerals and metals for between a quarter and a third in recent
years. Around a fifth of China’s oil imports come from Africa. The region
is also a major source of some key minerals, accounting for more than half
29
Speech to FOCAC on 11 October 2000, quoted in Cooke (2009, p. 32).
137
of China’s imports of diamonds, platinum and manganese, two-thirds of its

chromium ores, and all of its cobalt imports.30
As shown earlier, Chinese oil and mining SOEs have made significant
investments in SSA. Although different sources vary considerably in their
estimates of the scale of investment by Chinese firms in oil and mining in
Africa, they all agree that these are significant sectors in terms of Chinese
investment in the region. Despite the fact that Chinese projects and loans
are not concentrated in the extractive industries, they are indirectly linked
to the sector through the extensive use of commodity-backed loans, which
are often used to finance infrastructure projects in the region.
China’s growing dependence on imported oil and minerals since the mid-
1990s made secure supplies an important government objective. As discussed
in Chapter 3, China has adopted various strategies to increase resource se-
curity, including the diversification of sources of imports, acquisition of
resources abroad by Chinese firms, and long-term contracts with foreign sup-
pliers. To what extent can China’s involvement in oil and mining in SSA be
attributed to the Chinese state’s strategic economic objective of ensuring the
security of supplies of raw materials?
In the case of oil, Africa was a particularly attractive area for expansion in
the late 1990s and early 2000s, with proven reserves increasing by more than
half in the decade from 1996.31 Increased imports from SSA in this period
helped diversify sources of supply and avoid excessive dependence on the
Middle East. The share of China’s oil imports from SSA went up from less
than 5 per cent in the late 1990s to more than a fifth by the mid-2000s.32
Angola became the second-largest source of oil after Saudi Arabia in 2005.
Other countries in the region exporting oil to China included Sudan, the
Republic of Congo, Ghana, and Equatorial Guinea. In recent years, however,
the region’s share of imports has declined slightly as China’s imports from
Russia and Iraq have increased.
SSA has not played such a significant role in diversifying the sources of
the major minerals imported by China. In the case of copper, the share of
China’s imports of ore and refined copper from SSA did increase from less
than 1 per cent in the late 1990s to 8 or 9 per cent in recent years. In the case
of iron ore, the imported mineral on which China is most heavily dependent,
however, SSA has not contributed to a diversification of sources of supply and
the region’s share of China’s imports is lower now than in the late 1990s.
30
Own calculations from International Trade Centre, Trade Map data.
31
This compared to an increase of only 12 per cent in the rest of the world over the same
period (Downs, 2007, p. 45).
32
All the data in this and the next paragraph come from UNCTADstat.
138
The second strategy that China has used to increase the security of its sup-
ply has been to encourage oil and mining SOEs to acquire natural resources
abroad. This has been used extensively in the oil industry. SSA oil exporters
were more open to foreign investment in exploration and production than
other countries where resource nationalism has restricted investment oppor-
tunities for foreign firms. The region, therefore, became an important target
of Chinese investment. In 2013 the International Energy Agency estimated
that over a quarter of the oil produced abroad by Chinese companies came
from Africa, more than from the Middle East (Jiang and Ding, 2014, Figure 5).
Chinese companies have invested even more in mining and metals in
SSA than in the energy sector, and the government has provided support for
such expansion. Over a quarter of the mining output of Chinese companies
outside of China came from Africa in 2018 The share of African mining pro-
duction controlled by Chinese companies increased from negligible levels in
the late 1990s and early 2000s to 6.4 per cent in 2018 (Ericsson et al., 2020,
Table 4). Much higher levels were attained in individual minerals: 82 per cent
in bauxite, 41 per cent in cobalt and 28 per cent in copper (Ericsson et al.,
2020, Table 5).
Although ownership by Chinese SOEs does not necessarily guarantee
China’s resource security, as pointed out in Chapter 3, it seems likely
that oil and mining investments in SSA have contributed to this end.33
It was certainly an important objective for the Chinese government when
encouraging their expansion in the region.
The third strategy for increasing resource security is long-term contracts
with suppliers. Here the role played by commodity-backed loans is signifi-
cant.34 These involve a commitment by the borrowing government or SOE
to supply oil or another commodity over a number of years in order to repay
the loan. As long as the borrower does not renege on the loan, this ensures
a long-term secure supply.
The lack of transparency in many of these commodity-backed loans means
that it is difficult to know what contribution they make to the overall supply
of oil or minerals. Estimates of the amount of oil that Angola supplies in
return for its loans from China vary from 10,000 to 140,000 barrels a day
(Corkin, 2013, pp. 83–4). With China importing around 700,000 barrels a
day from Angola in 2009, even the higher estimate implies that only a fifth
33
Downs (2007) claims that a significant proportion of the oil produced by Chinese compa-
nies in Sudan was exported to China. It also seems likely that where mines in SSA were owned
by Chinese manufacturers downstream (such as the steel companies that invested in iron ore
mining), the bulk of their output would be exported to supply their plants in China.
34
Corkin (2013, pp. 150–1) argues that in Angola, commodity-backed loans have been a more
effective way of obtaining a secure supply of oil for the Chinese market than the acquisition of
stakes in Angolan oil fields by Chinese oil companies.
139
of imports were the result of commodity-backed lending. Since Angola is the

most important recipient of oil-backed loans in SSA, this suggests that the
overall contribution made by such loans in SSA to Chinese energy security
is limited. Loans linked to mineral extraction in SSA are far fewer in number
and scale than those for oil and so are even less likely to be a major factor in
resource security.
It would in any case be a mistake to see these loans as driven solely by
the interest of the Chinese state in securing supplies of energy and raw ma-
terials. A second strategic objective was to promote Chinese exports and the
operations of Chinese construction companies abroad, so the loans involved
a substantial level of tying to Chinese goods and companies.35 The structure
of the loans to Angola and the DRC also reflected the interests of the Exim
Bank, which provided them. Given the history of the countries concerned
and their low credit ratings, Exim Bank wanted to reduce its risk exposure,
and arranging for the loan to be repaid through commodity exports was an
attractive way of doing so. Also, as discussed later, the interests of African
elites played a significant role in the growth of resources-for-infrastructure
swaps.
Although promoting Chinese exports and investment globally is an im-
portant strategic objective for the state, this plays a relatively minor part
in its relations with SSA compared to obtaining access to raw materials. As
noted earlier, only US$1 in every $30 exported from China goes to the region.
Chinese FDI to supply local markets has also attracted much less attention
than the activities of large SOEs, which have been mainly directed towards
extractive industries. Nevertheless the Chinese government does have some
strategic economic interest in promoting exports to and investment in SSA.
The global financial crisis has highlighted the dangers of excessive reliance
on Western markets and increased the importance of developing-country
markets for Chinese exporters (Jacob, 2012).
Chinese loans and aid to SSA provide an important market for Chinese
firms. The bulk of the loans provided by China are tied to the purchase of
Chinese goods. China’s Exim Bank requires that at least 50 per cent of the
value of contracts supported with buyer’s credits should be spent on Chinese
products (quoted in Brautigam and Gallagher, 2014, p. 351).36 The Chinese
35
In the Angolan case, Corkin (2013, p. 150) argues that the Exim Bank was more successful
in facilitating the market entry of Chinese construction companies than it was in obtaining an
equity stake for Chinese oil companies in Angolan oilfields.
36
In some cases the initiative for the loan has come from a Chinese company which ap-
proaches the foreign government with a suggestion that it requests funding from the Chinese
government for a project. In these cases it is likely that commercial rather than strategic economic
interests are the motivating factor.
140
government also supports Chinese firms investing in SSA in other ways, for
example providing equity through the CADF.
Another initiative aimed at promoting Chinese trade and investment in
SSA is the creation of Special Economic Zones. The Chinese government an-
nounced in 2006 that it would support the establishment of as many as fifty
overseas ‘economic and trade cooperation zones’ (Brautigam et al., 2010;
Brautigam and Tang, 2011). These Zones, which are set up by a Chinese
company with Chinese government support were explicitly designed to fa-
cilitate the internationalization of Chinese firms (Pairault, 2019). So far five
such zones have been set up in SSA, two in Nigeria and one each in Ethiopia,
Mauritius, and Zambia. Unlike the SEZs that were created in China as a means
of promoting exports, the evidence so far suggests that those being set up in
SSA are mainly intended to supply the domestic and possibly the regional
market rather than being a platform for exports to the global market.37
6.4.3 Commercial Objectives

Although strategic objectives partly explain some aspects of China’s growing
economic relations with SSA, it would be wrong to see these relations as sim-
ply the result of a coherent strategy of a monolithic ‘China Inc.’ As section 6.3
made clear, a variety of different actors is involved in Sino-African relations,
and they pursue their own commercial interests in the region. In some cases
these coincide with the strategic interests of the Chinese state, but they may
also at times run counter to them.
While oil and minerals are strategically important to China, the pattern of
trade between SSA and China is not just a reflection of the strategic require-
ments of the Chinese state. As Figure 6.2 showed, SSA’s exports to the market
economies of Japan, the USA, and the European Union are similarly con-
centrated in PPs, suggesting that underlying factors of history (colonialism)
and geography (resource endowments) play a key role in explaining trade
patterns. In countries where the role of the state has been reduced through
structural-adjustment policies which have led to increased openness and an
expanded role for the private sector, trade patterns are determined by firms
following current comparative advantage. It is not surprising, then, that SSA
exports PPs to China.
Commercial factors are key to explaining the growth of Chinese exports
to SSA. The Chinese and African traders importing consumer goods to the re-
gion are clearly commercially motivated and taking advantage of the highly
competitive prices of manufactures in China. Although the China Exim Bank
37
The Eastern Industrial Zone in Ethiopia is an exception, with significant exports of shoes to
the USA and EU.
141
does facilitate exports by providing credit to suppliers and buyers, the main
factor driving exports is demand in Africa. As would be expected, Chinese
exports to SSA tend to be concentrated in the larger markets.
While the Chinese government has encouraged oil and mining SOEs to
invest in SSA, the companies have also had strong commercial reasons for
doing so. In fact the earliest investments by Chinese extractive SOEs in
SSA in the 1990s occurred before energy and resource security became a
major concern in China and before the adoption of the Go Global policy.
CNPC’s involvement in Sudan began in 1995 (Meidan, 2016), while the
China Non-Ferrous Metals Mining Group (CNMC) acquired copper mines
in Zambia in 1998.
The importance of commercial factors is particularly evident in the case
of mining, where the structure of ownership is much more diverse than in
oil. Whereas the Chinese oil industry is controlled by the three SOEs that
come under the central government, the mining industry is characterized
by a more diverse structure with provincial and local SOEs and some private
companies also playing a part (Shankleman, 2009, p. 23). Chinese mining
SOEs and companies from other sectors such as steel and construction have
invested in mines overseas to increase their reserves, secure vital inputs, or
diversify their activities.38 There is also a significant number of small-scale
Chinese miners operating in SSA. In Ghana a first wave of gold miners from
China arrived in the 1990s, and a large second influx occurred around 2010
when gold prices soared. By 2013 it was estimated that there were more than
10,000 Chinese miners in Ghana (Yang Jiao, 2013). A large number of small-
scale Chinese firms were also involved in mining in Katanga province in the
DRC in the late 2000s ( Jansson et al., 2009, pp. 36–8).
While SOEs’ investment in SSA is the result of both the strategic objectives
of the Chinese state and the commercial objectives of the SOEs themselves,
the growing number of private Chinese companies operating in SSA is com-
mercially driven. Many of these firms are highly profitable, with a third
reporting profit margins of over 20 per cent in a recent survey (Sun et al.,
2017, Exhibit 8). Several surveys have highlighted the importance of com-
mercial considerations such as access to the local market, taking advantage
of African trade agreements, low production costs, and the local availabil-
ity of raw materials in private Chinese firms’ investment decisions. They
also point to the intense competition and demand saturation in the Chinese
market and the opportunity to transfer domestic excess capacity abroad as
contributing factors (Gu, 2011; Shen, 2013). A very common pattern is for
38
As mentioned above, CREC’s interest in investing in Sicomines in the DRC was part of a
strategy of diversifying from construction into mining.
142
firms which begin by exporting to a particular market to move to local as-

sembly to avoid import restrictions. This seems to be characteristic of many
recent Chinese investments in countries such as Nigeria and Ethiopia.39
Although there is occasional support from the Chinese government for
private firms investing in SSA, this is not on anything approaching the scale
of the support given to SOEs. The incentives provided to the private sector
are often symbolic rather than decisive in the decision to invest, and the
managers of many firms interviewed in the region were found to know little
or nothing about the policies and support available (Gu, 2011, pp. 23–4).40
It is clear, therefore, that commercial factors, particularly market seeking, are
driving private firms to invest in SSA.
The growing activities of Chinese construction companies in Africa can
also be seen as being driven by commercial considerations in many instances.
It is often assumed that Chinese involvement in infrastructure is driven by
China’s thirst for resources, but this is not necessarily the case. Many such
projects are not in fact resource related, and they meet other priorities set
by the host governments.41 Furthermore, Chinese construction companies
are involved not only in projects financed by Chinese aid and loans but also
compete with local and other foreign companies for international tenders.42
Competition in the Chinese construction market is intense, and as the do-
mestic market became saturated, major firms looked to find new markets
(Corkin, 2008). With its chronic need for investment in infrastructure, SSA
became a major target for Chinese construction companies.
Since both private firms and SOEs have commercial interests in SSA, it
is quite possible that these will sometimes run counter to the strategic eco-
nomic and political objectives of the Chinese state. The sale of equity oil43
by SOEs to the international market rather than to China is an example of
companies prioritizing their own profitability ahead of the state’s aim of in-
creased energy security (Chen, 2011, pp. 607–8). Similarly, the use of Chinese
workers may have made commercial sense for the firms involved in terms of
cost and labour discipline, but it created resentment amongst the local pop-
ulation in some countries undermining efforts to portray the relationship
between China and SSA as a ‘win-win’ situation. The environmental impact
39
Gu (2011) gives the example of the Yuemei Group, which set up a trading office in Nigeria in
2000, followed by a factory in 2004, in order to overcome import restrictions and take advantage
of preferential access to the European market.
40
In the DRC only one of the small and medium Chinese firms interviewed had received any
support from the Chinese government (Jansson et al., 2009, p. 45).
41
These include schools and hospitals, as well as prestige projects, such as sports stadiums and
government buildings.
42
The share of Chinese firms in World Bank-financed civil works contracts in Africa increased
significantly from the mid-1990s to reach 42 per cent of the total value in 2013 (Zhang and
Gutman, 2015, p. 11).
43
This refers to oil produced by the SOEs themselves.
143
of Chinese companies is another issue that has led to conflict with local pop-
ulations and has tarnished the image of China in the region (see Chapter 8).
In these cases the commercial interests of Chinese companies have harmed
the government’s efforts to increase its soft power in the region.
6.5 African Interests in Expanding Economic Relations

with China
Focussing solely on Chinese actors and their strategic and commercial in-
terests in SSA, as in section 6.4, runs the risk of ignoring African agency in
the development of Sino-African relations. Several authors have recently crit-
icized such an approach and emphasized the role of African elites (Corkin,
2013; Mohan and Lampert, 2013). By identifying both political elites and the
economic actors involved on the African side, it is possible to obtain a fuller
picture of the factors that have contributed to the growing relationship.
Despite the frequent media criticism of China’s ‘colonial’ role in Africa,44
there is obviously a key difference between China today and the British and
French colonialism of the past, in that China does not have direct politi-
cal control over African countries. As a result, local politics must play a part
in the development of economic relations between China and SSA which
cannot be seen solely in terms of Chinese interests. There is now growing
recognition of the role of African political elites in the relationship, and
some authors go further, arguing for a broader conception of African agency
beyond the level of state elites (Mohan and Lampert, 2013).
The same distinction between strategic political, strategic economic, and
commercial aspects made in discussing Chinese interests can equally be ap-
plied to analysing African interests. From a strategic political viewpoint, the
Chinese policy of non-interference in the internal affairs of African countries
and not imposing any political conditionality on borrowing countries makes
engagement with China attractive. This has been a major Western criticism
of China’s involvement in the region, on the grounds that it provides sup-
port for authoritarian regimes, but even for countries which are relatively
democratic, China’s ‘no-strings-attached’ approach is attractive.
The increased competition for Western powers that China’s entry into
the region creates has also offered an opportunity for African governments
to increase their bargaining power. The example of Angola provides an
illustration of this. The Angolan government broke off negotiations with the
International Monetary Fund (IMF) when it obtained a China Exim Bank
44
‘China Is Africa’s New Colonial Overlord, Says Famed Primate Researcher Jane Goodall’
(Caulderwood, 2014) and ‘Is China the World’s New Colonial Power?’ (Larmer, 2017) are typical
headlines.
144
loan in 2004. Subsequently Angola was able to obtain finance from other
countries including Spain, Canada, Germany, Portugal, and Brazil, which
feared that their companies would lose out to Chinese competitors in Angola
(Corkin, 2013, p. 144).
Chinese loans and aid can also serve to legitimize and generate politi-
cal support for ruling elites in SSA. Both infrastructure and prestige projects
such as government buildings and sports stadiums serve a useful purpose. In
Angola the majority of the stadiums built for the African basketball cham-
pionships in 2007 and the African Cup of Nations in 2010 were built by
Chinese companies (Corkin, 2013, p. 154). As Brautigam (2009, p. 373) notes,
‘What the Angolan government got was the political benefit of a very rapid,
very visible improvements in infrastructure’ in the run-up to the country’s
elections as a result of Chinese loans.
In strategic economic terms, African economies face a chronic shortage
of infrastructure in power, transport, and communications. The World Bank
estimated in 2010 that the annual amount of external financial resources
required to meet the infrastructure gap in Africa was $31 billion.45 African
states have neither the government revenue nor the foreign exchange nec-
essary to finance major infrastructure projects on this scale. Western lenders
and investors have not been interested in funding such projects. The World
Bank and other Western donors, who in an earlier era provided loans for in-
frastructure, have since the 1980s concentrated much more on programme
(as opposed to project) lending and targeted social sectors such as health and
education rather than infrastructure. The EU and its member countries only
allocated $1 billion for infrastructure investment in SSA in 2009 (Konijn,
2014, p. 15).
In this context, African governments have been very keen to take ad-
vantage of China’s willingness to finance large infrastructure projects in
the region. This suggests an alternative interpretation of the growth of
commodity-backed loans to the view that they are a result solely of China’s
efforts to secure supplies of energy and raw materials. African governments
have been able to use their resources to obtain infrastructure and funding for
other projects from China with repayments in commodities at a future date.
The use of oil or minerals to repay these loans is a consequence of the need
to provide a guarantee of repayments to foreign lenders.46
As the examples of Angola and the DRC illustrate (see Boxes 6.1 and 6.2),
the governments of both countries, which had large parts of their infrastruc-
ture destroyed by civil war, were looking for international financial support
45
Quoted in Konijn (2014, p.15).
46
Deborah Brautigam is quoted by the Economist Intelligence Unit (EIU)/Mayer Brown
(2014, p. 10), saying that commodity-backed loans are a result of African governments using
commodities to secure finance rather than China using loans to secure resources.
145
for reconstruction and found it difficult to obtain funding elsewhere on

terms that they deemed acceptable. The interests of the governing elites
of both countries in obtaining political support through large-scale infras-
tructure projects were an important driver of the loans from the African
side.
The extensive use of commodity-backed loans in SSA can be seen, there-
fore, as a result of a convergence of different interests, including those
of African elites in obtaining external funds, the strategic interests of the
Chinese state in securing raw materials and new markets, the commercial
interest of the Exim Bank in securing repayment of its loans, and the inter-
ests of Chinese SOEs in expanding their reserves and long-term growth and
profitability.
Apart from the specific case of commodity-backed loans, SSA governments
welcome the additional foreign exchange and government revenues gen-
erated by increased exports of oil, gas, and minerals to China, which help
relieve balance of payments and budget constraints.
African commercial interests have also played a role in the growth of
economic relations with China. Growing numbers of African traders have
been involved in importing consumer goods from China. There is a thriving
African business community in Guangzhou to which African traders have
travelled to buy goods since the mid-1990s (Yang, 2012). These compete
with Chinese traders in supplying African markets (Haugen, 2011). Indeed,
in some African countries, it has been claimed that they are a more impor-
tant source of imported Chinese consumer goods than the Chinese traders
who operate in Africa.47
As pointed out earlier, in recent years, an increasing proportion of SSA’s
imports from China have been capital goods. Local manufacturers have
found that Chinese machinery and equipment is much cheaper than that
supplied from the West, and although it may not be as durable, it is an attrac-
tive proposition for small, cash-strapped businesses.48 In some cases African
businesses have recruited Chinese technicians to help operate the equipment
and have even brought in skilled Chinese workers.49 Although this is on a
minimal scale compared to the number of Chinese workers employed by Chi-
nese companies in Africa, it illustrates the importance of commercial factors
in the influx of Chinese workers.
For African governments, Chinese construction companies provide much-
needed infrastructure at a lower cost than their competitors and have a
47
Mohan and Lampert (2013, pp. 100–1), quoting local manufacturers whom they interviewed
in Ghana and Nigeria.
48
See, for example, Atta-Ankomah’s (2014) study of the use of Chinese machinery in the
Kenyan furniture industry.
49
Mohan and Lampert (2013, pp. 101–2).
146
reputation for completing projects on time and within budget.50 They are
also willing to respond to host government needs and to start projects with
minimal delays and bureaucratic procedures. Although the tying of loans
means that African governments have little choice but to use Chinese com-
panies and goods when projects are funded by the Chinese government, the
fact that Chinese firms win a significant number of construction projects
financed from other sources shows that cost and performance are also impor-
tant factors in the growing involvement of Chinese construction companies
in the region.51 What this illustrates is that Chinese firms have certain com-
petitive advantages, for example, low-cost technology and skilled labour,
which African businesses and governments are keen to take advantage of
for commercial reasons.
More generally, it is a mistake to ignore the role of African agency in
explaining Africa’s growing engagement with China. Although Chinese in-
terests are the most significant factor in its growing economic presence in
Africa, it is unlikely that this growth would have been so rapid had it not
been for complementary interests on the African side. This is partly illus-
trated by cases where there has been resistance to China’s presence in the
region: in Nigeria, for example, the expansion of Chinese oil companies in
the Niger Delta has met with opposition (Obi, 2008). In many SSA countries
local manufacturers have complained that they are being undermined by
cheap Chinese imports, and, in South Africa, this led to the imposition of
quotas on textile imports from China in 2007 in an attempt to protect the
domestic industry (Morris and Einhorn, 2008). There are also cases where
Chinese citizens have been expelled by African governments as occurred
in Ghana in 2013, when a number of Chinese miners who were operating
illegally in the country were deported.
These examples show that China’s growing presence in SSA has re-
quired at least the acquiescence of African actors for it to have grown so
rapidly. In many cases it has been actively promoted or encouraged by
African actors to advance their own strategic and commercial interests.
African agency and local conditions are also important in understanding
the differential impact of China on host economies, which is discussed in
Chapters 7 and 8.
50
It has been reported that Chinese construction project tenders in Africa are 40 per cent lower
than alternative bids (Sun et al., 2017, p. 30).
51
One estimate is that 49 per cent of all Chinese contracts in Africa are won through compet-
itive international bidding, as opposed to the 40 per cent that involves closed bidding between
Chinese companies (Konijn, 2014, p. 13).
147
6.6 Empirical Analysis of the Determinants of Sino-SSA

Economic Relations
The previous two sections have examined the motivations of Chinese and
African actors that have led to the growing economic presence of China
on the continent. How important have the different factors discussed there
been in explaining the pattern of Chinese involvement through trade, FDI,
loans, and contracts? Although there have been a number of econometric
studies which have looked at individual aspects of Sino-African economic re-
lations, there have been no comprehensive studies which look at the range
of relations.52
6.6.1 The Model

In order to explore the bilateral relations between China and SSA further, a
panel of data was created covering forty-seven SSA countries between 2002
and 2015. The model was estimated for a number of dependent variables
which measured the level of Chinese trade, FDI, engineering contracts, and
loans with the 47 SSA countries. Based on the previous discussion, a number
of independent variables were selected as indicators of commercial, strategic
economic, and strategic political drivers of China’s economic involvement.
The same explanatory variables were used as regressors for each of the de-
pendent variables in order to compare their impact across the different types
of relationships being analysed.
The commercial factors selected are those which are commonly used in
gravity models of trade (and investment) flows. The key variables in these
models are the relative size of the two economies involved and various other
variables which are proxies for trade costs such as distance and whether or
not a country is landlocked.53 The openness of the host economy can also
affect the cost of doing business and is, therefore, included as a commercial
factor.
The key strategic economic factor identified above is access to resources,
particularly oil and minerals. In SSA other strategic considerations such as
promoting Chinese exports and investment are less significant; therefore,
52
Previous studies include on trade, Grauwe et al. (2012); Johnston et al. (2015); Hu and
van Marrewijk (2013); Landry (2019); on FDI, Biggeri and Sanfilippo (2009); Sanfilippo (2010);
Cheung et al. (2012, 2013); Drogendijk and Blomkvist (2013); Kolstad and Wiig (2011); Ross
(2015); Landry (2019); Chen et al., 2018; Shan et al., (2018); on Chinese economic coopera-
tion projects, Biggeri and Sanfilippo (2009); Sanfilippo (2010); Berthélemy (2011); Cheung et al.
(2014); Feng et al. (2015); and on Chinese loans and aid, Dreher et al. (2018); Landry (2018).
53
Other variables used in such models, such as the existence of a common language, are
irrelevant in the case of Sino-African economic relations.
148
the two variables used to measure strategic economic considerations are

the share of a country’s exports accounted for by fuels and by minerals,
respectively.
As was shown above, China’s strategic diplomatic objectives include the
enforcement of the ‘One China’ policy and obtaining support for Chinese
positions in international fora such as the United Nations (UN). Whether or
not a country has diplomatic relations with Taiwan is included as a dummy
variable to measure the former and the proportion of a country’s votes which
coincide with China in major votes in the UN General Assembly is used to
indicate the latter.
In order to avoid problems of reverse causation, all the independent vari-
ables were lagged by one year. All variables in US$ are in constant dollar
terms. The specification used to estimate the level of Sino-SSA relations for
each relationship is of the form
logYit = c + alogChinaGDPt–1 + blogSSAGDPi,t–1 + dOPEN,i,t–1 + eDISTi

+ fLANDLi + gMINi,t–1 + hFUELi,t–1 + jTAIi,t–1 + kUNi,t–1 + έ
Where:
Y Indicator of economic relation with China in constant US$
China GDP China’s GDP in constant US$
SSAGDP Sub-Saharan African countries’ GDP in constant US$
OPEN Trade/GDP Ratio
DIST Distance to China in thousands of miles
LANDL 1 for landlocked countries
MIN Share of ores and minerals in total exports
FUEL Share of fuels in total exports
TAI 1 for countries which recognize Taiwan
UN Share of country’s votes that coincide with China
6.6.2 Trade Flows

Looking first at total bilateral trade flows, Table 6.1, Column 1, indicates that
both China’s gross domestic product (GDP) and that of its SSA partner are sig-
nificant factors explaining the level of trade. Economies that are more open
also tend to trade more with China. Clearly commercial factors are an impor-
tant determinant of trade between China and SSA. There is also evidence that
strategic economic considerations influence the pattern of trade, with much
higher levels of bilateral trade with countries specializing in fuels or minerals.
This is hardly surprising since the bulk of Chinese imports from the region
are either fuels or minerals. Countries which are specialized in agricultural
products or manufactured goods have attracted much less attention from
149
Table 6.1. Determinants of Sino-SSA economic relations

Bilateral Chinese Chinese FDI Contracted Loans
Trade Imports exports Stock Projects (6)
(1) (2) (3) (4) (5)
Log China GDP 1.68*** 1.30*** 1.80*** 3.40*** 0.95*** 0.95**

Log SAA GDP 0.62*** 1.63*** 0.82*** 1.48*** 2.47*** 0.53***
Openness .006*** 0.013*** −0.002 −0.002 −0.005 0.011*
Landlocked −0.61 0.25 −1.07*** Omitted Omitted 0.12
Distance −0.23 0.16 0.05 Omitted Omitted −0.24
Minerals 0.94*** 3.82*** 0.30 0.31 −0.06 0.34
Fuels 0.73*** 1.97*** 0.41** 2.01*** 3.39*** −0.15
Recognition of −0.14 −0.06 −0.53*** −0.93** −1.56*** −0.43
Taiwan
UN voting 0.11 −0.85 −0.04 −0.26 −0.93 −0.60
Random/fixed RE RE RE FE FE RE
Effects
Observations 646 632 646 604 646 646
R-squared 0.51 0.66 0.71 0.47 0.30 0.20
*, **, and *** significant at 10%, 5%, and 1% level
China. Strategic diplomatic factors (diplomatic recognition and UN voting

behaviour) do not play a role in bilateral trade relations.
Further evidence of the drivers of China’s trade relations with SSA can
be derived from looking at imports and exports separately (see Table 6.1,
Cols. 2 and 3). Chinese imports from SSA are once more associated with GDP
and openness, but other gravity variables (distance and landlocked status) do
not reduce the level of imports. Nor surprisingly specialization in ores and
fuels are highly significant as would be expected. There is no evidence that
diplomatic factors affect China’s imports from the region.
Chinese exports to SSA are also affected by GDP as would be expected, but
neither openness nor distance from China has a statistically significant im-
pact. Landlocked economies do tend to import less as predicted by the gravity
model.54 Fuel-exporting economies tend to import more from China, which
probably reflects the extent of Chinese loans and construction contracts tied
to purchases of Chinese goods in these countries. China exports less to coun-
tries which recognize Taiwan, but there is no relation with a country’s voting
behaviour in the UN.
Overall then China’s trade with SSA is driven primarily by commercial
interests and its strategic interest in supplies of raw materials, particularly oil
and minerals.
54
This may reflect the fact that Chinese exports to landlocked African countries are recorded
as exports to the countries through which they transit rather than their ultimate destination.
150

Given the significant role played by SOEs in Chinese OFDI, it might be ex-
pected that strategic economic and political considerations would play a
more prominent role than in the case of trade. Since FDI flows fluctuate from
year to year, the variable used was the stock of Chinese OFDI in each country.
As with trade, the size of GDP in both China and SSA are major determi-
nants of FDI. In terms of strategic economic factors, fuel-exporting countries
tend to have a larger stock of Chinese FDI. There is also evidence that coun-
tries which maintain diplomatic relations with Taiwan receive less Chinese
investment. As with trade, there is no significant relationship with UN voting
behaviour (Table 6.1, Col. 4).

The factors influencing the level of Chinese projects in SSA are very similar
to those that determine FDI. Commercial factors play an important role with
both Chinese and SSA GDP having a significant impact (Table 6.1, Col. 5).
What is also striking is the highly significant impact of specialization in fuels
on the value of Chinese projects in SSA.55 There are several possible reasons
for this. First, many projects may be linked directly or indirectly to the oil in-
dustry. Second, since a significant proportion of Chinese projects are funded
by Chinese loans and China has made several R4I loans which involve re-
payment in oil, it is likely that a disproportionate share of contracts may be
with oil-exporting countries. Third, oil-exporting countries may have more
resources available for investment in infrastructure, and Chinese firms have
been successful in obtaining a significant share of such contracts. While the
data available do not allow these different factors to be disentangled, it sug-
gests that the high proportion of contracts in fuel-exporting countries reflects
a mixture of strategic and commercial factors.
As was noted for OFDI, Chinese firms are less likely to be significantly
involved in countries which recognize Taiwan. Once more, there is no ten-
dency for China to concentrate on countries which support its position
within the UN.
6.6.5 Chinese Loans

Since loans to SSA are provided mainly through the policy banks, strategic
factors are likely to be most significant in affecting Chinese involvement in
55
An increase of 10 percentage points in the share of fuels in the total exports of a SSA country
is associated with an increase of more than 30 per cent in the value of Chinese contracts.
151
SSA. As was pointed out earlier, there are no official statistics on the geograph-
ical distribution of Chinese loans and aid, so that estimates rely on unofficial
figures collected from a variety of sources, which affects the reliability of the
data.
Table 6.1, Column 6, reports results based on a new database on Chinese
loans to Africa developed by the CARI at Johns Hopkins University that cov-
ers the period from 2002 to 2015. The only factors that are significant are
Chinese and SSA GDP and the openness of the SSA economy. Other factors
which one might expect to have a significant impact, such as being an oil
exporter or having diplomatic relations with Taiwan, are not statistically sig-
nificant. There is however evidence from another study, based on AidData
estimates of Chinese loans, that China does provide less finance to African
countries that recognize Taiwan (Dreher et al., 2018, Table 1).
6.6.6 The Geography of Sino-African Economic Relations

The econometric results discussed here are broadly consistent with the earlier
findings on the drivers of economic relations between China and Africa. The
most significant strategic diplomatic factor that affects Chinese involvement
is whether the country has diplomatic relations with Taiwan. There is also
strong evidence that China’s relations are particularly geared towards fuel-
exporting countries, which reflects its strategic economic interests. Finally,
commercial factors, as measured by conventional-gravity-model variables
also play an important role in determining the pattern of economic relations.
Perhaps surprisingly, there was no evidence that countries which supported
China at the UN had closer economic relations, although this could re-
flect the limited influence that the MOFA has on Sino-SSA relations. Even
more surprising was the lack of evidence that the distribution of loans was
influenced by strategic diplomatic or economic considerations.56
6.7 Conclusion
The most significant forms of Chinese involvement in SSA involve trade

and construction and engineering projects, often financed by Chinese loans
and export credits. Chinese FDI and aid (as defined by the Organization for
56
This may be because loans include both ODA and Other Official Finance. Dreher et al.
(2018) found that, when these are treated separately, ODA is driven primarily by foreign policy
considerations, while less concessional flows are better explained by economic factors.
152
Economic Co-operation and Development-Development Assistance Com-

mittee (OECD-DAC)) have, contrary to the impression that is often given
in the media, been less important.
The factors that explain the spectacular growth of Sino-African economic
relations vary across different types of activity. Bilateral trade is largely driven
by commercial considerations on both the Chinese and the African sides. The
existing pattern of specialization, in which SSA exports oil and minerals and
imports manufactured goods from China, reflects comparative advantage.
The openness of the African economies following the adoption of structural-
adjustment policies in the 1980s and the lack of coherent industrial policies
in the region mean that trade patterns are mainly determined by market
forces.
Chinese FDI flows can also be seen as primarily motivated by commercial
considerations. This is certainly true of the growing number of private firms
and provincial SOEs that have invested in Africa. Large centrally owned SOEs
may be more subject to the state’s strategic economic concerns in securing
access to raw materials, but they also pursue their own commercial objectives
(Breslin, 2013, p. 1277). One area where FDI reflects the government’s diplo-
matic objectives is in relation to the One China policy: Chinese investors
avoid countries that recognize Taiwan.
Strategic economic objectives are more significant in the case of loans,
although this is not evident from their geographical distribution discussed
in section 6.6.5. Loans have been used to support Chinese companies in ac-
quiring energy and mineral resources and, more generally, in promoting the
Going Global strategy. However, both the CDB and the Exim Bank have
commercial interests of their own which also play a role in their lending
decisions. Again in terms of diplomatic objectives, their main contribution
is that they do not lend to countries which do not have diplomatic relations
with Beijing. On the African side, Chinese loans are particularly attractive to
those countries that find it difficult to obtain credit elsewhere for economic
or political reasons.
Foreign aid, narrowly defined, is largely governed by diplomatic con-
siderations both in terms of obtaining diplomatic support from African
governments and of enhancing China’s soft power in the region. This
broader political concern is reflected in the wide spread of Chinese aid in
SSA, which goes far beyond the relatively few countries that are important
sources of oil and minerals for China. All SSA countries which have diplo-
matic relations with Beijing receive aid from China (even though in the case
of South Africa this is more symbolic), and grants and zero-interest loans
are fairly evenly distributed around the continent (Brautigam, 2011). Aid
often goes to support high-visibility prestige projects, such as government
buildings and sports stadiums, to help garner political support.
153
Appendix to Chapter 6
Table A6.1. Significance of economic relations with China by country in SSA
Share of China Share of China Chinese OFDI Chinese Debt to China

in imports in exports stock (% total projects ($ (% of GDP)
2017–19 2017–19 inward FDI) 2019 p.c.) 2005-18 2019
Angola 18.0% 57.3% 15.5% 2,390 18.6%

Benin 26.3% 5.7% 3.8% 130 2.9%
Botswana 2.9% 0.2% 3.7% 3,604 0.1%
Burkina Faso 10.3% 1.2% 0.1% 5 0.4%
Burundi 11.7% 3.9% 3.6% 75 0.4%
Cabo Verde 8.0% 0.2% 0.1% 21,523 1.5%
Cameroon 20.0% 15.0% 3.6% 12 9.3%
Central African Republic 7.8% 14.7% 2.0% 109 1.9%
Chad 15.0% 10.7% 10.0% 685 2.2%
Comoros 17.7% 0.0% 1.4% 431 6.6%
Congo 14.2% 52.4% 2.1% 3,337 27.2%
Congo, Dem. Rep. 12.3% 32.9% 21.8% 171 0.9%
Côte d’Ivoire 15.3% 2.0% 5.2% 221 5.9%
Djibouti 29.8% 0.5% 7.1% 3,781 38.3%
Equatorial Guinea 11.5% 21.2% 2.8% 14,817 7.6%*
Eritrea 11.5% 38.4% 19.9% 347 0.4%
Eswatini 4.7% 0.5% 0.0% 113 3.9%
Ethiopia 30.4% 11.4% 10.3% 416 8.8%
Gabon 14.0% 32.0% 2.1% 2,733 7.2%
Gambia 25.1% 34.0% 3.1% 95 0.0%
Ghana 25.7% 15.3% 4.8% 478 3.0%
Guinea 25.9% 41.6% 16.1% 483 5.1%
Guinea-Bissau 8.4% 0.0% 11.7% 214 0.0%
Kenya 22.7% 2.8% 10.3% 600 7.7%
Lesotho 9.3% 1.2% 0.8% 511 2.8%
Liberia 17.2% 2.9% 1.9% 526 2.1%
Madagascar 24.1% 5.8% 3.5% 67 1.0%
Malawi 14.1% 3.8% 10.7% 71 2.5%
Mali 13.4% 2.4% 6.1% 272 3.3%
Mauritania 19.3% 32.0% 2.0% 695 4.0%
Mauritius 16.5% 1.4% 22.4% 1,669 5.0%*
Mozambique 13.9% 8.2% 2.7% 321 12.6%
Namibia 5.1% 13.0% 5.3% 1,911 1.5%*
Niger 15.7% 9.3% 13.6% 271 2.7%
Nigeria 27.2% 4.1% 2.2% 248 0.7%
Rwanda 15.8% 2.6% 6.4% 188 1.9%
Sao Tome and Principe 5.4% 0.4% 0.2% 89 2.3%
Senegal 15.3% 4.8% 3.7% 403 5.1%
Seychelles 4.6% 0.1% 13.2% 5,469 1.6%*
Sierra Leone 18.2% 0.1% 7.9% 172 1.0%
Somalia 9.6% 21.3% 0.0% 6 0.0%
South Africa 18.4% 9.9% 4.1% 116 0.7%
South Sudan 12.9% 93.9% N/A 251 14.9%*
Sudan 22.8% 15.6% 4.2% 667 3.4%
Tanzania 23.7% 5.0% 6.1% 286 0.9%
Togo 18.7% 2.8% 6.2% 244 10.0%
Uganda 17.7% 1.1% 4.7% 321 6.5%
Zambia 13.4% 27.8% 15.0% 1,200 13.9%
Zimbabwe 8.1% 12.9% 31.0% 345 6.7%
Total SSA 19.3% 16.9% 6.3% 429 3.9%
Notes
*—2017 from Horn et al. (2019)
Sources:
Cols. 1 and 2: UNCTADStat
Col. 3: UNCTADStat for total inward FDI and MOFCOM (2020) for Chinese OFDI.
Col. 4: NBS database for value of Chinese projects and UNCTADStat for population.
Col. 5: World Bank International Debt statistics for debt and UNCTADStat for GDP.
7
China’s Economic Impacts on Sub-Saharan

Africa
7.1 Introduction
The effects of China’s increasing role in Sub-Saharan Africa (SSA) have been
a topic of intense debate. This chapter considers the economic impacts,
whereas in Chapter 8, the controversies over its social, political, and environ-
mental effects are discussed. Official Chinese statements consistently refer to
the relationship as ‘win-win’, emphasizing the mutual benefits for Africa and
China. Public opinion polls in a number of SSA countries have shown that
a majority of those surveyed has a positive view of the economic impact of
China, particularly in terms of the infrastructure that has been built and the
availability of cheap Chinese products (Lekorwe et al., 2016, Figure 15). On
the other hand, some Western and African critics see the relationship as a
neo-colonial one, in which China exploits African resources and dumps its
products with no regard for African interests.
Such broad generalizations pay little regard to the different forms of
Chinese economic involvement in SSA and the variety of actors involved
(described in Chapter 6). They also fail to take into account the variety of
impacts that China has on SSA. There are direct impacts involving the bilat-
eral relations between China and SSA, and indirect ones arising from China’s
effects on global markets and prices. A further important distinction that has
been made in the literature is between complementary (positive) and com-
petitive (negative) economic impacts (Introduction, Table 0.1).1 These effects
can differ between countries, between sectors and groups within countries,
and over time.
1
The distinctions between direct and indirect impacts and complementary and competitive
effects has been extensively used in the ‘Asian Drivers’ literature on the impact of China on
SSA. See Jenkins and Edwards (2006); Schmitz (2006); Kaplinsky, McCormick, and Morris (2007);
Kaplinsky and Messner (2008).
The chapter focusses on three key issues that are at the centre of the de-
bate over China’s economic impact on SSA. The first is the impact of China
on the region’s exports and the way in which export expansion has con-
tributed to or impeded growth. The second concerns the contribution that
China is making to reducing SSA’s massive deficit in terms of transport,
power, and communications infrastructure, which is widely regarded as hav-
ing held back economic growth. Finally, after a period when the emphasis
on industrialization diminished with the dominance of neoliberal ideologies
and the Washington Consensus, the importance of the manufacturing sector
in economic development is now being recognized once more. SSA’s indus-
trial sector is relatively small and underdeveloped, so China’s impact on the
sector may prove critical.
7.2 Exports to China and the Commodity Boom
The clearest example of a complementary relationship between China and

SSA is provided by the region’s exports of commodities to China. As shown in
Chapter 3, from the late 1990s, China’s resource-intensive industrialization
created an enormous demand for energy and minerals, much of which had
to be met by imports. SSA is a region with abundant supplies of raw materials
that had been relatively underexploited in the past. There was, therefore, a
good match between China’s needs and what Africa was able to supply.
7.2.1 Direct Effects

In practice, only a handful of SSA economies have been directly affected by
this rush for resources. Although China’s imports from SSA grew rapidly dur-
ing the first decade of the twenty-first century, they were concentrated in a
few countries with South Africa, Angola, Sudan, and Republic of Congo ac-
counting for around four-fifths of the total. At the peak of the commodity
boom in 2011, only eight SSA countries sold more than 20 per cent of their
total exports to China. These consisted of three oil exporters (Sudan, Angola,
and Congo), four mineral exporters (Democratic Republic of Congo (DRC),
Mauritania, Zambia, and South Africa), and one timber exporter (Gambia).
The direct effect of China on the exports of the remaining countries in the
region was relatively small.
It is not even necessarily the case that China’s demand had much impact
on those countries that did have a large share of exports to China. South
Africa and Zambia have well-established mining industries, and they would
be able to find alternative markets for their minerals in the absence of ex-
ports to China. Nor has China played a major role in expanding supply in
156
China’s Economic Impacts on Sub-Saharan Africa
the two countries. In South Africa, Chinese foreign direct investment (FDI)
in mining has been limited and mainly involved participation in joint ven-
tures in existing mines. Chinese investors have played more of a role in
Zambia, where Non-Ferrous Company Africa (NFCA), a subsidiary of China
Non-Ferrous Metal Mining Company acquired the Chambishi copper mine
in 1998, when it was privatized by the Zambian government.2 NFCA invested
US$150 million in rehabilitating the mine and bringing it back into pro-
duction, but it remains a relatively small player, producing between 5 and
10 per cent of total Zambian copper output (Bastholm and Kragelund, 2009,
p. 128).3
China has played a much more central role in the development of the
mining industry in the DRC and Mauritania. The early development of
mineral exports from the DRC to China was the result of Chinese traders
who entered the country during the late 1990s and early 2000s to buy
ores from artisan miners. After 2006 many larger private Chinese compa-
nies became involved in the industry, and some degree of local processing
developed following a ban on exports of raw ore imposed by the local gov-
ernment in 2007 (Shelton and Kabemba, 2012, pp. 65–70). The Sicomines
agreement (see Box 6.2) has given further impetus to the mining industry.
Given the conflicts and political instability in the country during the pe-
riod, which limited Western involvement, China played an important role
in the growth of DRC exports. China also made an important contribution to
the growth of exports from Mauritania through the construction of a deep-
water port at Nouakchott in the 1980s, and a further loan for the expansion
of its capacity in 2006 (Mauritanian Embassy, n.d.). More recently China
has also been involved in building a new iron ore terminal at the port of
Nouadhibou.4
The most obvious example of a country where China has played a key role
in the growth of exports is Sudan, which has been subject to US sanctions
since 1997, and came to depend heavily on the Chinese market and invest-
ment by Chinese companies (Large, 2008). China played a more limited role
in the development of the Angolan oil industry, and the fact that Angola
has been a member of the Organization of the Petroleum Exporting Coun-
tries (OPEC) since 2007 and, thus, in theory, subject to production quotas,
2
See Bastholm and Kragelund (2009); Haglund (2009); and Li (2010) for accounts of Chinese
investment in Zambian mining.
3
In 2018 Chinese companies were estimated to account for less than 12 per cent of the total
value of minerals and metals produced in Zambia (Ericsson et al., 2020, p. 170).
4
China is also directly involved in mining through Minmetals, which has a minority share-
holding in the Tazadit iron ore mine, which is majority owned by the Mauritanian state-owned
company SNIM (USGS, 2013).
157
may have limited the extent to which its exports to China represent a net
increase in the quantity of oil exported.5
7.2.2 Indirect Effects

The indirect effects of China on SSA exports through its impact on commod-
ity prices are more widespread, but even so have only benefitted a minority
of SSA countries. Although the terms of trade of the majority of SSA coun-
tries improved during the commodity boom,6 this was not solely due to
China. Chapter 3 showed that there are substantial differences in the im-
pact of Chinese demand on different commodities, with the strongest effect
on the prices of minerals and metals. In contrast, the surge in energy prices
owed much more to supply-side factors than to the growth of demand from
China. Other products where China had a moderate impact on prices were
feedstuffs (particularly soybeans) and sawn wood. Chapter 3 also noted that
there was little impact on the prices of tropical agricultural products, cotton,
or skins and hides.
In addition to the countries mentioned earlier, the main beneficiaries of
increased commodity prices induced by the growth of China have been ex-
porters of iron ore (Liberia and Sierra Leone) and aluminium (Guinea and
Mozambique). Exporters of precious metals such as Botswana and Namibia
(diamonds), and Burkina Faso, Guinea, and Mali (gold), where China ac-
counts for a small share of global consumption, have not benefitted much.
Although oil exporters experienced the greatest improvement in their terms
of trade, China’s contribution to this was more limited than in the case of
minerals and metals (see Chapter 3). Nevertheless, additional demand from
China did help boost prices to some degree, so China had a positive impact
on all the region’s oil exporters.7 The only other product of interest to some
SSA countries, and where Chinese demand has contributed to higher prices,
is wood, of which West African countries, including the Gambia, Gabon,
Cameroon, and the Republic of Congo, are important exporters.
Most of the remaining countries in the region export agricultural prod-
ucts and have not benefitted from a significant Chinese impact on prices.
As seen in Chapter 3, China’s demand for tropical foodstuffs is relatively
limited (Table 3.1). The main agricultural product for which it does have a
5
There is relatively little information on China’s role in the development of the oil industry
in the Republic of Congo, but the operations of Sinopec there were the result of its acquisition
of Addax Petroleum in 2009, which suggests that it was not a major factor in the growth of local
production.
6
The terms of trade of thirty-six out of the forty-seven SSA countries improved between 2002
and 2011.
7
In addition to the three countries already mentioned, the other major oil-exporting countries
in SSA are Cameroon, Chad, Equatorial Guinea, Gabon, and Nigeria.
158
significant import demand, soybeans, is not grown on a substantial scale in

SSA. Although China has a large share of the world market for cotton, an
important export for several African countries, its impact on prices has been
relatively small.
There are a few SSA countries where manufactures constitute an impor-
tant share of total exports. In contrast to the situation with commodities, the
growth of China has tended to depress the prices of manufactured goods, as
seen in Chapter 2. This impact was felt particularly strongly in the case of
garment prices after China entered the World Trade Organization (WTO),
and the subsequent ending of the Agreement on Textiles and Clothing. Be-
cause Mauritius, Lesotho, and Madagascar specialized in clothing, it is not
surprising that they were amongst those African economies whose terms of
trade deteriorated between 2002 and 2011.
In summary, the direct and indirect effects of China on SSA exports have
brought significant economic benefits to a minority of countries whose
economies are complementary to China’s because they specialize in com-
modities that are in high demand in China: minerals, oil, and timber.
Despite the general claims made about the impact of China, the majority
of SSA countries remain relatively little affected by Chinese demand, par-
ticularly those that export mainly agricultural commodities. Finally, SSA
economies that export manufactured goods have been negatively affected
(see section 7.4.1 for further discussion).8
7.2.3 The Downside of Commodity Exports

Although an increase in exports and improvement in the terms of trade can
have a positive effect on a country’s growth in the short and medium term,
critics question the long-term impacts of specialization in primary products.
The so-called resource-curse literature points to the poor economic perfor-
mance of many resource-rich countries.9 Both the economic and political
effects of natural resource wealth have been used to explain this.10
One of the main economic concerns is that a commodity boom can give
rise to the so-called Dutch Disease. This term refers to the impact of the
discovery of gas in the Netherlands on the domestic manufacturing sector
8
Zafar (2007) reaches broadly similar conclusions regarding the likely impact of China on the
terms of trade of different SSA countries.
9
Since the negative relationship between natural resource dependence and growth was
pointed out by Sachs and Warner (1995), there has been extensive debate over the empirical evi-
dence with results varying according to the time period covered, the measure of natural resources,
and the econometric methods used (van der Ploeg, 2011; Saad-Filho and Weeks, 2013).
10
The ‘political-resource curse’ is discussed in Chapter 8.
159
(Corden and Neary, 1982; Corden, 1984). This impact was generalized to sit-
uations where the discovery of new resources or a windfall because of a major
increase in the price of a commodity leads to a number of negative side ef-
fects. These include the appreciation of a country’s real exchange rate and an
increase in government spending, which raise the price of non-traded goods
(such as housing and services) relative to traded goods. As a result, resources
shift out of non-booming tradable sectors, such as agriculture and particu-
larly manufacturing, to non-traded goods and services and the export sector
(Frankel, 2012, p. 12).
Critics of China’s involvement in resource extraction in SSA have argued
that it has given rise to Dutch Disease (Zafar, 2007; Sindzingre, 2011). This
could have occurred in one of two situations: where China makes a signif-
icant contribution to the development of new sources of raw materials or
where Chinese demand has a major impact on global commodity prices.
The first of these involves direct trade and an investment/lending relation-
ship between China and the country concerned. The second, indirect effect,
applies to all countries which export minerals and metals, and possibly oil
and timber. Not surprisingly, these are the same countries where China had
positive short-term and medium-term effects on exports.
One indicator of the potential existence of Dutch Disease is the apprecia-
tion of a country’s real effective exchange rate (REER). Of the SSA countries
which export minerals and metals, only Zambia and South Africa had a sig-
nificant appreciation of their REER between 2001 and 2011.11 All of the oil
exporters in the region saw their currencies appreciate over the period, but
China’s contribution to the global oil price rise was less significant than in
the case of minerals. As indicated previously, China did make a major contri-
bution to the development of the oil industry in Sudan and so could have had
Dutch Disease effects there, but elsewhere the appreciation of the exchange
rate was mainly a result of global conditions.
The likelihood that trade with China leads to Dutch Disease effects is also
reduced by the extensive use of resources-for-infrastructure (R4I) deals in
SSA. Because increased foreign exchange earnings are used to repay loans
made by the Chinese policy banks to finance infrastructure built by Chinese
companies, the impact on expenditure within the host economy is relatively
limited. This is, therefore, a useful mechanism for avoiding currency appreci-
ation in the short term, and replacing the exported natural capital with new
forms of created capital that will increase productivity in other sectors of the
economy.
11
Of the others, Mozambique had a slight appreciation; Liberia and Mauritania slight depreci-
ations; and DRC and Guinea significant depreciations of their REER. Based on data extracted
from http://bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-
new-database/ (accessed 30 May 2018).
160
Export instability is another disadvantage of specialization in primary

commodities. Primary commodities tend to be much more subject to price
fluctuation than manufactured goods.12 While countries may benefit from
increased export revenues during a boom, they suffer the consequences of
the bust which inevitably follows. Over the entire cycle, economic fluctu-
ations make investment more risky, and this tends to depress economic
growth (van der Ploeg, 2011, pp. 386–8).
There are two ways in which China’s growth could have contributed to
greater instability in SSA economies. First, if China had been a major cause of
the downturn in commodity prices after 2011, this might have contributed
to the decline in growth rates in Africa, but, as seen in Chapter 3, Chinese im-
ports of primary products continued to increase after 2011, and other factors
explain the end of the commodity boom. Second, if the growth of China had
caused SSA economies to become more specialized in commodity exports,
this could have led to them becoming more vulnerable to price fluctuations.
However, SSA’s dependence on commodity exports pre-dates the develop-
ment of trade relations with China and characterizes trade with the EU and
USA (Figure 6.2).
Thus although many African economies were negatively affected by the
drop in commodity prices, and major exporters to China including Angola,
Sudan, and DRC saw the value of exports to China fall after 2011 or 2012,
this was primarily due to the fall in oil and metal prices on world markets
rather than a decline in demand from China.
7.3 China’s Contribution to Infrastructure Development
A second area of substantial complementarity between China and SSA is

infrastructure. SSA suffers from a serious infrastructure deficit, both in com-
parison to other developing countries and in relation to what is required
to meet economic growth targets. China, on the other hand, has always
emphasized the importance of infrastructure in economic development and
invested heavily in its domestic infrastructure. As a result Chinese construc-
tion and engineering companies have acquired considerable experience in
infrastructure at home, and have been encouraged by the government to
make use of their expertise abroad.
12
This reflects differences in supply and demand conditions for primary products and man-
ufactures in the short run. Primary commodities tend to have lower price elasticities of supply
and demand. In other words, because many primary products have few close substitutes and are
often essential, large price changes are required to bring about a reduction in demand. At the
same time, it is difficult to increase production in the short term because of the long gestation
periods and high investment costs involved in bringing additional output on stream.
161
In the 1950s and 1960s, infrastructure, such as roads, railways, and power
plants was seen as critical to development, and much of the West’s aid was
used to support infrastructure projects.13 As late as the mid-1970s, projects
accounted for over half of Organization for Economic Co-operation and
Development (OECD) aid, and two-thirds of this was spent on infrastruc-
ture (Mosley and Eeckhout, 2000, p. 103). From the 1970s onwards, there
was a shift away from such activities to give more emphasis to programme
as opposed to project lending, and to sectors such as health and educa-
tion, rather than hard infrastructure (Mosley and Eeckhout, 2000). This trend
was given a further push by structural adjustment policies in the 1980s and
the emphasis of the Washington Consensus on economic liberalization and
macroeconomic stability.14
The infrastructure deficit in SSA has led to inadequate supplies of elec-
tricity, causing power outages, high transport costs, and logistical and
health problems (Arewa, 2016). These in turn tend to reduce productiv-
ity and slow economic growth.15 It has been estimated that SSA needs
to spend almost $75 billion a year on infrastructure development in-
cluding over $40 billion on improving power supplies (NEPAD, 2015,
Table 4).
How can SSA countries finance these infrastructure investments? Gov-
ernment investment in SSA has been cut back and it has proved difficult
to attract adequate levels of private investment, apart from in telecom-
munications. Western donors continue to prioritize other types of aid
expenditure. In contrast, in its 2013 report on China-Africa Economic
and Trade Cooperation, the State Council of the People’s Republic of
China (PRC) highlights the importance of infrastructure: ‘Infrastructure
construction is a starting point for improving the investment environ-
ment and people’s livelihoods in Africa, and is of great importance for
poverty reduction and development on the continent’ (PRC, State Council,
2013, Ch. IV).
China has the financial capacity to fund significant infrastructure invest-
ment in the region, and Chinese companies have accumulated considerable
experience in building roads, railways, dams, and power plants. Thus China
is well placed to make a contribution to reducing the infrastructure gap
13
Between 1946 and 1961, 75 per cent of World Bank loans was used for transport and
electricity projects (Brautigam, 2009, p. 133).
14
Recently there is renewed recognition of the importance of investment in infrastructure,
reflected in statements by the International Monetary Fund (IMF), the World Bank, and the G-20
(Gutman et al., 2015, p. 9).
15
The World Bank estimated that increasing the power supply in Africa could increase GDP
by 2 per cent and business productivity by 40 per cent (cited in Schiere and Rugamba, 2011,
p. 13).
162
in SSA. It also has a reputation for agreeing and carrying out infrastruc-
ture projects quickly, in contrast to other lenders which take much longer.
As the Senegalese President Albert Wade pointed out in an article in the
Financial Times, ‘China has helped African nations build infrastructure in
record time’ (cited in Brautigam, 2009, p. 133).16 The development of infras-
tructure is, therefore, an area in which China has a potentially significant
role.
Chinese involvement in infrastructure has taken a number of forms. There
is some Chinese FDI in telecommunications through companies such as
Huawei and ZTE; however, it is more common for firms to be involved in
the provision of infrastructure through engineering contracts. China Rail-
way Construction, China Communications Construction, Sinomach, and
Sinohydro are amongst the leading Chinese companies involved in infras-
tructure projects in SSA.17 China also provides significant amounts of finance
for infrastructure projects, mainly through the Exim Bank and the China
Development Bank.
There are various estimates of the level of China’s involvement in infras-
tructure in SSA. The World Bank calculated that its financing commitment
to infrastructure projects increased from less than US$500 million in 2001 to
US$4.5 billion in 2007 (Foster et al., 2008, Table 2). According to the Infras-
tructure Consortium for Africa this rose to US$13.4 billion for both 2012 and
2013 (cited in Gutman et al., 2015, p. 28). In 2018 China committed more
than US$25 billion, accounting for around two-fifths of all external finance
for infrastructure projects in Africa, making it the most significant source of
finance in the region by some distance.18
As noted earlier, the sectors with the greatest infrastructure requirements
in SSA are power and transport. Over half of China’s loans to Africa between
2000 and 2018 went to these two sectors (see section 6.2.4). Not surpris-
ingly, Chinese projects also concentrated in these sectors. Between 2005 and
2020, 40 per cent of the value of such contracts was transport related, and a
sixth involved hydroelectric projects (see Figure 6.5). OECD donors, on the
other hand, have devoted significant resources to neither hydropower nor
rail development in recent years.
16
While this is a widely shared perception, there can be long delays in Chinese projects. It
took a decade from the first discussions about the Bui Dam with Sinohydro until construction
began (Hwang et al., 2015, p. 4).
17
Data from AEI/Heritage Foundation.
18
According to Infrastructure Consortium for Africa (ICA) figures, the total funding for African
infrastructure from development financial institutions (both bilateral and multilateral) came
to $51 billion in 2018, with a further $12 billion provided by the private sector (ICA, 2018,
Table 2.1).
163
Several concerns have been raised in relation to Chinese infrastructure

projects. First, much of Chinese finance is tied to Chinese firms and prod-
ucts. This would be a problem if Chinese suppliers tended to be high-cost,
or if there was limited competition amongst them. In fact Chinese com-
panies tend to be highly cost competitive, as indicated by their success
in international tendering when they face competition from non-Chinese
contractors.19 There has also been intense competition in the Chinese con-
struction industry, which is one of the factors that has led firms to expand
overseas (Corkin and Burke, 2006, p. 77).
A second concern relates to the terms on which China provides finance
for infrastructure projects. As seen in Chapter 6, many of China’s infras-
tructure loans involve swapping resources for infrastructure. This makes
calculating the financial costs involved complicated. Two studies of such
loans, concluded that their cost is generally not out of line with the interest
rates at which countries can obtain loans on international capital markets
(Brautigam and Gallagher, 2014) and Mihalyi et al., 2020).20
Apart from cost, another concern raised in relation to Chinese-provided
infrastructure relates to quality. One much-publicized case of poor-quality
Chinese construction was the Luanda General Hospital, which had to be
evacuated in 2010 because of fears that the building would collapse (Corkin,
2013, p. 121). Despite reports of substandard work in some Chinese projects,
there are also examples of Chinese companies achieving high-quality work.
A study of Chinese construction and infrastructure projects in Angola, Sierra
Leone, Tanzania, and Zambia gives several examples of high standards and
concludes that despite widespread perceptions of inferior quality, in some
cases, very little distinguishes the quality of Chinese construction companies
from that of other local and foreign companies (Corkin and Burke, 2006,
pp. 78–9). This was confirmed by a recent study comparing World Bank–
financed transport projects undertaken by Chinese contractors with those of
OECD companies, which found that on average, Chinese and OECD projects
were of similar quality, although the range was greater for Chinese projects,
with some of high standard and others with very poor performance (Farrell,
2016).
Where they do arise, problems of poor quality are often attributable to a
lack of government oversight and corruption in the country concerned. In
the Angolan case, some critics have suggested that lack of project durability
19
The share of Chinese firms in World Bank-funded civil works in Africa has increased from
around 10 per cent in the late 1990s to 42 per cent in 2013 (Zhang and Gutman, 2015, Figure 7).
20
There is often a lack of transparency concerning the terms of these deals, which makes
comparison difficult.
164
serves the interests of the local elite, by ensuring a stream of new contracts
from which they can benefit (Corkin, 2013, p. 122).
Another criticism of Chinese infrastructure projects in SSA is that they are
not focussed on meeting the needs of African development but rather are
designed to promote China’s strategic political and economic interests by
increasing its soft power and ensuring access to oil and mineral resources.
Broadly speaking, China is involved in three different types of infrastructure
projects in SSA. Some are intended to fill gaps in terms of power generation
or remove transport bottlenecks, and can contribute to the overall economic
development of the host country. Others may be specifically tied to the
extraction of natural resources, for example, building oil pipelines or rail
links from a mine to a port, and are primarily intended to support exports
to China. These too can have economic benefits that are more general in
some circumstances. Finally, there are prestige projects, such as government
buildings or sports stadiums, which are undertaken primarily for politi-
cal reasons, and do not contribute to increased productivity or improved
economic performance.
If Chinese projects fell predominantly in the second and third categories,
a degree of scepticism regarding their contribution to development would
be justified. Although there are numbers of Chinese prestige construction
projects, such as the African Union building in Addis Ababa, the Foreign
Ministry building in Mozambique, and several sports stadiums, such as those
built for the African Cup of Nations in Angola, Gabon, and Equatorial
Guinea, these are not considered infrastructure in the sense used here, and
do not account for a major share of Chinese loans.
A more serious criticism is that roads, railways, and ports built by the Chi-
nese in SSA are primarily built for the purpose of extracting resources from
the continent, and replicate the kind of infrastructure that was built dur-
ing the colonial period (Kerby, Moradi, and Jedwab, 2014). It may be hard
to distinguish between projects primarily intended to facilitate resource ex-
ports to China and those which contribute to economic development more
generally. In some cases projects such as port development, which are pri-
marily motivated by resource extraction, can also have wider development
impacts. It is also not always clear in the case of electricity projects whether
they provide energy to specific mines or to the host country’s national grid. A
recent study of 141 Chinese infrastructure projects in Africa concluded that
only 7 were wholly linked to resource extraction, and a further 4 were par-
tially linked. More than 90 per cent of the projects on which information
was available did not involve resource extraction (NEPAD, 2015, Table 28).
Some major Chinese infrastructure projects are clearly related to mining
development, such as the rail link between the phosphate-rich Bofal and
165
Nouakchott in Mauritania. However, generally in SSA, ‘the bulk of Chinese

infrastructure finance is targeted towards projects that meet the country’s
broader development needs’ (Foster et al., 2008, p. 37).21
Studies of the impact of infrastructure investment on GDP have estimated
that a 10 per cent increase in infrastructure increases gross domestic product
(GDP) by 1.5–2.0 per cent (Estache and Garsous, 2012). However, the impact
varies depending on the type of infrastructure. It is not possible to quantify
the contribution of Chinese-built infrastructure to growth in SSA given the
data available and the uncertainties concerning the nature of the infrastruc-
ture being built. China has, however, undoubtedly had a positive long-term
economic effect through its involvement in infrastructure in the region. It is
not surprising, therefore, that public opinion surveys in Africa have found
that Chinese involvement in infrastructure is the most frequently cited fac-
tor contributing to a positive image of China in the region (Lekorwe et al.,
2016, Figure 15).
The fact that most SSA countries have now signed up to the BRI may give
a further push to Chinese involvement in infrastructure. Initially the only
countries in the region included were Ethiopia, Kenya and Djibouti which
were part of the Maritime Silk Road. However, the expansion of the BRI into
a global project means that at the latest count 40 SSA countries had joined.
The growing levels of Chinese financing of infrastructure projects in SSA
has given rise to a new concern that countries will face unsustainable levels
of debt. As was seen in section 6.2.4, there has been a significant increase
in the amount owed by SSA to China, which accounts for around a fifth
of the region’s public and publicly guaranteed (PPG) debt. With a growing
number of countries classified as being in ‘debt distress’ or at ‘high risk of
debt distress’, some critics have pointed the finger at the role played by China
(Chakrabarty, 2020).
In fact, as was seen in Chapter 6, large-scale Chinese lending has been
concentrated in a relatively small number of countries and many of the
countries facing serious debt problems have relatively low levels of debt to
China. A recent analysis of 22 SSA countries that were classified as either
in debt distress or at high risk of debt distress, found that in the major-
ity of them (12) China accounted for less than 15 per cent of total PPG
debt. China’s share was over a quarter in only seven countries (Brautigam
et al., 2020).
A number of factors explain the growing debt crisis in SSA. These include
the drop in commodity prices since the mid-2010s, falling growth rates,
21
Scholvin and Strüver (2013, p. 189), in a study of China’s role in transport infrastructure
projects in the South African Development Community (SADC), also conclude that although
some projects are linked to resource exports, they tie in well with the SADC countries’ priorities.
166
political instability in some countries, and increased borrowing from the

bond market and commercial banks. Since 2019 the economic impact of the
coronavirus pandemic has further intensified the problems.
Chinese lending has not been the major driver of debt problems in SSA.
Although China’s share of total SSA debt increased up to 2016, it has been
stable since then and fell in 2019. New loan commitments have declined and
some existing loans have been restructured, or forgiven in the case of zero
interest loans (Kratz et al., 2020).
7.4 China’s Impact on SSA Manufacturing
China’s competitive impact on SSA is most often discussed in relation to

manufacturing. One of the most visible signs of China’s presence in SSA
is the ubiquity of Chinese goods in the region’s shops and markets, and
it is often claimed that Chinese competition is having a negative effect
on local industry. Typical headlines assert that ‘Chinese imports threaten
Kenya’s textile industry’ (Yusuf, 2013), and ‘Ghana’s textile trade unravels
due to cheap Chinese imports’ (Mathews, 2015). How valid are these claims?
Are local manufacturers being displaced by Chinese imports, or has China
made it more difficult for African countries to get on the first step of the
industrialization ladder (Kaplinsky and Morris, 2008)?
There are also potentially positive impacts on SSA manufacturing. Im-
ports of inputs and machinery from China and inward investment by
Chinese firms can bring much-needed technology and help increase pro-
ductivity. Chinese outward foreign direct investment (OFDI) may also create
opportunities for local suppliers through backward linkages. Recently some
commentators have even suggested that rising wages in China present a ma-
jor opportunity for SSA countries to industrialize, because China will start to
relocate abroad its most labour-intensive industries, which will no longer be
competitive at home (Lin, 2012; Chandra et al., 2013; Lin and Wang, 2014;
Lin and Xu, 2019).
7.4.1 Competition from Chinese Manufacturing

As shown in Chapter 6, imports of Chinese manufactures have grown rapidly
throughout SSA since the start of the millennium. Despite claims that these
products are displacing African manufacturers, much of the evidence is
anecdotal. Detailed studies of the impact of increased Chinese imports in
particular markets are surprisingly few and far between. Scoping studies by
the African Economic Research Consortium claim that Chinese competition
has led to local producers being displaced in Cameroon, Kenya, Ghana, and
167
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Ethiopia Kenya Senegal
South Africa Tanzania
Figure 7.1 Share of Chinese imports in apparent consumption of manufactured

goods in selected countries, 2000–17
Source: UNIDO.
South Africa (Ademola et al., 2009, p. 498), but the evidence base for this
claim is sketchy.
Part of the problem is the absence of reliable statistics for most SSA coun-
tries that would make it possible to estimate the level of Chinese import
penetration in the domestic market. Relatively few African countries have
up-to-date information on domestic industrial production or consumption
of manufactured goods. Where they do exist, figures on local production
only include the formal sector and, therefore, underestimate the actual level.
At the same time, where Chinese goods enter the country through infor-
mal or illegal channels, the level of imports is also underestimated. There
is no way of knowing for certain whether the overall effect of these omis-
sions is to reduce or increase the true level of Chinese manufactures’ import
penetration.
Figure 7.1 shows the share of Chinese imports in the apparent con-
sumption of manufactured goods in five SSA countries since the start of
the millennium.22 In all five cases, China’s share of the domestic market
increased significantly over the period.
This does not necessarily mean that domestic manufacturers have been
negatively affected. Imports from China may be replacing imports from other
22
Apparent consumption is calculated as domestic output and imports minus exports of
manufactured goods.
168
countries. Indeed, as shown in Chapter 2, Chinese exports have partly grown

as a result of firms relocating their export production from more advanced
economies, particularly those in Asia, to China. Because the major share
of manufactured products sold in Ethiopia, Kenya, Senegal, and Tanzania
are imported, it is likely that the increase in China’s share of the market is
mainly at the expense of that of other exporters. The situation is rather dif-
ferent in South Africa, whose much stronger manufacturing sector has been
affected by Chinese competition (Edwards and Jenkins, 2015; Torreggiani
and Andreoni, 2019).
Chinese competition in third markets can also have a negative impact on
a country’s exports. For SSA countries (apart from South Africa) which had
only recently started to export labour-intensive manufactures at the time
China joined the WTO, the main question is whether Chinese competition
is stopping them from getting a foothold on the ladder of industrialization
(Kaplinsky and Morris, 2008). Attention has focussed particularly on the
textile and garment industry because it is usually one of the industries as-
sociated with the earliest stages of any country’s industrialization process
(see Box 7.1).
Box 7.1 CHINA’S IMPACT ON SSA EXPORTS OF TEXTILES AND GARMENTS
The African Growth Opportunities Act (AGOA), introduced by the US government

in 2000, gave preferential access to the US market for exports from most SSA coun-
tries. This led to a boom in garment exports to the USA from some African countries,
most notably Kenya, Lesotho, Madagascar, and Swaziland, between 2000 and 2004.
By 2004 the clothing industry employed 54,000 people in Lesotho, 34,000 in Kenya,
and 28,000 in Swaziland (Kaplinsky and Morris, 2008, Table 12). The combination of
AGOA preferences, the absence of any rules of origin for least-developed African coun-
tries, and US quotas on imports from China created an incentive for firms to use these
countries as a conduit for the transhipment of Chinese garments to the US market.
In many cases this involved minimal processing in the African country concerned and
was merely a way of avoiding US quota restrictions (Rotunno et al., 2013).
The ending of the Agreement on Textiles and Clothing (ATC) meant that such quota
hopping was no longer necessary or advantageous. In Lesotho in the first half of 2005,
eight of the forty-seven garment-exporting factories closed, and employment fell by
a quarter, while in Swaziland, employment fell by more than 40 per cent (Kaplinsky
and Morris, 2008, p. 264). Although the ending of quotas removed one incentive for
exporting from SSA, products imported from AGOA countries continued to enter the
USA duty-free, and with normal duty on garments of as much as 30 per cent in some
cases, there was still an advantage to retailers in sourcing apparel from Africa.
China’s impact on African exports of garments was contradictory. The success of
SSA countries in penetrating the US market depended to a significant extent on im-
ports from China of both garments and textile inputs. If the exports had been required
to use more expensive imported fabric from the region or the USA, it is unlikely that
169
they would have grown so significantly. There is also some evidence of Chinese in-
vestors setting up factories in SSA, although many of these may have been from Taiwan
rather than the PRC. On the other hand, SSA exports clearly competed with production
in China for a share of the US market. The way in which these trends played out de-
pended largely on the measures adopted globally through the ATC and by the USA. It is
clear that a level playing field, in terms of access to developed-country markets, would
have made it extremely difficult if not impossible for SSA to develop an export-oriented
garment industry in competition with China.
Apart from the specific case of textiles and garments, there is also some
evidence of Chinese competition having a negative impact on exports of
manufactures from South Africa, which is the country with the strongest
industrial economy in the region (Edwards and Jenkins, 2014; Jenkins and
Edwards, 2015). There is also evidence that Chinese competition is having
a negative effect on intraregional trade in SSA (Giovannetti and Sanfilippo,
2009; Pigato and Gourdon, 2014).
7.4.2 Technology Transfer and Local Linkages

One potential channel through which China contributes to technological
development in SSA is imports of its machinery. As shown in Chapter 6, capi-
tal goods have accounted for a growing proportion of Chinese exports to SSA.
Machinery imported from China is considerably cheaper than alternatives
that can be bought in the West.23 The lower cost of such equipment makes
it available to a wider range of producers who are unable to afford the more
sophisticated imported machinery. Despite the fact that Chinese machines
are of lower quality and have a shorter life than Western ones, they can give
higher returns, particularly to small and medium enterprises with limited ac-
cess to finance. As one Nigerian manufacturer commented, referring to his
firm’s Chinese machinery, ‘Although these products don’t last as long as Eu-
ropean machines would, it just helps us get by, in that we could break even
before the machine deteriorates. That’s the advantage’ (Chen et al., 2016,
p. 14).
It has also been argued that Chinese capital goods are more appropriate
to local conditions in SSA because they produce less sophisticated products
for low-income markets and are more labour-intensive so that they create
more jobs than machinery and equipment imported from the OECD coun-
tries. The scale of output may also be lower so that capacity can be more fully
23
In Nigeria there are examples of machines costing anywhere between a quarter and a
twentieth of the price of European machines (Chen et al., 2016, p. 13). In Kenya, Chinese wood-
working machines used in the furniture industry cost around a tenth of the price of a machine
imported from England (Atta-Ankomah, 2014, p. 153).
170
utilized. This has the added advantage of reducing the barriers to entry faced
by local small and medium enterprises starting production. To date the evi-
dence supporting these claims remains limited, but there are examples that
point in that direction (Hanlin and Kaplinsky, 2016).
A case in point is the furniture industry in Kenya, where Atta-Ankomah
(2014, Chapter 6) found that imported Chinese planers, saw benches and
lathes cost a fraction of the price of imports from Europe. Although the
Chinese machines were less durable, more subject to breakdowns, and pro-
duced at lower capacity than other imported equipment, they provided an
opportunity for small-scale and informal producers, who could not afford
the large-scale European machinery, to obtain equipment that could pro-
duce better-quality products than would be possible with locally produced
alternatives.
A second potential channel for technology transfer is Chinese invest-
ment which gives rise to spillovers. Vertical spillovers from FDI occur mainly
through backward linkages to local suppliers, but most studies of Chinese
OFDI in SSA have found that these are quite limited. A survey of 1,000 Chi-
nese firms in SSA found that on average they sourced less than half of their
supply from local firms (Sun et al., 2017, p. 47). Chinese manufacturers in
Nigeria create few backward linkages, preferring to import their inputs (Chen
et al., 2016, pp. 17–19). In Ghana it was also reported that apart from the
plastic recycling firms and steel mills which use local waste as a raw material,
Chinese firms import almost all their inputs (Tang, 2016a, pp. 16–17).
Several factors contribute to the limited development of linkages by Chi-
nese firms. Where activities are supported by the China Exim Bank, the tying
of loans to purchases of Chinese goods discourages the development of local
linkages.24 Chinese manufacturers in SSA are usually market seeking, prefer-
ring to source their parts and components from their established suppliers in
China and tending not to be well-embedded in the local context (Gu, 2011,
pp. 33–4).
The lack of local linkages is not solely the result of Chinese firms’ prefer-
ence for Chinese suppliers; it also reflects the absence of local networks of
suppliers able to provide products that are competitive in terms of price and
quality (Sun et al., 2017, p. 47). There is some evidence from SSA that Chinese
firms tend to create fewer backward linkages to local suppliers than Western
investors (Amendolagine et al., 2013). As Morris et al. (2012, p. 132) note,
it is an open question whether the low level of linkage creation by Chinese
24
The Exim Bank’s financing conditions require at least 50 per cent of project procurement
to be sourced in China, with Chinese companies used to implement the projects (Corkin, 2013,
p. 101).
171
firms is the result of their relatively recent entry into SSA or if it reflects more
fundamental differences between Chinese and Western companies.
There are also questions over the extent to which exports to China create
forward linkages through downstream processing of raw materials. Although
resource-based manufactures account for a higher share of SSA exports to
China than to developed-country markets, the bulk of commodity exports
to China are exported in unprocessed form (see Figure 6.2).25 China has rec-
ognized this as a problem and this may lead to more local processing in
future.
Another potential spill over from FDI occurs via the training of locals em-
ployed by foreign companies. The evidence suggests that this channel of
technology transfer is also relatively limited despite some examples which
have been widely publicized, such as Huawei’s training initiatives (Li, 2016;
Tsui, 2016; Tugendhat, 2020). Generally, since local workers are mainly em-
ployed in unskilled posts, they receive little training, and what they do
receive is at the low-skilled operational level, often through learning-on-the-
job (Shen, 2013, p. 38; Calabrese and Tang, 2020, pp. 15–16).26 There are
cases in the textile and garment industry in South Africa and Botswana where
local ex-employees of Chinese companies have tried to set up their own busi-
nesses, but with limited success. One problem has been that former workers
are only familiar with a specific part of the production process, which again
illustrates the limited extent to which technology is being transferred to the
host country (Tang, 2014, p. 23).
Also because Chinese firms have few connections with the local business
sector, opportunities for technology transfer to local firms are limited apart
from instances where Chinese firms are involved in joint ventures with lo-
cal firms. These are relatively rare in SSA, where the bulk of investment is in
100 per cent Chinese-owned projects (Shen, 2013 Figure 8; Calabrese and
Tang, 2020, p. 18). It is perhaps not surprising, then, that host govern-
ments in SSA have a negative view of the impact of Chinese FDI in terms
of technology transfer (Shen, 2013, Table 1).27
25
A case study of timber in Gabon found that when the destination market shifted from Europe
to China, the level of processing fell (Kaplinsky et al., 2011).
26
Recent studies of Chinese firms in Ghana, Nigeria and Ethiopia confirm that local employees
are mainly unskilled and that formal training provided is limited (Chen at. al., 2016, p. 14; Tang,
2016a, pp. 18–19; Tang, 2019, pp. 7–9). In contrast almost two-thirds of the firms surveyed by
Sun et al. (2017, p. 40) reported that they provided some training to their workers but the study
provides no details on the extent or nature of the training offered.
27
In a survey of government opinion in five countries (Liberia, Ethiopia, Rwanda, Nigeria,
and Zambia) all had a negative opinion of China’s contribution in terms of technology transfer,
which contrasted with a positive view of its job creation (Shen, 2013, Table 1).
172
7.4.3 ‘Flying Geese’ in Africa: Will China Relocate Labour-Intensive

Manufacturing to SSA?
While in the past China has often been seen as an obstacle to industrializa-
tion in SSA, recently, it has been argued that it is becoming a major catalyst
for African manufacturing. Leading Chinese development economist and
former World Bank chief economist Justin Lin argues that China is on the
verge of graduating from low-skilled manufacturing to become a ‘leading
dragon’. This will release nearly 100 million manufacturing jobs, opening
up a great opportunity for industrialization in SSA and other low-income
countries (Lin, 2012). He draws an analogy with the ‘flying geese’ pattern
which has been used to explain the spread of industrialization in East Asia
from Japan, first to South Korea, Taiwan, Hong Kong, and Singapore, then to
Indonesia, Malaysia, the Philippines, and Thailand, and ultimately, to China
itself and Vietnam (Chandra, Lin, and Wang, 2013). Lin and his colleagues
claim that ‘the leading dragon phenomenon alone can create sufficient
labour-intensive manufacturing jobs for developing Sub-Saharan African
countries to bring them to par with most industrial countries . . . The num-
ber could almost double employment in manufacturing in African countries
in a few years, jumpstarting its process of industrialization’ (Chandra et al.,
2013, p. 77).
There are several problems with this optimistic view.28 First, wages in the
manufacturing sector in SSA are not necessarily that low. Wages in South
Africa, which has the region’s strongest manufacturing base, are consider-
ably higher than in China, as are those in Mauritius, one of the region’s
most successful exporters of manufactures. Zambian wages are also on a par
with Chinese wages in light manufacturing. Nevertheless, within SSA, some
countries, most notably Ethiopia and Tanzania, have wages well below those
of China (Ceglowski et al., 2015, Table 2; Dinh et al., 2012, Table 1.1).
Second, average manufacturing productivity levels tend to be considerably
lower in most SSA countries than in China. As a result only countries with
significantly lower wages than China (Ethiopia and Tanzania) are able to
compete with China in terms of unit labour cost (Ceglowski et al., 2015,
Table 6).29 Although the most efficient firms in some African countries may
be able to match the average productivity in China in some industries, giving
them a potential advantage in terms of labour costs as a result of lower wages,
28
For a critical view emphasizing China-side factors that limit the likely shift of labour-
intensive manufacturing to SSA, see Ozawa and Bellak (2011).
29
Unit labour costs take into account both relative wages and productivity levels.
173
this depends on the quality of management in the firm (Dinh et al, 2012,
p. 30).
A third problem is that other costs are higher in SSA than in China, most
notably the cost of inputs and logistics (trade costs). As the World Bank study
by Dinh et al. (2012, p. 55) recognizes, these wipe out any advantage of
low wages in most light manufacturing sectors. In the garments industry,
for example, most inputs have to be imported from Asia, which involves
significant additional transport costs, while the well-known deficiencies of
infrastructure in SSA, including power outages and poor transport and port
facilities, also add to the cost.
Finally, even if wages continue to rise in China, there is no guarantee that
SSA will become a preferred location for production by Chinese or other
firms. Manufacturers are already relocating within China, away from the
coastal areas to the inland regions, and in other Asian countries where wages
are considerably lower (The Economist, 2015). If they do relocate outside
China, other Asian countries have wage levels comparable to those in SSA
and similar or higher levels of productivity.30 Other Asian countries also have
lower input and logistics costs than SSA (Iarossi, 2009).
7.5 China’s Economic Impact on Angola, Ethiopia,

and South Africa
The three countries discussed in this section are all significant partners for
China in SSA, but each represents a quite different case. Angola is China’s
major supplier of oil in SSA and has been a pioneer of Chinese resources-for-
infrastructure loans. Ethiopia does not have major oil or mineral resources
but has been a significant recipient of Chinese loans and infrastructure
projects. This has led some commentators to conclude that China’s interests
in Ethiopia have been political rather than economic, leading one commen-
tator to describe it as a case of infrastructure for diplomatic support (Adem,
2012). Finally, South Africa is SSA’s most industrialized economy and China’s
most important trade partner in the region. It also engages with China as a
fellow member of the BRICS (Brazil, Russia, India, China, and South Africa)
and the G20.
30
Wages in Vietnam, for example, are lower than in Zambia and similar to those in Tanzania
(Dinh et al., 2012, Tables 1.1 and 1.2). According to Ceglowski et al. (2015, Table 6), unit labour
costs in India and Indonesia are similar to those of Ethiopia and Tanzania, and much lower than
those of other SSA countries.
174
7.5.1 Angola
As shown in Chapter 6, Angola is one of China’s most important economic
partners in the region. It ranks second after South Africa as a source of Chi-
nese imports, and is the largest recipient of Chinese loans, as well as the
most important market for Chinese contractors in SSA. Its economic rela-
tions with China are largely complementary, since it is an oil exporter which
faced a massive task of reconstruction when the prolonged civil war ended
in 2002, with much of the country’s infrastructure destroyed or in poor
condition.
In 2001 the Angolan government requested financial support from the In-
ternational Monetary Fund (IMF), but refused to agree to the Fund’s demand
for increased transparency and macroeconomic stabilization through cuts
in public expenditure and reduced borrowing. In 2002 President dos San-
tos approached China, and after an initially cautious approach with a loan
of $145 million from the China Exim Bank and China Construction Bank
for projects to be carried out by Chinese construction companies in 2002, a
$2 billion loan agreement was signed between the China Exim Bank and the
Angolan Ministry of Finance in 2004. Further loans from the Exim Bank were
agreed in 2007 and 2009, so that by 2011, China had provided $14.5 billion
in loans to Angola (Corkin, 2013, p. 145). As seen in Box 6.1, the loans were
to be repaid through oil sales by the state oil company Sonangol. Oil exports
and Chinese loans for infrastructure projects are thus at the heart of relations
between Angola and China.
OIL EXPORTS
Angola is China’s most important supplier of oil in SSA and one of its
top-three sources globally. China is by far the most important market for
Angolan oil, overtaking the USA in 2007, and it now accounts for around
two-thirds of the country’s oil exports. This does not, however, imply that
China was a major driver of Angolan oil production, which more than dou-
bled between 2002 and 2008 and was due to earlier exploration, mainly by
Western oil companies. Sinopec was the first Chinese oil company to enter
Angola when it set up a joint venture with Sonangol in 2004 and acquired a
50 per cent stake in an oil block previously owned by Shell. Despite further
acquisitions in subsequent years, the share of Chinese firms in Angolan oil
production and exports remains limited (Corkin, 2013, pp. 145–51). Further-
more, in 2007, Angola joined OPEC, which set a quota of 1.9 million barrels a
day (Hammond, 2011, p. 355). This meant that further expansion of exports
to China could only come about if exports to other markets were reduced,
although rising oil prices meant that the value of exports continued to rise
even after production stabilized.
175
The state oil company, Sonangol, plays a central role in the Angolan
oil industry, in a regulatory capacity, organizing auctions and signing
production-sharing agreements, and itself directly involved in oil explo-
ration and production. All companies entering the industry must establish
a relationship with Sonangol through a joint venture or a consortium or by
signing a production-sharing agreement. Sonangol has first refusal when any
company wants to sell its share of an oil block (Alves, 2013).
Sonangol is central not only to the oil industry but also to political power
in Angola because it is the main source of government revenue. It has been
described as the centrepiece of a parallel state system which is firmly under
the control of the presidency, where political power is highly concentrated
(Soares de Oliveira, 2015, Chapter 1).31 This has given the government con-
siderable control over the use of oil revenues. In Angola, there is a lack of
transparency in accounting for oil revenues and evidence of corruption lead-
ing to the disappearance of significant sums of money.32 These revenues
were used to consolidate the political power of the ruling party, The Pop-
ular Movement for the Liberation of Angola (MPLA), and to enrich the local
elite (Soares de Oliveira, 2015, Chapters 3 and 4).
CHINESE LOANS AND INFRASTRUCTURE

After the end of the civil war in 2002, Angola embarked on a major effort to
rehabilitate and expand its infrastructure. Chinese loans and Chinese engi-
neering and construction companies have played a major part in this effort.
Questions have been raised about the quality of some of the work carried out
by Chinese firms. Speaking to a UK delegation in 2013, the Angolan Minister
of Urbanism and Housing, Jose Antonio M.C. Silva, commented that the low
prices of Chinese companies had been attractive at first but that he felt that
the quality of construction was not as high as might have been expected
(British Expertise, 2013, p. 13). Problems with quality also reflect the lack of
oversight of projects by the Angolan government and the prioritization of
rapid results over a durable infrastructure. As was mentioned earlier, it has
even been suggested by some that local elites benefit from the need to put out
new contracts for tender which create new opportunities for rent extraction
(Corkin, 2013, p. 122).
To what extent have these infrastructure projects contributed to economic
development in Angola? The World Bank estimated that total investment in
infrastructure raised Angola’s per capita growth rate by as much as 1 per cent
a year (Pushak and Foster, 2011). Although some Chinese projects have been
31
In 2016 President dos Santos’s daughter became the head of Sonangol.
32
The relationship between Sonangol, the Ministry of Finance, and the Central Bank is known
locally as the Bermuda Triangle because of the lack of transparency and the tendency for large
sums to disappear (Corkin, 2013, p. 43)
176
prestige projects, such as basketball and football stadiums, most have been
in sectors such as transport, energy, water, health, and education.33 Nor is
it the case that infrastructure investment has been primarily directed at re-
source extraction. Because Angolan oil is located offshore, investment in
building and rehabilitating roads and railways is not directly linked to the
export sector.34
Loans have been used by the Angolan political elite to promote state build-
ing and consolidate the position of the ruling party, MPLA. It is also widely
believed that the elite has benefitted economically from the relationship.
Loans have even given rise to disputes between members of the elite over
access to and coordination of the disbursement of funds (Ferreira, 2008,
p. 312). In 2004 a scandal broke out as a result of attempts by members
of the Angolan elite to siphon off Chinese funds, and the Angolan Finance
Minister had to go to Beijing to reassure the Chinese authorities (Ferreira,
2008, p. 297). Nevertheless, the sheer scale of infrastructure construction has
undoubtedly contributed to the country’s rapid economic growth since the
end of the civil war.
Chinese loans are of course not cost-free and will require servicing in the
future, mainly through oil exports. This raises two questions: the terms on
which loans are granted; and the sustainability of the debt incurred. China
granted loans to Angola on terms that compared favourably to alternative
sources because of the grace period before repayments started and the length
of time over which the loans were to be repaid (Corkin, 2013, pp. 79–80;
GAO, 2013, Appendix II). The level of indebtedness incurred was not exces-
sive in relation to the oil prices that prevailed at the time. Recent estimates
put Angola’s total debt to China at $25 billion (George, 2016), less than the
annual value of exports to China in recent years.
LONG-TERM ECONOMIC IMPACTS

What then has been the impact of China’s involvement in Angola on the
country’s economic performance? During the commodity boom between
2002 and 2011, Angola was the fastest-growing economy in SSA. There is,
however, strong evidence that it suffered from Dutch Disease. It experienced
the greatest appreciation of the real exchange rate of any SSA country dur-
ing the period, making Luanda the most expensive capital in the world. This
was partly down to the government’s policy of maintaining the value of the
33
See Corkin (2013, Appendix 3) for a list of projects financed under various Chinese loans to
Angola. Corkin claims that ‘the number of prestige projects built with Chinese financing seems
to outweigh the poverty reduction projects’ (p. 121). She does not provide any evidence to back
this claim.
34
The indirect link is through repayment of loans by sales of oil, but as argued previously, this
is more a means of reducing the risk to the Exim Bank than a mechanism for extracting resources.
177
domestic currency, the Kwanza, for a number of years, which helped keep
down the cost of imports (Corkin, 2013, p. 115).
The decade of high oil prices represents a missed opportunity. The addi-
tional resources from increased oil revenues and Chinese loans were used
to consolidate the political position of the MPLA and for the personal en-
richment of the Angolan elite, rather than to transform the economy, which
continued to be highly dependent on oil exports.
Angolan manufacturing at the beginning of the twenty-first century was
extremely limited, and this has changed little since then.35 There was very lit-
tle investment in local manufacturing, and the bulk of manufactured goods
sold locally were imported. There has been no attempt by the Angolan gov-
ernment to develop a coherent industrial policy. Industrial policy in Angola
is the responsibility of the Ministry of Industry, but there is no coordination
between industrial promotion and oil-sector policies, which come under the
Ministry of Petroleum (Morris et al., 2012, p. 169).
Oil exports have generated very few backward linkages to local suppliers,
partly because of the specific nature of the offshore oil industry and partly
because of the lack of local capabilities. There is a wide gap between the
complex and capital-intensive nature of the sector and the very low level of
domestic capabilities (Morris et al., 2012, Table 6.1). An attempt by Sonangol
and Sinopec to develop forward linkages by building a refinery in Luanda
collapsed in 2007 as a result of disagreement between the partners (Alves,
2013). Another plan to build a new refinery was shelved in 2016 as a result
of the drop in oil revenues.
Similarly, there has been limited use of local contractors and inputs in
infrastructure projects.36 In projects financed by Exim Bank loans, at least
50 per cent of procurement must be sourced from China. Although the An-
golan government does have local content requirements, there is not the
political will to enforce them (Corkin, 2013, p. 117). It is also doubtful
whether local suppliers are capable of supplying the quality or quantity of
inputs required. There has been some growth in the local supply of materi-
als for the construction industry including bricks, cement, and wooden door
frames and windows in recent years, but these have mainly been provided
by Chinese rather than Angolan companies (ibid., p. 104). The fact that the
35
The share of manufacturing in GDP increased from 2.9 per cent in 2000 to 4.3 per cent in
2019 (World Bank, World Development Indicators).
36
There are also complaints concerning the lack of employment opportunities for Angolans
because of the extensive use of Chinese workers in the construction industry. Employment issues
are discussed in more detail in Chapter 8.
178
government has prioritized rapid results has militated against longer-term

goals promoting local content.37
Not only has there been little effort to promote industry in Angola; the
agricultural sector has also been largely neglected. The government has
focussed mainly on building up support in urban areas, with most of its con-
struction activities concentrated there. This reflects the development vision
of the Angolan elite, which views modernity as intrinsically urban (Soares de
Oliveira, 2015, p. 82).
The continued dependence on oil meant that when oil prices fell sharply
in 2015, the Angolan economy went into recession. The fall in oil prices
meant that an increased proportion of Angolan exports had to be used to
service the country’s debt, which also put pressure on government finances
(George, 2016).
While Chinese involvement in Angola clearly boosted the economy in
the short term, Angola failed to take advantage of the commodity boom
to transform the economy. This was primarily down to the Angolan regime
itself, but it was facilitated by China’s willingness to fund projects prioritized
by the regime in return for future oil supplies.
7.5.2 Ethiopia
Ethiopia is Africa’s second-most-populous country, with over 100 million
inhabitants. Despite still being a low-income country, it has grown rapidly
since the mid-2000s, with GDP increasing at an average of more than
10 per cent a year, almost double the regional average (World Bank,
http://www.worldbank.org/en/country/ethiopia/overview. Accessed 5
March 2018).
China and Ethiopia have had close relations for more than two decades.
Under the Dergue (1974–91), Ethiopia was closely allied with the Soviet
Union, and, as a result, relations with China were strained. Much closer
relations with China developed after the Dergue was overthrown by the
Ethiopian People’s Revolutionary Democratic Front (EPRDF) in 1991. The
new government, which was strongly supported by the West initially, wanted
to diversify its relations and sent senior members of the EPRDF to Beijing to
initiate a new relationship. Ethiopian Prime Minister Meles Zenawi visited
China himself in 1995, and this was followed by Chinese president Jiang
Zemin’s visit to Ethiopia in the following year. Diplomatic relations between
the two countries continued to grow, and, in 2003, the first meeting of the
37
In 2009 import duties on construction materials were removed to ease supply bottlenecks,
making it even harder for a local supplier industry to develop (Corkin, 2013, p. 115).
179
Forum for China Africa Cooperation (FOCAC) to be held in Africa took place
in Addis Ababa. The 2005 elections in which the opposition did well, trig-
gering a government crackdown, led to strained relations with the West,
prompting even closer relations with China (Adem, 2012, p. 146).
In contrast to the two other cases discussed in this section, Ethiopia is not
currently an oil- or mineral-exporting country, so that access to resources
has not been a major factor in China’s involvement, although some Chi-
nese companies have been involved in oil and gas exploration. This has
led some commentators to conclude that China’s interest in developing
stronger relations with Ethiopia is driven primarily by diplomatic strate-
gic considerations (Adem, 2012, p. 155; Cabestan, 2012, p. 62). Its position
as a relatively stable country in the horn of Africa makes it an influential
power. It is also a hub for many regional organizations, most notably the
African Union, whose new building in Addis Ababa was built and financed by
China.
It has been claimed that Ethiopia has been following the ‘Chinese model’,
and it has been described as ‘the China of Africa’ (FT, 2018). Although the
EPDRF expressed interest in learning from China’s market-led socialism and
agricultural development (Adem, 2012, p. 145), it also drew on the expe-
riences of other East Asian developmental states, particularly South Korea,
Taiwan, and Japan. The lessons from China were incorporated selectively
by the government, as, for example, in the emphasis on selective state in-
tervention in the economy and on infrastructure as a key to development
(Fourie, 2015). There was no attempt at the wholesale application of the ‘Chi-
nese model’ in Ethiopia, and China has not tried to export its own model to
Ethiopia. Nevertheless, Ethiopia’s economic success and the perceived influ-
ence of the Chinese model reinforce China’s soft power in SSA (Cabestan,
2012, p. 53).
Despite the emphasis often put on political and diplomatic factors in
analysis of Sino-Ethiopian relations, strategic economic and commercial con-
siderations are not entirely absent. Although at present it is not a major
market for Chinese exports, because of its relatively low per capita income,
its large population does mean that it could become a significant market
in the future. It is already a significant market in SSA for Chinese contrac-
tors. Chinese firms have also been active in oil and gas exploration, which
could lead to Ethiopia becoming a more important source of resources in the
future.
SINO-ETHIOPIAN TRADE RELATIONS

Ethiopia is not currently an important source of imports for China. Ethiopian
exports to China are dominated by sesame seeds, which accounted for
around 85 per cent of the total between 2006 and 2015 (Zewde, 2017,
180
Table 2). Ethiopia went from being a minor producer of sesame seed to be-
ing the largest in Africa, to meet the growing demand from China. The only
other product of any significance exported from Ethiopia to China is leather.
Although coffee is Ethiopia’s main export to the world market, Chinese de-
mand for coffee remains limited, and Ethiopian exports there are negligible.
Despite this, China became Ethiopia’s largest export market in 2012 and now
accounts for more than 10 per cent of the country’s total exports.
China’s role in Ethiopian imports is much more significant, and it cur-
rently accounts for about a third of total Ethiopian imports. These imports
include both consumer goods and capital goods. In some cases, most notably
footwear, there is evidence that competition from China led to downsizing
or bankruptcy of local firms, particularly at the bottom end of the market,
although some firms were able to survive by improving quality and design
(Gebre-Egziabher, 2009). In the main, imports from China compete with im-
ports from other countries rather than locally produced goods because of the
limited development of local manufacturing. Cheap Chinese products pro-
vide welfare gains to poorer consumers who would not otherwise be able to
afford them. Capital goods are imported to supply Chinese-financed infras-
tructure projects, and although this is a requirement of tied loans, Chinese
machinery and equipment usually are competitively priced.
Unlike Angola, Ethiopia has a large and growing trade deficit with China,
reflecting the low level of exports to China. Despite the granting of tariff-
free access to the Chinese market for a wide range of goods, exports to China
have not kept up with the growth of imports.
CHINESE LOANS AND INFRASTRUCTURE

China has played a significant role in the development of Ethiopia’s in-
frastructure, through the involvement of Chinese companies in building
dams, roads, and railway lines and through the provision of loans to fi-
nance such projects. Major projects include the Tekeze Dam, built by the
China Gezhouba Group Company (CGGC) and Sinohydro, and the Fenchi-
Amerti-Neshe Dam and Genale Dewa III hydroelectric power project carried
out by the CGGC. In transport, the China Railway Engineering Corporation
built the Addis Ababa Light Railway; the China Railway Group and China
Civil Engineering Construction Corporation were responsible for the Addis-
Djibouti railway and China Communications Construction Company built
the Addis Ababa-Adama expressway and the Bole international airport ex-
pansion (Nicolas, 2017, Table 4). All of these projects involved loans from
the China Exim Bank.
As a result Ethiopia was the largest market in SSA for Chinese construc-
tion and engineering firms between 2014 and 2016 (NBS database). Chinese
contractors have also been successful in winning bids for projects funded
181
by non-Chinese donors in Ethiopia, including the World Bank, the EU, and
the African Development Bank. Ethiopia has also been a major recipient of
Chinese loans, which totalled around $13–15 billion since 2000.38
Although there is no systematic information on the extent of China’s con-
tribution to infrastructure development in Ethiopia, there is no doubt that
it has played a major role. China has been the largest provider of external fi-
nance for railways and the energy sector as well as a major financier for road
construction (d’Orey and Prizzon, 2017, pp. 14–15). Overall China is ‘one
of the largest, if not the largest, development partners in the infrastructure
sector in Ethiopia’ (ibid., p. 13).
In transport, Chinese companies have carried out some of the major
railway projects in Ethiopia, and Chinese firms have been involved in 60
per cent of the road works being undertaken (Cheru and Oqubay, 2019, p.
294). They have also been heavily involved in the energy sector, adding
1.5GW of generation capacity and almost 2600 kilometres in transmission
and distribution lines and dominating the construction of transmission lines
above 132 kV (IEA, 2016, p. 38). Chinese involvement in power generation
is all in renewables, including hydropower, a biomass plant, and a wind farm
(ibid., pp. 39–40).
There have been criticisms of the quality of some of the infrastructure that
has been built by the Chinese, particularly the deterioration of the condition
of the Addis Ababa ring road (Nicolas, 2017, p. 28) and the poor quality of
the telecommunications network installed by ZTE (Cabestan, 2012, p. 59),
but there is no evidence that Chinese contractors are generally worse than
those from other countries.
CHINA AND THE DEVELOPMENT OF ETHIOPIAN MANUFACTURING

The Ethiopian government has ambitions for the country to become a ma-
jor industrial centre in SSA. The Growth and Transformation Plan II (GTPII
2015–20) aims to increase the share of manufacturing in GDP to 15 per cent.
However, up to now, the manufacturing sector has remained small, account-
ing for a mere 4 per cent of GDP in 2010–14, the same level as twenty years
previously (Shiferaw, 2017, Table 1). One of the factors holding back the
growth of Ethiopian manufacturing has been the low level of investment by
domestic firms. As a result the government has gone to great lengths to at-
tract FDI through tax exemptions, the provision of land at low rents, and the
creation of industrial zones.
38
CARI reports a total of $13.7 billion between 2000 and 2019. AidData’s estimates for 2000–14
give a total figure of almost $15 billion, of which $3.7 billion was classified as official development
assistance (ODA)-like, which is not included in the China Africa Research Initiative (CARI) figure.
Horn et al. (2019) estimate that Ethiopia’s outstanding debt to China stood at $14.4 billion at the
end of 2017.
182
China has been an important source of FDI in Ethiopia. Its share of total
FDI increased from 11.5 per cent in 2000–5 to over a quarter since 2006, mak-
ing it the leading investor in the country (Shen, 2013, p. 13) The Ethiopian
Investment Commission reports that 70 per cent of Chinese investment was
in manufacturing and that a total of over 100,000 permanent and temporary
jobs have been created (Nicolas, 2017, Table 2).
China has also been responsible for the development of the Eastern In-
dustrial Zone (EIZ) in Dukem, 30 kilometres southeast of Addis Ababa. The
EIZ is one of five official special economic zones (SEZs) that China proposed
to develop in SSA. It was initially planned in 2007 and launched in 2009.
Unlike the other official Chinese SEZs in SSA which have been built and op-
erated by SOEs, the EIZ is run by a private company, Jiangsu Qiyuan Group
Co. Ltd (Wang et al., 2017, Table 6).39 Progress was relatively slow, but by
2016, there were over thirty companies operating in the EIZ, all, apart from
one, Chinese-owned (Nicolas, 2017, pp. 20–1). Total employment in the zone
reached over 18,000 in 2019 (CEPHEUS, 2020, Table 6).40 They cover a range
of industries including cement, steel pipes, machinery, vehicles, tractors, tex-
tiles, clothing, and footwear (Nicolas, 2017, Table 3). One criticism that has
been levelled at the EIZ is the lack of focus, which makes it difficult to exploit
the potential from developing industrial clusters (Giannecchini and Taylor,
2018).
ECONOMIC IMPACTS OF RELATIONS WITH CHINA

On balance China’s overall economic impact on Ethiopia has been positive,
primarily as a result of the contribution that it has made to the development
of infrastructure. There is a consensus that the rapid growth of the Ethiopian
economy in recent years has been largely driven by investment in infrastruc-
ture (Shiferaw, 2017, p. 3). The share of public investment in GDP increased
significantly and this has been well spent on basic infrastructure projects
such as roads and hydropower, which have raised the overall level of pro-
ductivity (Rodrik, 2016, p. 13). The projects which China funds in Ethiopia
are in line with the Ethiopian government’s development priorities. Despite
the complaints about the quality of some Chinese construction, there has
not been a general problem with the infrastructure that has been built.
China’s impact on Ethiopian exports, on the other hand, has been rel-
atively limited. The direct impacts have been confined to sesame seeds,
the growth of which has certainly been a result of increased demand from
39
Chinese companies are also involved in developing at least nine other industrial parks in
Ethiopia that are operated or owned by the Ethiopian Industrial Parks Development Corporation
(IPDC) (Wang et al., 2017, Table 5).
40
The initial plan was to attract eighty companies, creating 20,000 jobs.
183
China,41 but this remains a relatively small proportion of total exports.

Moreover, since Ethiopia does not export the commodities where Chinese
demand had a significant impact on world prices, the indirect impacts on
the country’s exports have not been significant either.
There is little sign so far that Chinese FDI and the development of the
EIZ have led to any significant structural transformation in Ethiopia.42 In
both the EIZ and elsewhere, Chinese firms rely heavily on imported inputs,
which limits the extent of backward linkages. A World Bank survey of Chi-
nese companies in 2011 found that 61 per cent of their inputs were sourced
from abroad (World Bank, 2012, p. 13). Although, up to now, Chinese man-
ufacturing investment in Ethiopia has been mainly to supply the domestic
market, there are signs of increased exports of footwear and clothing, taking
advantage of low wages, cheap power, and preferential access to developed-
country markets. The Huajian Shoe Company is the example that is often
mentioned. It began producing shoes in the EIZ in 2011 and is now estab-
lishing its own industrial zone in Lebu on the outskirts of Addis Ababa. There
are also signs of growing interest by Chinese clothing and textile firms in
investing to export from Ethiopia (Newsome, 2017).
Perhaps as important as the contribution made by China to infrastructure,
development has been the greater policy space that relations with China pro-
vided, enabling Ethiopia to become less reliant on the West. The Ethiopian
minister of foreign affairs pointed out on a visit to China in 2010 that
China ‘had made available to Africa, and the developing world, possibili-
ties for consolidating sovereign choices and independently chosen paths of
development’ (quoted in Kragelund, 2015, p. 252). This allowed Ethiopia to
avoid the negative impacts of neoliberal policies and pursue a more statist
development path.
7.5.3 South Africa

South Africa is the largest economy in SSA, and it accounts for more than
a quarter of the region’s GDP.43 It is also China’s most important trading
partner in the region, accounting for over a third of its imports from SSA and
over a fifth of exports to the region between 2005 and 2019 (UNCTADStat).
It is also the only SSA country with significant FDI in China.
41
Chinese production of sesame seed declined after 2002, and imports increased rapidly, with
Ethiopia accounting for around half of China’s imports (Chakrabarty, 2016, Figure 2).
42
For a more positive view of the contribution of Chinese firms to Ethiopian industry,
see Li, Z. (2014).
43
For a general overview of the relationship between South Africa and China, see Alden and
Wu (2014).
184
Considering the size of the South African economy and the scale of
their bilateral trade, Chinese OFDI in the country is relatively low, and
South Africa has a negligible share of Chinese construction and engi-
neering contracts in SSA.44 Nor has South Africa been a significant re-
cipient of Chinese loans. Trade is, therefore, at the heart of economic
relations between China and South Africa. In contrast to Angola, whose
economic relationship with China is largely complementary, relations
with South Africa involve a mix of complementary and competitive
aspects.
South Africa is also a key country for China politically. It enjoys a unique
relationship with China as the only African country that is a member of
the BRICS grouping and of the G20, and is, therefore, involved in reg-
ular summit meetings with China. Its diplomatic relationship with the
PRC is relatively recent, since South Africa had close relations with Tai-
wan during the apartheid regime, seeing it as a like-minded anti-communist
state and establishing military links, as well as encouraging Taiwanese in-
vestment in the ‘Bantustans’45 (Alden and Wu, 2014, p. 6) The African
National Congress did not immediately establish diplomatic relations with
Beijing after taking power in 1994, attempting at first to secure the dual
recognition of both Beijing and Taipei. When this proved impossible, the
government broke with Taiwan and established relations with the PRC
in 1998.
SOUTH AFRICAN EXPORTS TO CHINA

South African exports to China grew rapidly from less than US$0.5 billion
in 2001 to a peak of US$12.5 billion in 2011, which made it South Africa’s
main foreign market. Since 2013 the drop in commodity prices has signifi-
cantly reduced the value of its exports, but China remains the country’s most
important market.
Ores and metals have accounted for between two-thirds and three-
quarters of all of South Africa’s exports to China in recent years. The main
minerals and metals exported have been iron ore, ferro-alloys, manganese
ore, and chromium ores.46 Although there have been efforts to promote
greater value added in exports through investment in the local processing
44
According to official Chinese statistics, only 15 per cent of the total stock of Chinese OFDI in
SSA was in South Africa (MOFCOM, 2016). A significant part of this was accounted for by ICBC’s
acquisition of a 20 per cent share of South Africa’s Standard Bank in 2007.
45
The Bantustans were the black homelands created by the apartheid regime in South Africa.
46
South Africa also exports gold and diamonds to China, but because these exports are often
made through third countries, they do not necessarily appear in the figures reported by South
Africa (Alden and Wu, 2014, p. 14).
185
of raw materials, these have had little impact on the structure of exports to
China so far.47
How significant has China been in the growth of South African mineral
exports? In recent years between a quarter and a third of South African ore
and metal exports have gone to China. However, the South African mining
industry is long established and technologically developed, and it exports
to a wide range of countries. It would not be difficult for the industry to
find alternative markets to China. Although there has been some Chinese
investment in South African mining by companies such as Minmetals, the
Zijin Mining Group, Jiquan Iron and Steel (JISCO), and Sinosteel, the scale
of investment is limited and has mainly involved joint ventures with ex-
isting firms rather than opening new mines (Shelton and Kabemba, 2012,
pp. 74–82). China’s involvement has not, therefore, been a major factor in
boosting mineral supplies from South Africa.
China’s demand for minerals and metals did, however, have a major im-
pact on global prices, particularly of iron ore, one of the main minerals
exported by South Africa. This indirect effect of China’s growth helped boost
the value of South Africa’s global exports between 2002 and 2011, and it
contributed to improving the country’s terms of trade.
IMPORTS FROM CHINA

Imports from China rose from around US$1 billion in 2001 to a peak of
over US$17 billion in 2018, while China’s share of South African imports
increased from 5 per cent to over 18 per cent over the same period, making
it the country’s major source of imports. As elsewhere, imports from China
are almost entirely made up of manufactured goods. This has led to con-
cerns about deindustrialization, and has been a source of tension in South
Africa’s engagement with China. At FOCAC in Beijing in July 2012, President
Zuma commented that an unequal trade relationship based on the supply
of raw materials and imports of manufactures was unsustainable (Mail and
Guardian, 2012).
How justified are these concerns? Unlike Angola, South Africa has a sig-
nificant industrial sector, and the growth of imports from China has had a
substantial impact on local production and employment. China’s share of
manufactured goods consumed in South Africa increased substantially dur-
ing the first two decades of the twenty-first century (Edwards and Jenkins,
47
The Comprehensive Strategic Partnership Agreement between China and South Africa,
signed in 2010, committed the countries to work together to include more value-added products
in South Africa’s exports to China.
186
2015, Table 2; Torreggiani and Andreoni, 2019, Figure 1), particularly in

textiles, clothing and footwear, and electrical and electronic products. The
availability of cheap Chinese products put downward pressure on prices,
particularly of clothing, leather products, and footwear. This benefitted
consumers and also helped keep down the cost of wage goods (Morris
and Einhorn, 2008; Rangasamy and Swanepoel, 2011). On the other hand,
growing imports also posed a threat to domestic manufacturers and their
employees.
Increased market penetration by Chinese products does not necessarily
displace domestic production: it may equally come at the expense of exports
from other countries as importers switch to Chinese suppliers. Estimates
by Edwards and Jenkins (2015, Table 4) show that about a quarter of the
total increase in Chinese import penetration could be attributed to the dis-
placement of other importers, but the greater part of the increase affected
domestic production. As a result it was estimated that South African manu-
facturing production was 5 per cent lower in 2010 than it would otherwise
have been. Further increases in Chinese import penetration were found to
have reduced sales by domestic producers by over 4 per cent between 2010
and 2017 (Torreggiani and Andreoni, 2019, p. 32).
Because the main industries affected by Chinese competition tend to be
labour-intensive, the impact on manufacturing employment is even greater
than the impact on production. Increased import competition has both a di-
rect effect on employment as a result of a reduction in domestic production,
and an indirect effect where firms increase productivity and shed labour in
order to compete with imports. Taking both of these effects together, it was
estimated that by 2010 the increased competition from China had reduced
employment in South African manufacturing by 145,000 people. These re-
ductions continued after 2010 with reports that 11,000 jobs were lost in the
South African steel and engineering industries in 2015, as a result of compe-
tition from Chinese imports (Sun et al., 2017, p. 47). It has been estimated
that more than 4 per cent of jobs in manufacturing were lost as a result of
Chinese imports between 2010 and 2017 (Torreggiani and Andreoni, 2019,
p. 32).
The South African government did attempt to stem the rising tide of Chi-
nese imports of textiles and garments by negotiating import quotas with
China for the period 2007–8 to give the domestic industry breathing space
to restructure. However, the main impact was to divert imports to other low-
cost suppliers, particularly Bangladesh, Mauritius, Malaysia, and Vietnam
(van Eeden, 2009). China refused to extend the quota arrangement when
it expired at the end of 2008.
187
COMPETITION IN THIRD MARKETS

South African manufacturers have not only faced competition from China
in their domestic market but have also lost out in their export markets.48
Although South Africa is generally thought of as an exporter of miner-
als and agricultural products, almost half of its exports are manufactured
goods. Manufactures play a particularly significant role in exports to other
SSA countries. These exports have been particularly vulnerable to Chinese
competition.
South Africa has lost market share to China in the USA, the EU, and the
main SSA countries. The largest losses were in SSA and, particularly, in Angola
and Tanzania, where exports were more than a fifth lower in 2010 than they
would have been if South Africa had been able to maintain its share of the
market (Jenkins and Edwards, 2015, Table 4). It has lost market share to China
in a range of industries including iron and steel, non-electrical equipment,
and vehicles and parts, both in developed-country markets and in SSA.
OVERALL ECONOMIC IMPACTS

The impact of the growing relations with China on the South African econ-
omy has been decidedly mixed, creating both winners and losers. The mining
sector, particularly iron ore, benefitted from rising prices after 2002 that were
stimulated to a significant extent by the growing demand in China. The main
beneficiaries of this increase in prices have been privately owned mining
companies, which have seen their profits rise significantly.
Although the commodity boom led to a significant improvement in South
Africa’s terms of trade and an appreciation of the exchange rate, it is not
clear that China contributed to any Dutch Disease effects in South Africa.
However, it is the case that Chinese competition negatively affected the man-
ufacturing sector, so that the main losers have been manufacturers and their
employees.
One of the main problems facing the South African economy has been the
very high levels of unemployment. Although there are deep-seated structural
causes behind unemployment, and it has not been caused by the impact of
China, it is also the case that the growing relations with China have tended
to add to the problem rather than helping to resolve it.
In contrast to Angola, China has made no significant contribution to
growth through loans and the provision of infrastructure to offset the nega-
tive impacts on manufacturing. Because the main positive contribution was
through the impact on commodity prices and the terms of trade, the drop in
mineral prices from 2012 has led to a slowdown in the rate of GDP growth
(IMF, 2016).
48
This section is based on Edwards and Jenkins (2014) and Jenkins and Edwards (2015).
188
7.6 Conclusion
The picture that is often presented of China’s economic impact on Africa is

often either highly critical or overly optimistic. This chapter has presented
a more nuanced picture. Some aspects of China’s involvement in SSA have
had positive economic effects, whereas others have been negative. Outcomes
have depended on a range of factors, including the structure of the host
economy, the nature of the host state and regime, and the level of local
capabilities.
As far as exports are concerned, there has been a tendency to exagger-
ate the extent of China’s impact on the region as a whole. Relatively few
countries have been affected in a major way by the growth of Chinese de-
mand for commodities. The countries which potentially benefit most from
China’s growth have been those which specialize in oil and base metals such
as iron ore and copper. Exporters of agricultural products have not benefit-
ted to anything like the same extent, and may even have been negatively
affected where the increased costs of oil imports exceeded the gains from
cheaper imports of manufactures from China. Those that were negatively
affected tend to be exporters of manufactures, and those with a significant
industrial sector facing competition from Chinese imports, such as South
Africa.
Second, there is no clear evidence that exports to China have had a
positive impact on growth.49 Nor is there convincing evidence that China
has had a negative impact on SSA’s growth through the resource curse. There
is now widespread recognition that the economic resource curse is not in-
evitable, and that the outcomes of commodity booms and dependence on
primary product exports depend to a large degree on the responses of gov-
ernments (Di John, 2011; Saad-Filho and Weeks, 2013). There is a range of
policies which governments can use to mitigate the negative effects of the
resource curse (Frankel, 2012). Thus even in those cases where China has
contributed to dependence on commodity exports, the effects on economic
growth have more to do with the policies of those countries themselves than
with the growth of China. Indeed countries that have been involved in R4I
deals with China may have avoided some of the pitfalls associated with the
resource curse.
The evidence suggests that China is making an important contribution
to infrastructure development in SSA. Given the limited funding available
from other sources, China’s willingness to finance infrastructure, particularly
49
Two econometric studies of the impact of China on economic growth in Africa found
no positive empirical evidence that exports to China enhanced growth unconditionally. See
Baliamoune-Lutz (2011) and Busse et al. (2016).
189
power and transport projects, has been very welcome. Despite concerns
about quality in some quarters, the competitiveness of Chinese companies
has meant that major projects are generally completed rapidly and within
budget.
Apart from South Africa, which has a relatively large and developed man-
ufacturing sector, and a few smaller economies with an important garment
export sector, China’s impact on manufacturing has had a limited overall
effect on SSA economies (despite vociferous complaints from local manufac-
turers) because of the small size of the industrial sector. Chinese competition
has merely served to highlight the lack of competitiveness of SSA manufac-
turing, which was keeping the continent from industrializing well before
China became a major source of manufactured goods.
Whether the potential benefits of increased commodity prices and loans
from China have been realized or not depends to a large degree on the ability
of the host government to capture a share of the rents generated, to avoid
the pitfalls of the Dutch Disease, and to utilize export revenues and Chinese
finance productively. Where the state is weak or the regime corrupt or para-
sitic, it is unlikely that the increased availability of resources will be translated
into strong economic performance.
Finally, the level of local capabilities is a critical factor in determining
the extent to which a country benefits from its relations with China. If the
technological capabilities of local firms are very low, it is unlikely that they
will be able to benefit from backward or forward linkages, and they are more
likely to be swept aside by Chinese competitors. Where the level of skills in
the local labour force is low, there is likely to be greater reliance on foreign
workers, so that employment is not generated locally, and training is not
provided.
The economic impact of China on SSA is not a predetermined outcome
of the interests and strategies of the Chinese state and non-state actors in-
volved: it also depends to a significant extent on the agency of African
actors.
190
8
Social, Political, and Environmental Impacts

in Sub-Saharan Africa
8.1 Introduction
The previous chapter focussed on the economic impacts of China on Sub-

Saharan Africa (SSA), but the implications of China’s economic growth go
well beyond this. Indeed some of the most vocal criticisms of China’s in-
volvement in the region concern the social, political, and environmental
impacts. These negative aspects of China’s impact have received much more
attention in the Western media than the economic effects have (Mawdsley,
2008, pp. 518–19). They have also been prominent in statements by West-
ern politicians. China’s growing presence in Africa is often seen as a threat
to Western hegemony in the region, and its behaviour is contrasted with a
very benign picture of the West’s involvement, which emphasizes poverty
reduction, ‘good governance’, and environmental responsibility.
These criticisms have tended to frame much of the academic and non-
governmental organization (NGO)-produced literature on China’s role in
Africa. The critical literature includes allegations that Chinese firms prefer
to use Chinese workers rather than create local employment, and that they
are involved in violations of labour rights. It is also often claimed that China
supports corrupt and authoritarian regimes and undermines Western efforts
to promote democracy and transparency in Africa. It has also been alleged
that China practices ‘debt diplomacy’ in order to advance its influence in
the region. Finally, critics point to the devastating environmental impacts
of China’s involvement in extractive industries and major infrastructure
projects such as dams and roads.
This has generated an opposing body of literature on China’s role in Africa
which has been characterized as ‘myth-busting’ (Hirono and Suzuki, 2014)
and that challenges the claims made about the negative impacts of China.
In some cases it is argued that China’s behaviour is no different from that of
other external powers in the region, and that claims about China’s negative
impact are based on an overly rosy picture of the role of the West. Others
question the empirical validity of claims made about China’s involvement in
Africa. This has even affected the Chinese literature on Sino-African relations,
much of which focusses on refuting Western criticism (ibid., p. 450).
While these are important issues which deserve serious analysis, there
is a danger that the focus on criticism of China’s impact on Africa has
tended to exclude consideration of other aspects of China’s social, politi-
cal, and environmental impacts, particularly those which present China in a
more favourable light. These include the jobs created by Chinese firms, the
increased policy space afforded to governments by China’s policy of non-
interference in their internal affairs, and the contribution that China has
made to the development of renewable energy in SSA. The claims made by
the Chinese government regarding its relations with Africa should not be
dismissed as mere rhetoric.
8.2 Social Impacts
There are several different social impacts associated with China’s economic
activities in SSA. Much of the criticism revolves around the employment
practices of Chinese firms involved in infrastructure projects or foreign di-
rect investment (FDI) in the region. Although there are also broader social
impacts on local communities affected by Chinese projects, such as the dis-
placement of communities as a result of dam construction, these are not
discussed here.1 The focus of this section is on workers directly employed
by Chinese firms. This raises questions regarding the extent to which Chi-
nese companies have preferred to use Chinese rather than African workers,
the low wages paid, and various aspects of labour rights and working con-
ditions. Given that Chinese practices are often implicitly compared to the
behaviour of other external actors, the section also considers whether claims
that Chinese firms are worse employers can be substantiated. Finally, some
of the positive impacts on labour are discussed.
8.2.1 Employment
One of the most controversial aspects of China’s impact in SSA is the
claim that Chinese firms do not employ Africans, preferring to rely largely
on Chinese workers, particularly in major construction projects. It has
1
The issue of the impacts on local communities is discussed in the Latin American context in
Chapter 11 because the issue has attracted more attention there than in SSA.
192
Social, Political, and Environmental Impacts in Sub-Saharan Africa
also been argued that areas near to Chinese mines have higher levels of
unemployment because of the use of Chinese workers and the limited extent
of local backward linkages (Wegenast et al., 2019). Given the lack of em-
ployment opportunities in most SSA countries, this is a particularly sensitive
issue.
According to official Chinese figures, there were around 90,000 Chinese
workers employed on economic cooperation contracts in SSA at the end of
2019, down from almost 150,000 five years earlier (see section 6.2.3). These
figures underestimate the total number of Chinese working in the region.2
Nevertheless, the perception that Chinese companies do not offer jobs to
Africans is false (Sautman and Yan, 2015; Oya, 2019). A survey of 1,000 Chi-
nese firms in eight SSA countries in 2016–17 found that locals made up 89
per cent of employees. Even in construction projects, where reports of ex-
tensive use of Chinese workers are most common, 85 per cent of the labour
force was local. In manufacturing 95 per cent of those employed in Chinese
companies are local (Sun et al., 2017, Exhibit 12).3
There is also evidence that over time Chinese firms have increasingly lo-
calized their workforces as they become more familiar with conditions in the
host country.4 Rising wages in China have increased the cost of expatriate
workers, making it more attractive to use local workers for unskilled jobs.
However, the African workforce is mainly employed at the lower levels, and
it remains the case that managerial and technical posts are often largely filled
by Chinese employees (Shen, 2013, p. 38).5
In the manufacturing sector, the employment issue is not so much one of
Chinese firms employing Chinese workers as the impact of Chinese com-
petition on local production and jobs. Competition from imports from
China had a significant impact on the manufacturing sector in South Africa,
and this led to a substantial reduction in employment (see section 7.5.3).
Elsewhere in the region, although imports of manufactures from China
have grown and there have been complaints about local job losses, the
limited size of the manufacturing sector has meant that these negative
impacts have been relatively small in terms of the employment situation
overall.
2
Tang (2016b, p. 110) quotes an estimate by Xinhua, the official Chinese news agency, that
there were 750,000 Chinese living or working in Africa on a long-term basis in 2007, and other
sources that estimate that there may be as many as two million Chinese in Africa today.
3
Shen (2013, p. 38) reports a ratio of at least fifteen local employees to each Chinese
worker amongst firms interviewed, and no evidence of excessive import of Chinese workers in
manufacturing.
4
See Kernen and Lam (2014) on Ghana, Tang (2010) on Angola and the DRC, and Corkin and
Burke (2006) on Chinese construction companies in Angola, Sierra Leone, Tanzania, and Zambia
5
Sun et al. (2017, Exhibit 14) found that less than half (44 per cent) of the managers in the
Chinese firms that they surveyed were Africans.
193
8.2.2 Wages
While foreign firms usually pay higher wages than locally owned companies
in developing countries (Lipsey, 2004), it is often claimed that Chinese-
owned companies tend to pay lower wages to local employees than other
foreign companies operating in the same sector.6 In the DRC, for example,
FEZA, a Chinese mining company, paid lower wages than Western compa-
nies such as TFM operating in the same area (Shelton and Kabemba, 2012, p.
153). In Zambia, NFC Africa Mining plc is reported to pay the lowest wages
in the copper mining industry (Lee, 2009, p. 101; HRW, 2011, Annex IV).
Yan and Sautman (2013) criticize the Human Rights Watch (HRW) report,
arguing that it fails to take into account the lower proportion of low-paid
contract workers in Chinese firms compared to other foreign companies, so
that comparing the salary scales of permanent workers tends to exaggerate
the pay differential. There were also large increases in wages in Chinese com-
panies as a result of the 2012 collective bargaining negotiations after the
HRW report was published (HRW, 2011). Nevertheless, despite this, wages at
NFC Africa remain below those at other mines and smelters in Zambia.7
While these cases illustrate the differences in wages paid by Chinese and
other foreign companies, what is required is a more systematic compari-
son of wage levels. A United Nations Industrial Development Organization
(UNIDO) survey of foreign investment in SSA carried out in 2005 found that
the average wage paid by Chinese firms was only just over half that of Indian
firms, and less than a fifth of that paid by Northern firms (Henley et al., 2008,
Figure 15). A study based on a 2010 UNIDO survey confirmed this, showing
that Chinese investors paid significantly lower wages than either Northern
or Indian firms (Coniglio et al., p. 201, Table 6). The study also found that
wages in Chinese companies were lower than those in domestically owned
firms in SSA.8
6
In some SSA countries, it has also been reported that wages in Chinese companies were even
lower than those paid by local companies and were below sectoral or national minimum wages
(Baah and Jauch, 2009, p. 66). On the other hand, a World Bank survey of Chinese firms in
Ethiopia found that the average wage of US$85 a month was above earnings in domestic com-
panies, although this does not take into account the sectors in which the firms operated (World
Bank, 2012, p. 12).
7
Although wages were lower at NFC Africa, it has also been pointed out that when copper
prices dropped as a result of the global financial crisis in 2008–9, the Chinese company main-
tained production and avoided laying off workers, whereas the profit maximizing strategies of
the global mining companies led to 19,000 miners losing their jobs (Lee, 2014, pp. 37–9).
8
The study controls for factors other than ownership that may affect the level of wages, such as
the size of the firm, the proportion of skilled workers, and the sector of activity. A recent study of
Chinese firms in Angola and Ethiopia however found that other factors such as individual worker
characteristics, skill, sector of activity, and location were more significant than firm ownership in
explaining differences in wages and that when these other factors were taken into account, the
wages paid by Chinese firms were not significantly different from those of other foreign firms or
domestic firms (Oya and Schaefer, 2019, section 8.2).
194
The lower wages paid by Chinese firms are most marked in the case of
skilled labour. Skilled workers in Chinese firms are paid over 20 per cent less
than those working for domestic firms and 40 per cent less than those in
US or EU firms, while the wage for unskilled workers is 10 per cent less than
that paid by domestic firms and 14 per cent less than that of US and EU firms
(Coniglio et al., 2014, p. 19). This may reflect the fact that Chinese investors
are able to bring in skilled Chinese workers, who are much cheaper than local
or expatriate skilled workers employed by other foreign firms or domestically
owned firms in SSA.
Other common complaints are that workers are often required to work
long hours and that overtime is not paid at a higher rate, despite local legis-
lation requiring this. In some cases it has even been noted that workers are
unaware that they are entitled to overtime pay. Construction workers in Chi-
nese companies in Ghana, Namibia, Zimbabwe, and Angola were reported to
be working long hours without overtime rates (Baah et al., 2009; Chakanya
and Muchichwa, 2009; Emmanuel, 2009; Jauch and Sakaria, 2009).
8.2.3 Working Conditions and Labour Rights

Going beyond job creation and the level of wages, serious concerns have been
raised regarding working conditions and labour rights in Chinese-owned
firms in SSA.9 Four out of five SSA governments responding to a World Bank
survey on Chinese investment cited ‘poor labour standards’ as a concern
(Shen, 2013, Table 2). Critics accuse Chinese companies of transferring their
repressive labour practices from China to host countries (IHLO, 2014). Is-
sues of concern include poor health and safety standards, excessive use of
casual labour, hostility towards trade unions, and the employment of child
labour.
HEALTH AND SAFETY

Two of the sectors in which Chinese companies have been particularly active,
mining and construction, are industries which raise concerns over health and
safety. Historically, mining has been one of the deadliest occupations, owing
to fatal explosions and mine collapses. There are also many health hazards
associated with working in mines, including silicosis and other lung diseases,
exposure to toxic metals, and hearing loss as a result of loud noise. Despite
increasing mechanization, these problems continue. The oil industry also has
9
There is also a question of whether the increasing significance of China as an export desti-
nation for SSA countries has led to a reduction in labour standards in the exporting countries.
There is only one study that has systematically examined this question and it found evidence
of a moderate negative effect in countries where a significant proportion of exports go to China
displacing exports to markets with higher labour standards (Adolph et al., 2017).
195
its fair share of accidents and health problems. Health and safety standards
are often compromised even in the developed world, and this is even more
prevalent in developing countries.
China is regarded by many as the most dangerous place in the world
for miners.10 There are also numerous reports of health and safety stan-
dards being disregarded by Chinese companies in SSA. In 2006 the Zambian
government closed down the Chinese mining company Collum Coal Min-
ing Industries Ltd for forcing miners to work underground without safety
clothing and boots (IHLO, 2014). The HRW (2011) study of Zambian copper
criticizes working conditions in the Chinese mines, where health and safety
considerations are often ignored and workers are not adequately provided
with personal protective equipment.
Poor standards in health and safety, including lack of protective gear,
have also been reported amongst Chinese construction companies in
Ghana, Namibia, Zimbabwe, and Malawi (Baah et al., 2009; Chakanya and
Muchichwa, 2009; Chinguwo, 2009; Emmanuel, 2009). Health and safety
standards are also often very low in Chinese manufacturing companies, and,
in some cases, factory fires have resulted in the death of workers. In Nige-
ria twenty workers were killed in a fire while locked in a Chinese rubber
and plastics factory, and, in Kenya, twenty-nine workers died under similar
circumstances in 2007 (Baah and Jauch, 2009, p. 69).
There are also complaints of verbal and even physical abuse and sexual
harassment in some Chinese companies in Namibia, Malawi, and Kenya
(Chinguwo, 2009; Jauch and Sakaria, 2009; Masta, 2009). In 2006 two Chi-
nese companies in Mozambique, Monte de Ouro and Irmãoes Comércio Ko-
dak, were closed down for physical and psychological abuse of Mozambican
workers (Shelton and Kabemba, 2012, p. 154).
CASUALIZATION
Another criticism is that workers are often employed on casual contracts
with no job security or benefits. In Zambia in 2007, for example, only 56
of over 2,000 employees at NFC Africa were on permanent contracts, with
the remainder either casuals or on fixed-term contracts (Lee, 2009, p. 101).
However, irrespective of their ownership, mining companies often make ex-
tensive use of subcontracting to reduce costs. Other foreign-owned mines
in Zambia, such as the UK-Indian-owned Konkala Copper Mines and the
Swiss-owned Mopani Copper Mines, employed only half of their workforce
as permanent employees and the rest through contractors (Yan and Sautman,
2013, Table 1).
10
The death rate in coal mining in China is thirty times that in South Africa and 100 times
that in the USA (Bennett, 2006).
196
Casualization is not confined to the extractive industries. In Tanzania the

workforce was substantially reduced and permanent employees replaced by
casual workers at the Tanzania-China Friendship Mill in Dar es Salaam be-
tween 2003–6 (Lee, 2009,). A similar process of casualization occurred in the
Mulungushi Textile factory in Kabwe, Zambia, after it was taken over by the
Qingdao Textile Corporation in 1997 (Brooks, 2010). Workers were employed
on casual terms for as long as ten years, even though, legally, they should
have been made permanent after six months. Wages for casual workers were
about a third of those received by permanent employees (Brooks, 2010,
p. 121).
Casualization in Chinese companies is often associated with an absence of
employment contracts and the arbitrary determination of wages and benefits
by management. In Malawi, 89 per cent of the workers at Chinese companies
surveyed did not have a formal contract (Chinguwo, 2009, p. 285), while in
Angola the corresponding figure for unskilled workers was 65 per cent (Oya
and Schefer, 2019, p. 45). Workers, and particularly casual workers, do not
receive benefits, or at best receive only those that are legally required. Forced
overtime is common, and workers have to work long hours or face dismissal.
RELATIONS WITH TRADE UNIONS

Chinese companies are seen as hostile to independent trade unions and re-
luctant to engage in collective bargaining. A study of Chinese foreign direct
investment (FDI) in ten African countries which focussed particularly on
labour issues concludes that ‘Chinese businesses tend to see trade unions as
“trouble-makers”’ (Baah and Jauch, 2009, p. 68). In Ghana, Namibia, Malawi,
South Africa, Nigeria, Angola, and Kenya, most of the Chinese companies
studied did not have trade unions and in many cases actively discouraged
workers from joining one, so that workers feared they would lose their jobs
if they did.11
In the Katanga region of the DRC, workers in Chinese mining compa-
nies were not unionized, although the right to form free and independent
trade unions is recognized in the country’s constitution (RAID, 2009, p. 11).
Although there are trade unions at China Nonferrous Metal Mining Corpo-
ration (CNMC) in Zambia, workers have not been free to choose the union
that they wish to join, and there has been intimidation of union represen-
tatives (HRW, 2011). HRW recognizes that these problems are not confined
to Chinese companies, but argues that they are worse there than in other
foreign-owned companies, although the situation has improved over time.
11
This is supported by a recent econometric study that found that areas in SSA with on-
going Chinese construction projects were likely to have lower levels of trade union membership
(Isaksson and Kotsadam, 2018b).
197
CHILD LABOUR
Another claim is that Chinese companies exploit child labour. This issue has
received a great deal of attention in the mining sector in Katanga, DRC,
where there is considerable Chinese investment (Amnesty International,
2013; RAID, 2009). Although Chinese firms do not employ children directly,
large numbers of children work in artisan mining in the region, which forms
part of the supply chain for Chinese investors.12 There have been reports of
child labour being employed by CCCM in Zambia, a company with a particu-
larly bad reputation, that has been closed down on several occasions (Shelton
and Kabemba, 2012, p. 150). In general, however, Chinese firms have not
been found to directly employ underage workers in SSA.13
8.2.4 Are Chinese Firms the Worst Employers?

The impact of Chinese companies on their employees in Africa has given
rise to intense debate (see Box 8.1). On the one side, there are those who
point to the low wages paid by Chinese companies and numerous examples
of poor working conditions and violations of labour rights. Against this are
those who argue that such criticisms unfairly single out the Chinese and are
an example of ‘China-bashing’, motivated by the West’s strategic rivalry with
China in Africa (Yan and Sautman, 2013). This raises two questions: first, do
Chinese firms behave worse towards their employees than other companies,
particularly Western transnational corporations (TNCs), in SSA? Second, if
they do, can this be attributed to inherent Chinese characteristics of such
firms or are they the result of other factors which tend to be associated with
poor employment practices?
Box 8.1 DEBATE ON L ABOUR CONDITIONS IN CHINESE COPPER MINING

IN ZAMBIA
In 2011 HRW published a highly critical report on labour abuses in Zambia’s Chinese
state-owned copper mines (HRW, 2011, 2012). The report is based on interviews with
143 workers at Chinese and non-Chinese companies. It identifies a number of prob-
lems at the Chinese companies, including low wages, unsafe working conditions,
excessive working hours, and anti-union activities, and it concludes that ‘The Chinese-
run companies . . . remain in routine violation of Zambian and international law on
12
Chinese companies are not the only ones buying ores produced using child labour in
Katanga. A BBC Panorama report claimed that a subsidiary of the Anglo-Swiss company Glen-
core Xstrata in Zambia had purchased ore from the Tilwezemba mine in DRC, although Glencore
has denied this (Amnesty International, 2013, p. 16).
13
None of the country case studies of Chinese investment in Baah and Jauch (2009) identify
child labour as a problem.
198
these same issues, and perform considerably worse from a labour standpoint than
their competitors from other multinationals in Zambia’s copper industry’ (p. 97). The
report was subjected to withering criticism by Yan and Sautman. They describe the re-
port as ‘bad social science [which] has not told us anything about Chinese investment
in Africa’ (Yan and Sautman, 2013, p. 152) and accuse HRW of building ‘a binary view of
a Chinese SOE versus Western-based privately owned firms and [making] China Non-
ferrous Metal Mining Corporation (CNMC) a strikingly negative example of investment
in Africa’ (ibid., p. 151).
This debate highlights many of the problems involved in evaluating the impact of Chi-
nese investment on workers in Africa. One of the main criticisms of the HRW report is
that by singling out a particular Chinese company for investigation it contributes to
a Western discourse that seeks to demonize China and Chinese firms. It essentializes
the practices of Chinese companies without locating them in their specific context.
The point here is that it is necessary to compare Chinese firms with other transnational
corporations, rather than simply enumerating the violations which occur.
The HRW report claims to do this, arguing that ‘Chinese-run companies are generally
the worst on issues involving health and safety, hours of work, and rights to orga-
nize’ (HRW, 2011, p. 97). However, there is a problem where the focus is so heavily
on one company or one group of companies despite the recognition of poor prac-
tices by Western companies. Another criticism of the report’s methodology highlights
its reliance on interviews with workers in a context of strong anti-Chinese feeling. This
suggests that the use of quantitative data is more appropriate than qualitative method-
ologies, but even where these exist, as in the case of wages and industrial fatalities, the
report and its critics interpret them very differently.
In the case of wages, Yan and Sautman (2013) argue that the Chinese mines have
relatively lower copper content in the ore and lower productivity, and when these are
taken into account, wages are not particularly low. ‘When the factors noted above
are accounted for, CNMC/non-CNMC wage comparisons can be explained in terms of
the specific structure, history, and profitability of CNMC’s production. Yet, HRW report
readers will only take away from it that cruel Chinese super-exploit African workers, a
point consonant with the mainstream China-in-Africa discourse’ (p. 145). While this is
a gross distortion of the thrust of the HRW report, which does point to poor conditions
in non-Chinese firms, it illustrates the problem with the type of approach which is not
explicitly comparative. It is reinforced by HRW’s claims that ‘by investigating the specific
practices of particular Chinese employers . . . it is possible to begin to paint a picture of
China’s broader role in Africa’ (HRW, 2011, p.1), although HRW specifically denies that
it has undertaken this work to assess ‘Chinese investment’ or ‘China in Africa’ (p. 13).
One problem is that with the partial exception of wages, where there is
some evidence that Chinese firms tend to pay lower wages, there are virtu-
ally no studies that systematically compare working conditions and labour
rights in Chinese and other companies in SSA. A second issue is that de-
spite the wide range of different types of Chinese firms operating in SSA (see
section 6.3), there is a tendency in the critical literature to lump all Chinese-
owned firms together, irrespective of whether they are central or local state-
owned enterprises (SOEs), large private firms, or small or medium enterprise
(SMEs).
199
As the evidence in the previous section indicates, there are clearly exam-
ples of poor working conditions and violations of workers’ rights amongst
Chinese firms in the region, but there are also examples of good practice. In
Nigeria, United Nigeria Textile plc is reported to have high health and safety
standards and good relations with its workforce. Some Chinese firms in South
Africa are also reported to perform well in this regard (Shelton and Kabemba,
2012, p. 160). There are also numerous examples of poor working condi-
tions and low standards in non-Chinese companies. The question, then,
is whether working conditions are significantly worse in Chinese-owned
companies than they are in ones under different ownership.14
The comparative studies that exist are based on a small number of firms,
from which it is difficult to draw general conclusions. In Ghana it was found
that Sinhydro and Shanghai Construction performed worse than other for-
eign and local companies (Baah et al., 2009). In Angola, too, it was found
that other foreign firms in the construction industry performed better than
the Chinese companies (Emmanuel, 2009). On the other hand, a study of
eleven Chinese and nine US-owned companies in Kenya highlighted simi-
larities between the two groups of firms (Rounds and Huang, 2017). However,
this study was based on interviews with managers, and it did not provide any
evidence on working conditions.
The most comprehensive comparative study of Chinese and other firms’
impact on labour in SSA is for Ethiopia and Angola (Oya and Schaefer, 2019).
This found that wages in Chinese firms are not systematically lower when
other factors are taken into account. It also found that, contrary to expec-
tations, the rates of industrial accidents reported are lower in Chinese firms
(Oya and Schaefer, 2019, pp. 55–8). However trade union representation is
limited amongst Chinese firms in both countries. The study concludes that:
‘There is significant variation in working conditions between and within
countries and sectors, especially with regards to wages. Only a combination
of several factors, including individual worker characteristics, sector speci-
ficities, local context, and a range of firm attributes, including the origin of
ownership, help us explain some of the variation in wages in both countries’
(Oya and Schaefer, 2019, p. 64)
This is consistent with a second line of argument against the criticism
of Chinese firms in SSA, namely that low wages, poor working conditions,
and low labour standards are the result of other contextual factors, rather
than inherent characteristics of Chinese firms. There is some truth in this
argument. For example, Chinese firms in Africa have tended to concentrate
14
The failure of HRW to carry out such a systematic comparison with other mining companies
in Zambia is an important element in Yan and Sautman’s (2013) critique of the report.
200
in the extractive industries and construction, where there are major health
and safety problems and the use of casual labour is common.
An explanation of the impact on workers of Chinese companies needs
to locate their activities in a broader context. In the extractive industries,
growth in the global demand for resources leads firms to expand into new,
frontier areas and bring more marginal mines back into production. It is in
such circumstances that the pressure to reduce wages and depress standards
is most intense, and, at the same time, the rule of law and the ability of
states to regulate are least effective. As latecomers, firms from China and
other emerging economies are likely to be particularly prominent in such
areas, since the most productive and accessible resources are already under
the control of incumbents. It is not surprising, therefore, that critics are able
to find numerous examples of exploitative practices in Chinese companies.15
In the manufacturing sector, Chinese firms are often in industries such
as clothing and textiles, footwear, and furniture, where production is highly
mobile and international competition is intense. In such industries cost min-
imization is crucial and working conditions are often highly exploitative.
Faced with interstate competition to attract investment, governments are
often prepared to support companies’ efforts to reduce costs and avoid en-
forcing regulation.16 The trends, such as the increasing casualization and
the violation of labour rights, observed in Chinese firms can then be seen as
illustrating a broader tendency in the global economy.
Another contextual factor that influences the behaviour of Chinese firms
is the nature of the local state and its capabilities. Many of the worst examples
of exploitative working conditions come from countries such as the DRC that
were characterized by their low standards well before Chinese firms made
their presence felt.
The emphasis on contextual factors does not rule out Chinese ownership
having some effect on firm behaviour, particularly in the early phases of a
firm’s expansion overseas, when the types of capitalism and labour relations
that characterize the home country do influence the way in which firms op-
erate abroad. The low priority given by Chinese companies in SSA to health
and safety standards and their reluctance to engage with independent trade
unions and expectations in terms of hours of work and intensity of effort
is partly a reflection of conditions in China. Tang (2016b, p. 115) cites the
15
This is not meant to imply that managers in these firms are not responsible for the poor
working conditions and low labour standards faced by their workers, but to put them in context
rather than falling into the trap of ‘China bashing’, which sees Chinese firms as particularly
culpable.
16
A government official in Namibia stated in relation to complaints about Chinese firms ex-
ploiting workers and paying low wages: ‘If we want to develop our country, we need to sacrifice
labour costs now to benefit later. The objective is to create jobs for Namibians and any FDI should
be able to do that’ (quoted in Baah and Jauch, 2009, p. 218).
201
example of NFC Africa’s acquisition of the Luanshya mine in Zambia, where

managers thought that an accident rate of three per week was acceptable
because it was much better than in China, but local employees were dissat-
isfied because under the previous ownership of a Swiss company there had
only been one accident a month.
There is some evidence that the performance of Chinese companies in
Africa is improving. In Zambia, government officials report that NFC Africa
has improved its compliance with health and safety and labour standards
(Haglund, 2009, p. 92). Again this depends on the local context. Where trade
unions have been able to organize, they have obtained better conditions for
workers. In Zambia in the mining industry, for example, industrial action
led to a new collective agreement between the trade unions and NFC Africa,
which made jobs that had previously been on short-term contracts perma-
nent, and gave fixed-term contracts to those who had been casual workers
(Lee, 2009, p. 111). However, in the textile industry in both Zambia and
Tanzania, where Chinese firms were more mobile and workers had less bar-
gaining power, attempts to resist casualization and improve conditions were
unsuccessful (Lee, 2009; Brooks, 2010).
8.2.5 Positive Social Impacts

Despite the criticism directed at Chinese firms for using imported labour,
even in countries such as Angola, where a relatively high proportion of
Chinese workers are employed, it is still the case that the majority of the
labour force is African. Because Chinese firms are heavily involved in labour-
intensive activities such as construction, clothing, and footwear, they do
create a substantial number of jobs for locals.
There are no overall figures available on the numbers employed by Chi-
nese firms in Africa. The most comprehensive survey covering 1,000 Chinese
firms in eight SSA countries found that that they had around 300,000 em-
ployees (Sun et al., 2017, p. 11). Another more limited study, based on
156 greenfield Chinese investment projects in the region, identified almost
64,000 jobs created between 2003 and 2014 (Pigato and Tang, 2015, Table 2).
These studies only represent a small proportion of Chinese FDI, and the total
number of jobs created in the region must be considerably higher. Sun et al.
(2017, p. 40) estimate that the total number employed in Chinese-owned
firms in Africa is in the millions.
Estimates for individual countries include more than 100,000 jobs created
by Chinese FDI in Ethiopia (Nicolas, 2017, Table 2); 69,000 employed by 600
Chinese firms in Nigeria, (Shen, 2013, p. 17); between 80,000 and 150,000
202
in Chinese companies in Tanzania (Lu and Kweka, 2013, p. 8);17 and 76,000
jobs generated by Chinese FDI commitments in Zambia between 2000 and
201218 (Sinkala and Zhou, 2014, Table 1). Although the claims that there
are millions employed by Chinese firms in SSA are probably exaggerated,
particularly bearing in mind that total employment in manufacturing in SSA
in 2010 was only 9 million (Bhorat et al., 2017, Table 2) and many of the jobs
in Chinese firms are in manufacturing, they are certainly in the hundreds of
thousands.
In addition to providing employment opportunities for unskilled workers,
Kaplinsky (2013) points to other ways in which China’s economic pres-
ence in SSA may be promoting more inclusive growth. As mentioned in
Chapter 7, Chinese competition has led to lower prices for basic consumer
goods, helping to raise the living standards of poor consumers. Many of
the Chinese SMEs which have entered SSA tend to produce products for
poorer consumers, and to be more regionally dispersed. There is also some
evidence of small-scale African businesses benefitting from access to cheap
Chinese machinery and equipment, which could contribute to growing local
entrepreneurship.
8.2.6 Conclusion
Some of the critical claims concerning the social impacts of China’s presence
in SSA are exaggerated, but there is an element of truth to a number of them.
The current state of knowledge concerning many of these aspects is such
that claims and counter-claims are often based on anecdotal evidence and
individual case studies, and there is a need for much more systematic research
with more comparative analysis of Chinese firms compared to other foreign
investors in SSA, as well as greater awareness of the ways in which behaviour
is changing over time. A more balanced approach is also necessary to reveal
some of the positive social impacts of Chinese activities.
8.3 Political Impacts
The political implications of China’s growing economic relations with

SSA have created even more controversy than the social impacts. As The
Economist pointed out in 2008:
17
The lower figure was provided by the Chinese Business Chamber of Tanzania, and the higher
one by the Chinese Embassy. Both may be overestimates.
18
This refers to pledged investment, and it is unclear how much of this has actually been
carried out.
203
Diplomats and pundits, for their part, fear that the west is ‘losing’ Africa and
other resource-rich regions . . . China will befriend ostracised regimes and encour-
age them to defy international norms. Corruption, economic mismanagement,
repression and instability will proliferate.
(p. 4)
Western politicians have warned Africans of the dangers of ever-closer

relations with China. In 2007 the UK Secretary of State for International
Development pointed to the risks of growing Chinese financial support for
African countries, claiming that China’s failure to match the type of condi-
tions required by other donors in relation to good governance and human
rights could set progress in the region back (McGreal, 2007). Similar warnings
were subsequently issued by US Secretary of State Hillary Clinton and Presi-
dent Obama when they visited Africa, without explicitly mentioning China,
although their remarks were clearly targeted at China (McGreal, 2014; Smith,
2012). These warnings became much more explicit under the Trump ad-
ministration with National Security Advisor John Bolton mentioning China
seventeen times in a speech to launch the new US strategy for Africa in 2018,
and claiming that China ‘uses bribes, opaque agreements, and the strate-
gic use of debt to hold states in Africa captive to Beijing’s wider demands’
(quoted in Brautigam, 2020, p. 4).
This view has set the terms for much of the academic debate on the politi-
cal implications of China’s growing involvement in SSA (Hirono and Suzuki,
2014). On the one hand, there are those who emphasize the negative effects,
claiming that China’s presence threatens progress towards democracy, the
rule of law, and political stability in the region (Rotberg, 2008; Tull, 2006).
Other authors have sought to counter these claims, arguing that there is little
if any evidence to support them (Brautigam, 2009, Chapter 11). Much less
attention has been given to some of the potential positive political impacts
of Chinese support and China’s policy of non-interference in the internal
affairs of other countries.
This section focuses first on the four negative claims regarding the politi-
cal impact of China on SSA. First, it looks at the relation between China’s
economic involvement and the existence of authoritarian regimes in the
region. Second, it considers whether China’s actions have encouraged cor-
ruption. Third, it examines the links between China’s presence and conflict
and political instability in SSA. Finally it discusses the claim that China
is practicing ‘debt-trap diplomacy’ to further its strategic interests in the
region. In each of these cases, a number of different arguments about the
204
negative effects of China’s presence are examined.19 The section then turns
to other aspects of China’s political impact which are not highlighted in the
debate.
8.3.1 Authoritarian Regimes

A common complaint voiced by Western politicians and the media is that
China tends to support authoritarian rulers in Africa, thus undermining
the West’s agenda of promoting democracy. Frequently cited examples in-
clude the regimes of Robert Mugabe in Zimbabwe and Omar al-Bashir in
Sudan. In contrast, the Chinese government claims that it respects national
sovereignty and does not interfere in the internal affairs of other coun-
tries, and is prepared to do business with different types of political regimes.
Supporters of this view can point to the fact that China’s most significant
economic partner in the region is democratic South Africa.
While there are individual examples of both authoritarian and democratic
regimes with which China has strong economic relations, is there a system-
atic tendency for China to favour countries that are less democratic, as the
critics argue? As seen in Chapter 6, China does tend to have particularly
strong economic links with oil- and mineral-exporting economies and, as the
literature on the so-called ‘political resource curse’ argues, such economies
tend to have polities that are less democratic (Ross, 2001; Rosser, 2006). How-
ever, the criticisms of China’s involvement in SSA imply that, quite apart
from this association, it tends to favour relations with authoritarian regimes.
In order to test this claim, we added the World Governance Indicator
(WGI) ‘Voice and Accountability’ as an explanatory variable to each of
the equations estimated to explain Sino-SSA relations in Chapter 6 (see
Table A8.1). The only case where China appears to have closer relations
with less democratic countries is in terms of its imports from SSA. In con-
trast, Chinese exports tend to go to the more democratic countries in the
region. The total level of trade (imports + exports) between China and SSA
also tends to be higher with the more democratic countries.20 There is no evi-
dence that Chinese FDI or Chinese projects in Africa tend to be systematically
19
The appendix to this chapter provides an econometric analysis of the relationship be-
tween the various dimensions of Chinese economic involvement in SSA and authoritarianism,
corruption, and political instability.
20
Two other studies also found that Chinese imports from SSA tended to be negatively cor-
related with the level of democracy while Chinese exports tended to go to more democratic
countries (Grauwe et al., 2012; Landry, 2019).
205
biased towards undemocratic countries.21 Indeed when we add the voice and
accountability variable to the regression for Chinese projects, these tend to
be concentrated in more democratic countries.22 Nor is there evidence that
undemocratic regimes in SSA receive preferential treatment in terms of the
allocation of Chinese aid or loans.23
Despite the West’s attention to China’s relations with authoritarian
regimes in SSA, the only real evidence that China has strong economic
relations with such regimes, beyond what can be explained by oil and min-
erals, comes from China’s pattern of imports. As discussed in Chapter 6, the
pattern of trade is less subject than other economic relations are to con-
trol by the Chinese government. The tendency for China to import more
from countries that are less democratic is likely to reflect the fact that these
countries’ resources are not already tied up by Western companies, rather
than a deliberate strategy of supporting dictatorial regimes. If the latter were
the case, one would expect to find a much clearer pattern of Chinese FDI,
projects, loans, and aid being directed towards such countries. The evidence
is more consistent with the view that by adopting a policy that emphasizes
respect for national sovereignty and non-interference in the internal affairs
of other countries, China has been willing to do business with all kinds of
governments.
Some critics argue that even if China does not specifically seek out author-
itarian regimes in developing its economic relations with SSA, its policy of
non-interference is undermining the West’s efforts to promote democracy in
SSA by providing such regimes with economic options which enable them
to resist pressure from the West. However, both the West’s commitment to
promoting democratization and its ability to do so effectively are open to
question. In the past the West has been more than willing to support au-
thoritarian regimes when it was in its political or economic interest to do
so. It is also unclear how far closer economic relations with China are a key
factor in resistance to Western pressure to democratize. Angola and Ethiopia
are two examples of countries with strong economic links with China and
relatively authoritarian regimes. However, their reluctance to engage with
21
Two studies of Chinese FDI in SSA by Cheung et al. (2013) and Kolstad and Wiig (2011)
also found that autocracy or lack of political rights did not affect the level of investment. Landry
(2019) found that the level of democracy had a positive impact on Chinese investment in Africa
as a whole.
22
Cheung et al. (2014) and Berthélemy (2011) found no significant relation between their
indicators of democracy and the level of Chinese projects in Africa.
23
Several other studies have also found that there is no significant relationship between the
level of democracy and the amount of Chinese finance that a country receives (Dreher et al.,
2016; Li, 2017; Broich, 2017; Landry, 2018).
206
the EU and the US on governance issues is a result of domestic factors, par-

ticularly the threat that reforms pose to the survival of their regimes, rather
than the presence of China (Hackenesch, 2015).
Although the Chinese model of development since 1979 has been based
on the continuation of an authoritarian political system, China is not pro-
moting such a model in SSA. In fact, unlike the West, which has pushed a
neoliberal economic model under the Washington Consensus and its own
political model in the guise of ‘good governance’, China’s adherence to the
principle of non-interference in the internal affairs of other countries explic-
itly rules out such a strategy. China’s approach in SSA has been described
as one of ‘flexigemony’, which is contrasted with US hegemony (Carmody,
2011, Chapter 3). It is characterized by a willingness to engage with a va-
riety of different regimes, accepting the internal distribution of power and
political structures, whether democratic or authoritarian.
Despite the claims that Chinese involvement promotes authoritarian-
ism, there is no evidence that closer economic links with China generally
leads to a reduction in democracy. The regressions reported in the Appendix
(Table A8.4) show that none of the indicators of a country’s economic
reliance on China had a significant impact on the WGI’s Voice and Account-
ability indicator.
There are no cases where China has promoted coups against elected gov-
ernments.24 Nor is there any support for the claim that relations with China
have led to creeping authoritarianism. Changes in levels of authoritarianism
are likely to be determined more by internal developments within the coun-
tries concerned than by the growth of economic relations with China. As
one Chinese official at the Central Foreign Affairs Office pointed out:
We are able to negotiate large business deals and make governments abide to the
One-China principle. Yet this is by no means the same as having an impact on
internal political tensions. Even if we had some political influence, it would be
naive to assume that these problems can be managed by external powers.
(Quoted in Holslag, 2011, p. 18)
8.3.2 Corruption
Although problems of corruption are often merged with those of authori-
tarianism under the general heading of ‘poor institutions’, the relationship
between the two is neither inevitable nor fixed. It is quite possible for democ-
racies to be corrupt and for dictators to be clean. Various arguments have
been put forward to suggest that China tends to have closer economic
relations with countries characterized by high levels of corruption.
24
There were rumours of China’s involvement in the removal of President Robert Mugabe in
Zimbabwe in 2017. This was categorically denied by the Chinese government at the time.
207
It has been claimed that Chinese actors actually prefer corrupt regimes be-
cause it is easier for them to achieve their objectives by doing business with
corrupt elites. It has also been argued that Chinese business practices are
highly corrupt, and that this gives Chinese firms a competitive advantage in
countries where the control of corruption is weak. ‘This Chinese way of busi-
ness effectively matches with some traditional social norms in many African
countries and greatly oils the wheels of bureaucracies in host countries to
facilitate deals’ (Wang and Elliot, 2014, p. 1016).
It is claimed that while Western firms are subject to pressure from civil
society and legal constraints such as the US Foreign Corrupt Practices Act
of 1977 and the Organization for Economic Co-operation and Develop-
ment (OECD) Anti-Bribery Convention signed in 1997 to avoid situations
in which they are likely to be required to pay bribes and engage in other
corrupt practices, Chinese firms face fewer pressures.25 The Bribe Payers
Index from Transparency International, which ranks major countries ac-
cording to perceptions of the likelihood that firms pay bribes abroad,
lists China as twenty-seventh out of twenty-eight countries, ahead of only
Russia.26
It is also argued that the lack of transparency in many Chinese engage-
ments in SSA tend to create scope for corruption (CRS, 2008, pp. 127–8).
Chinese companies were initially reluctant to participate in the Extractive
Industries Transparency Initiative (EITI), and the Chinese government has
not signed up to it. However, recent evidence shows increasing numbers of
Chinese companies reporting on their payments to the governments of SSA
countries that are members of the EITI, such as the DRC, Liberia, and Nigeria
(EITI, 2016).
Relations between Angola (which does not participate in the EITI) and
China illustrate the link between lack of transparency and corruption. The
operations of Angola’s National Reconstruction Office, which handled large-
scale projects funded by Chinese loans, were dogged by accusations of
corruption before it was dismantled in 2010 (Corkin, 2013, pp. 131–4).27
While it is easy to provide examples of corrupt practices on the part of
Chinese companies in SSA, corruption is by no means confined to the
Chinese.28
25
However, as Transparency International has pointed out, about half of the countries that
have signed the OECD Anti-Bribery Convention are taking minimal or no enforcement action
(Chu and Wong, 2014).
26
Transparency International (2011). In 2011 China made bribery of foreign officials by
Chinese firms a criminal offence for the first time.
27
Angola is one of the most corrupt countries in the world, ranked 146th in Transparency
International’s Corruption Perceptions Index in 2019.
28
For example, two US construction firms, Halliburton and Kellogg Brown and Root, were
found guilty in 2009 of paying bribes to Nigerian officials to win contracts worth $6 billion
208
A counterargument is sometimes put forward that the Chinese practice of

providing loans as part of a package whereby work is undertaken by Chinese
companies and aid is given in kind reduces the scope for the embezzle-
ment of funds by local elites because most of the money never leaves China
(Brautigam, 2009, pp. 292–7). The Angolan experience, where corruption was
rife despite the extensive use of resources for infrastructure deals, contradicts
this. It also does not prevent political elites obtaining Chinese finance which
benefits them by building prestige projects or projects that directly benefit
their supporters.29
As in the case of authoritarianism, the relation with corruption is com-
plicated by the importance of oil and minerals as drivers of Sino-African
trade and investment. The resource-curse literature argues that the existence
of substantial rents in resource extraction, particularly of oil and minerals,
provides fertile ground for corruption. There is considerable evidence that
resource abundance and resource windfalls are associated with corruption,
both between and within countries over time, particularly in undemocratic
regimes (van der Ploeg, 2011, p. 386).
Given the significance of oil and minerals in China’s relations with SSA,
it would not be surprising if there was a tendency for Chinese trade, loans,
and investment to be concentrated in countries with high levels of corrup-
tion. However, the real question is whether there is a link between Chinese
involvement and corruption over and above that which would be predicted
by a country’s dependence on natural resources. When the WGI’s ‘Control of
Corruption’ indicator was added to the variables used to explain the various
types of Sino-SSA relations, the only case where it was found to be signifi-
cant was for Chinese exports to SSA, and it was a positive and not a negative
relationship (see Table A8.2).
This contrasts with previous studies which have found that China tends to
import more from countries where the control of corruption is weak (Grauwe
et al., 2012; Hu and van Marrewijk, 2013; Landry, 2019) and that corrup-
tion tends to be associated with higher levels of Chinese FDI (Cheung et al.,
2012, 2013; Landry, 2019).30 It is consistent with previous studies of Chinese
construction projects in Africa which have not found corruption to be a sig-
nificant factor (Bérthelemy, 2011; Cheung et al., 2014). Looking at financial
between 1998 and 2006 (Brautigam, 2009, pp. 294–5). In 2015 a UK printing company, Smith
and Ouzman Limited, was ordered to pay more than £2 million for bribing public officials in
Kenya and Mauritania (Clare, 2016).
29
This is supported by the finding that Chinese projects tend to be disproportionately located
in the home regions of political leaders (Dreher et al., 2019).
30
The studies by Cheung et al. only cover FDI up to 2007, and, as shown earlier, Chinese FDI in
SSA has grown rapidly since then. This may account for corruption no longer being a significant
factor. In Landry (2019) the negative impact of corruption is found when South Africa is not
included and loses significance in the model for all African countries.
209
flows from China, Landry (2018) finds that lending tends to favour countries
where control of corruption is weaker. Dreher et al. (2018) found contrasting
results between official development assistance (ODA)-like flows from China
and those granted on a more commercial basis (‘other official finance’). There
is no relation between the former and the level of control of corruption,
whereas the latter tend to flow disproportionately to countries where the
control of corruption is weak. The mixed evidence raises questions about the
claim that China systematically prefers to operate in countries where there
is weak control of corruption.
Although China may not systematically engage with countries where the
control of corruption is weak, does its presence in a country lead to less
control of corruption? This was tested econometrically to see if any of the
measures of Chinese presence had an effect on the WGI Control of Cor-
ruption indicator (see Appendix Table A8.4). As expected, a country’s gross
domestic product (GDP) per capita had a positive effect on its control of
corruption, whereas dependence on fuel exports was associated with weaker
control. The only indicator of Chinese involvement that was significant (and
then only at the 10 per cent level) was the value of Chinese projects com-
pleted per head of population; but contrary to claims that China promotes
corruption, this was associated with stronger control of corruption.31
8.3.3 Conflict and Political Instability

A third set of issues concerning China’s involvement in SSA relates to conflict
and political instability. China’s extensive presence in the DRC and Sudan are
examples of its involvement in such situations. Various arguments including
the view that Chinese companies are less risk-averse than firms from other
countries, and claims that China actively seeks to take advantage of conflict
and political instability to further its own interests have been put forward to
suggest that China has a greater presence in such countries. It has also been
suggested that China’s presence may actually be a destabilizing factor and
contributes to conflict in host countries.
As in the case of authoritarianism and corruption, there is a clear asso-
ciation between dependence on resources and the risk of conflict in SSA.
Conflict is particularly prevalent in countries which specialize in oil or min-
erals compared to land-abundant countries, which depend on agricultural
exports (van der Ploeg, 2011, pp. 389–90). Since resource-rich countries tend
to be more prone to conflict than countries with limited resources, this raises
the question of whether Chinese involvement in conflict situations such as
31
There is some evidence that to the contrary Chinese projects are associated with higher
levels of corruption at the local level in Africa (Isaksson and. Kotsadam (2018a).
210
Sudan and the DRC is merely a result of its quest for resources or there is a sig-
nificant positive relation with conflict even when controlling for a country’s
resource endowment.
To test this hypothesis, the WGI indicator for Political Stability and Lack of
Violence was added to the specification used in Chapter 6. There is weak ev-
idence that China tends to import more from politically unstable countries,
significant only at the 10 per cent level (see Table A8.3). On the other hand,
there is stronger evidence that Chinese exports and infrastructure projects
go to countries that are more stable. The overall level of bilateral trade,
FDI, and loans are not affected by political instability. Previous studies of
Chinese involvement in SSA have also found that there is either no relation-
ship with political instability or that instability and conflict have a negative
impact on Sino-SSA relations.32 Claims based on anecdotal evidence of Chi-
nese involvement in politically unstable countries and conflict situations
are not supported by a more systematic analysis of the pattern of Chinese
operations in the region.
Although there is no clear evidence that China tends to be more engaged
in countries where there is conflict, another question is whether China fu-
els conflict in countries where it is present. One way in which it might do
so would be by providing arms to the warring parties. China is now the
third-largest exporter of arms to SSA, but there are many other international
suppliers of weapons, so it is unlikely that this is an important factor in
fuelling conflict. In fact one study has found that China tends to be less
involved in exports of arms to countries involved in civil war than the US
(de Soysa and Midford, 2012). When econometric estimates of the impact of
China on political instability and conflict were made, as expected, GDP per
capita tended to reduce conflict and increase political stability, while depen-
dence on fuel exports had the opposite effect. However, the only indicator of
China’s presence that was significant was the value of infrastructure projects,
and this tended to increase stability (Table A8.4).33
32
On trade, there is no evidence that China tends to trade more with politically unstable coun-
tries (Grauwe et al., 2012; Landry, 2019). On FDI, a number of studies have found that conflict and
political instability have a negative impact on the amount of FDI from China (Sanfilippo, 2010;
Biggeri and Sanfilippo, 2009; Cheung et al., 2013; Drogendijk and Blomkvist, 2013; Chen et. al.,
2016; Landry, 2019). Previous studies of engineering projects have either found that they are neg-
atively affected by conflict (Biggeri and Sanfilippo, 2009) or that there is no significant relation
with political instability (Bérthelemy, 2011; Cheung et al., 2014; Sanfilippo, 2010). Landry (2018)
found that Chinese finance, like that of developed countries tended to go to more politically
stable countries.
33
A study of the impact of Chinese projects on conflict at the local level in Africa also found
that they tended to reduce the likelihood of conflict (Gehring et. al., 2018).
211
8.3.4 ‘Debt-trap Diplomacy’

The term ‘debt-trap diplomacy’ was coined in 2017 to refer to the deliberate
use of loans to ‘entrap countries in a web of debt to secure some kind of
strategic advantage or an asset of some kind’ (Brautigam, 2020, p. 2). It was
quickly taken up by the US government as a new weapon in its criticism of
China’s growing involvement in Africa. As well as National Security Adviser
John Bolton, Secretary of State Rex Tillerson and Vice President Mike Pence
have also referred to China’s ‘predatory loans’ and ‘debt-trap diplomacy’ in
Africa (Carmody, 2020; Singh, 2020).
There are several elements to the ‘debt-trap diplomacy’ argument that
need to be deconstructed. First, it is claimed that China deliberately
lends more to countries than they can afford. This leads to ‘debt dis-
tress’ in the countries that have over-borrowed from China, which in turn
gives the Chinese government leverage in its relations with the indebted
countries. Finally this leverage is used to advance China’s strategic inter-
ests either economically through the seizure of assets, or politically and
diplomatically.
Each step in this argument is debateable. First, on the question of inten-
tionality, there is no evidence that China is deliberately engaged in excessive
lending in order to create debt problems. China may have a different view of
debt sustainability from the mainstream Western creditors, but that does not
imply that it is deliberately ignoring the sustainability of its lending. Indeed,
it developed its own ‘Debt sustainability Framework for Participating Coun-
tries of the Belt and Road Initiative’ in 2019. China has also cancelled zero
interest loans and restructured the debts of a number of SSA countries (Kratz
et. al., 2020). This would undermine the alleged aim of trapping countries in
unsustainable debt.
The second step in the argument suggests that Chinese lending is a major
cause of the debt problems of African countries, but as was shown in section
6.2.4, China is one of a number of lenders (including multilateral, bilateral,
and private sources) and only accounted for about 16 per cent of Africa’s
total external debt. Furthermore, as was shown in section 7.3, there are a
number of different factors that have contributed to the debt problems of SSA
countries that are unrelated to China’s involvement in the region. It is by no
means clear therefore that these problems enable the Chinese government
to exercise leverage over the most indebted countries.
The claim that China has used such leverage to seize strategic assets in in-
debted countries arose from the case of Hambantota port in Sri Lanka where
the government granted a 99-year lease to the China Merchants Ports Hold-
ings Company for a payment of $1.12 billion (Brautigam, 2020). Not only
is this the sole example of an actual asset acquisition of this kind, but as
212
Brautigam (2020) shows it did not involve a direct reduction in Sri Lanka’s
debt to China i.e. it was not a debt-for-equity swap as is often implied.34 In
SSA there have been rumours that Zambia would have to hand over the in-
ternational airport in Lusaka to China (subsequently denied) and that Kenya
would need to cede the port of Mombasa, if it defaulted on its loans from
China to build the Standard Gauge Railway (Carmody, 2020, p. 25). However
none of these have come about.
The argument that China uses debt to advance its geo-political interests
in SSA is a broader one. It again lacks concrete empirical support and it can
plausibly be argued that were China to attempt to use a country’s debt prob-
lems in this way, it would be likely to prove counter-productive. It could
fuel opposition to the government locally and negatively affect China’s in-
ternational reputation as a different kind of power to the West. It would
raise questions about China’s traditional policy of non-intervention in the
internal affairs of other countries (DeBoom, 2020).
So far the claims of ‘debt-trap diplomacy’ are more significant as a part
of the political rhetoric that has developed around China’s growing involve-
ment in Africa, than as an objective analysis of Sino-African relations. That
is not to deny that there are real issues around debt sustainability in Africa,
but these need to be seen in a much broader context and not because of a
deliberate strategy on the part of China.
8.3.5 Other Aspects of the Political Impact of China’s Increased

Economic Presence in SSA
While considerable attention has been given to claims about the negative im-
pact of China on governance in SSA, other political consequences of growing
Chinese economic involvement have received less attention. These include
the impact on the ‘policy space’ that it gives to SSA governments, the way
that it affects Chinese foreign policy in the region, and the impact on the
attitudes of Africans towards China.
The ‘China threat’ literature regards the decline of Western influence in
SSA as a negative outcome, but this is not necessarily how it appears from
an African perspective. By offering an alternative to economic relations with
the West, China has increased the ‘policy space’ available to African gov-
ernments (Huse and Muyakwa, 2008; Oya, 2008). Governments in SSA have
been able to use the advantage that increased trade, investment, and loans
from China gives them to open up a wider range of policy options than
those prescribed by the Washington Consensus. It has been claimed that
34
In fact the proceeds were used to help repay maturing, higher interest, international
sovereign bonds (Singh, 2020, p. 6)
213
this increase in policy autonomy was most marked in resource-rich African

countries (Kragelund, 2012), although as was seen in Chapter 7 it was also
the case in resource-poor Ethiopia.
There are several examples where the direct and indirect effects of China’s
growing impact in SSA have provided governments with more policy space.
The loans obtained by the Angolan government from China Exim Bank en-
abled it to break off negotiations for an International Monetary Fund (IMF)
loan and to avoid the economic conditionality that this would have in-
volved (see Box 6.1). In Ethiopia Chinese support enabled the government
to pursue its developmentalist policies, particularly through the expansion
of its energy and transport infrastructure, without being subject to the con-
ditionalities of the international financial institutions (see section 7.5.2). In
Zambia too greater policy space was reflected in the drafting of a national
development plan without direct involvement by Western donors and the
deprivatization of some strategic enterprises (Kragelund, 2014).
Growing Chinese involvement has not meant that Western neo-
colonialism has simply been replaced by Chinese neo-colonialism in SSA.
In contrast to the West’s efforts to promote neoliberal economic policies and
‘good governance’ in SSA, China has not attempted to export a particular
economic or political model. Indeed it has been argued that there is no such
thing as a ‘Beijing Consensus’ or ‘Beijing model’. The Chinese approach to
development emphasizes the importance of context-specific policies rather
than the adoption of a ‘one size fits all’ model (Lagerkvist, 2009). China’s
own development was based on a process of experimentation, as implied by
the saying coined by Deng Xiaoping, ‘crossing the river by feeling the stones’.
Any attempt at exporting a Chinese model would also clearly contravene its
declared policy of non-intervention in the internal affairs of other countries.
A further consequence is that as China’s presence on the ground in SSA
grows with increased numbers of Chinese citizens and investments in fixed
assets, its interests will gravitate increasingly towards maintaining political
stability and avoiding conflict which could affect its citizens and interests.
There have already been several examples where Chinese citizens have been
affected by conflict, including the killing of nine Chinese oil workers by the
Ogaden National Liberation Front in Ethiopia in 2007, and the kidnapping of
twenty-nine Chinese workers by Sudanese rebels in 2012. The overthrow of
Gaddafi in Libya in 2011 led to losses of as much as $20 billion for Chinese
contractors working in the country and the emergency evacuation of over
30,000 Chinese citizens (Sun, 2014, pp. 9–10). Although this was in North
Africa, it illustrated the potential for political instability and conflict to affect
Chinese interests elsewhere in Africa (Alden, 2014).
Its growing economic presence on the ground in SSA is making it more
difficult for China to maintain its traditional position of non-intervention
214
in the internal affairs of other countries (Aidoo and Hess, 2015). As Gu and
Carty (2014, p. 60) point out: ‘China does not seek to shape African states in
its own image or interfere in politics, but it is realizing that it cannot simply
pretend that the problems of its local partners do not exist, or are exclusively
the concern of those countries.’
One way in which China has sought to reconcile the need to protect its
interests while continuing to maintain its commitment to non-interference
in the internal affairs of African countries is by acting with the African Union
and the United Nations. It has already been involved in international peace-
keeping missions in several countries including Liberia, Mali, South Sudan,
and the DRC, and although this has partly been motivated by a desire to
project China’s soft power as a responsible great power, protecting Chinese
economic interests has also played a role in some of these cases (Duggan,
2018).
The growing economic presence of China in SSA could potentially gen-
erate both positive and hostile responses within African society. There have
been outbreaks of anti-Chinese sentiments in a number of countries. The
most frequently mentioned example is Zambia, where opposition leader
Michael Sata campaigned successfully for the presidency in 2011 on an anti-
Chinese platform (Hess and Aidoo, 2014). There are other instances of hostile
acts directed at the Chinese in SSA countries, which have not generated
broader political campaigns. In 2014 workers at a Chinese-owned sugar mill
in Madagascar burnt down the factory, and the police had to evacuate all
Chinese nationals to the capital (Horta, 2015). In the DRC, rioters attacked
around fifty Chinese-owned shops during anti-government protests in Kin-
shasa in 2015 (AFP, 2015). In 2016 work on the Nairobi-Naivasha railway
was halted after Kenyan youths attacked Chinese construction workers (GCR,
2016).
Despite such incidents and outbursts of anti-Chinese sentiment in a num-
ber of SSA countries, public opinion polls show that the majority of those
surveyed in the region view China favourably (Sautman and Yan, 2009: Leko-
rwe et al., 2016; Pew Global Attitudes and Trends Database, n.d.). China’s
economic involvement in the region is the main reason why it is viewed
so positively. The most frequent factors cited by Africans are Chinese in-
vestment in infrastructure, the availability of low-cost Chinese goods, and
Chinese business investment (Lekorwe et al., 2016, Figure 15). It is clear that
as far as public opinion in Africa is concerned, growing Chinese economic
engagement is seen in a positive light by the majority of people.35 Political
35
The main factors contributing to a negative view of China are also primarily economic. In or-
der of importance, these are the poor quality of Chinese goods, displacement of local businesses,
and extraction of resources from Africa (Lekorwe et al., 2016, Figure 18).
215
factors are less important in explaining both positive and negative views of
China in the region.
8.3.6 Conclusion
The evidence reviewed here suggests that many of the claims regarding the
negative political impact of China in SSA have been greatly exaggerated.
There is no evidence to support the strongest claim that China is export-
ing its own authoritarian model to Africa or introducing its own corrupt
business practices and destabilizing African countries. In all of these cases,
internal conditions rather than outside influences, whether from China or
the West, are the determining factors affecting political outcomes.
There is also very little evidence to support the view that China has pri-
oritized the development of economic relations with countries that have
governments that are less democratic or where the level of corruption or
political instability is higher. The main drivers of Chinese involvement in
SSA are commercial and strategic considerations, and with the exception of
diplomatic relations with Taiwan, political factors are not significant. The
evidence is consistent with Chinese claims that it respects the sovereignty
of SSA countries and is prepared to develop relations with different types of
regimes.
The debate premised on contrasting China’s influence with the West’s gov-
ernance agenda in SSA has narrowed the discussion. This has led to relatively
little attention being paid to the way in which the growth of China is creat-
ing more policy space for African countries, and how the increased economic
involvement of China is affecting Chinese foreign policy in the region or the
attitudes of Africans towards China.
8.4 Environmental Impacts
A number of concerns have been raised over the environmental impacts of

China on SSA (Bosshard, 2008). The fact that China’s own development over
the past four decades has been accompanied by substantial environmen-
tal degradation, as discussed in Chapter 1, fuels suspicion that its activities
abroad also generate major environmental costs. This is all the more likely
in SSA, where China’s engagement has been particularly concentrated in en-
vironmentally sensitive sectors, such as oil and gas, mining, forestry, and
infrastructure, and where the state often lacks either the will or the capacity
to regulate. The risks are further intensified by the fact that as a latecomer in
the race for resources in SSA, Chinese investments have often gone to remote
and ecologically fragile areas and, in some cases, to protected National Parks.
216
It is also claimed by critics that the environmental guidelines and standards

applied by Chinese firms and financial institutions are less demanding than
those of their Western counterparts, giving them a competitive advantage. It
has even been claimed that the recent application of more stringent environ-
mental policies in China may encourage China’s worst polluters to relocate
to Africa.
There are several channels through which China’s economic involve-
ment in SSA may affect the region’s environment. This section considers
first whether trade with China has had negative effects on the environment,
looking particularly at the characteristics of Chinese demand for African
products. It then discusses the activities of Chinese firms involved in in-
vestment and in infrastructure projects, to analyse the extent to which
they take environmental considerations into account in their operations.
It also looks at the role played by Chinese financial institutions in pro-
moting (or failing to promote) more sustainable production in SSA through
the environmental requirements that are attached to their loans. Many of
these issues are illustrated by Chinese involvement in the African timber
industry.
As with the social and political impacts of China, the focus of media at-
tention tends to be on the negative aspects of Sino-African relations, with
little publicity given to examples of good practice (Shinn, 2016, p. 26). It is
important to balance these largely negative perceptions by also considering
China’s role in helping to reduce carbon emissions through its involvement
in developing solar and wind power in Africa.
8.4.1 Trade and Environment

As seen in Chapter 6, virtually all of SSA’s exports to China are primary
products and resource-based manufactures, particularly oil, ores, and metals,
which tend to have substantial environmental impacts. The growing Chinese
market and increased prices of many primary commodities, as documented
in Chapter 3, has created incentives for increased production of oil, min-
erals, and timber, which may have damaging environmental impacts.36 Oil
exploration, production, and transport can give rise to major spillages with
devastating environmental effects, as seen in the Niger Delta. Mining can
lead to direct environmental destruction through vast opencast mines, pollu-
tion as a result of the toxic chemicals used in ore extraction, and the creation
36
It should be remembered that a significant part of this demand for resources is to produce
goods which are then exported from China, so that the ultimate source of demand is elsewhere,
mainly in the developed world.
217
of vast quantities of waste. Water supplies may also be affected by mines’ de-
mand for water. Logging, much of which is illegal, is often unsustainable and
leads to widespread deforestation (WWF-UK, 2009, EV 109).
In the case of exports to China, there are numerous reports of environ-
mental destruction in SSA, but what evidence is there that exports to China
are more environmentally damaging than exports to other markets? Such
an outcome could arise either because Chinese consumers are less aware or
less concerned about the environmental impacts of their consumption than
those in the West or because there is less government regulation of environ-
mentally damaging imports in China or because there is a significant volume
of illegal trade between SSA and China.
Because the bulk of SSA’s exports to China and elsewhere are made up
mainly of undifferentiated commodities such as oil and copper, which are
not sold to the final consumer, it is unlikely that exporters will have any
incentive to differentiate between a product sold to China and one sold to
other, more developed countries. Consumers can only take account of the
environmental impacts of a product that they buy when there is some form
of certification in place (see section 8.4.3 on timber).
The ability of governments to take action against imports of goods pro-
duced in an environmentally damaging way is limited by World Trade
Organization (WTO) rules that prevent discrimination on the grounds of
how a product has been produced.37 Governments are, therefore, only able
to restrict imports of environmentally damaging products under certain
exceptional circumstances. Thus, neither consumer demand nor import reg-
ulations are likely to lead to a significant difference in the environmental
impacts of goods exported to China compared to other markets.
In fact the most likely cause of exports to China having a negative en-
vironmental impact is where there is extensive illegal trade. In recent years
conservationists have pointed to demand from China for ivory and rhino
horn as a major threat to the African elephant and rhinoceros (Gao and
Clark, 2014).38 Although important from the point of view of conservation,
from the environmental point of view, the illegal trade in ivory and rhino
horn is less significant than the illegal trade in timber. The impact of Chinese
trade and investment in forestry is discussed in more detail in section 8.4.3.
37
The WTO generally prevents discrimination on the basis of ‘non-incorporated’ processes
and production methods (PPM). The application of this principle has given rise to considerable
debate (see Cottier, 2016).
38
In 2017 China announced a ban on trade in ivory, which has helped curb the demand for
ivory (WWF, 2019).
218
8.4.2 Chinese Firms and the Environment

There are numerous examples of Chinese firms causing environmental degra-
dation in SSA. In Sudan and South Sudan, the China National Petroleum
Corporation (CNPC) has been responsible for the destruction of farmland,
deforestation, and the disruption of water flows (Patey, 2014, quoted in
Shinn, 2016, pp. 55–7). In 2013 the Chadian government suspended CNPC’s
licence for oil exploration following the discovery of oil spills in the com-
pany’s area of operation (Tang and Sun, 2016, p. 71). Prospecting for oil
by the China Petroleum & Chemical Corporation (SINOPEC) in the Loango
National Park created an outcry which led to the government of Gabon tem-
porarily suspending the company’s operations (Taylor, 2007). A number of
small Chinese mining companies in the Katanga region of the DRC have
been reported for their poor environmental track record (RAID, 2009), and,
in Ghana, a number of illegal Chinese and other gold miners were arrested
in 2013 and accused of soil and water pollution (Tang and Sun, 2016, p. 79).
Major Chinese dam construction projects, such as the Merowe Dam in Sudan
(Bosshard, 2008) and the Bui Dam in Ghana (Power et al., 2012, pp. 211–14),
have also had significant environmental impacts.
While the Western literature on the environmental impacts of Chinese
firms tends to focus on the negative aspects, Chinese studies tend to high-
light successful cases and ways in which Chinese companies can reduce their
environmental footprint in the future (Wang and Zadek, 2016). In Africa,
the efforts of the China Road and Bridge Corporation to avoid harm to lo-
cal wildlife during the construction of the Mombasa–Nairobi Railway have
been commended (CAITEC et al., 2015, pp. 72–3). CNMC’s activity in Zam-
bia in reducing waste, recycling and increasing energy efficiency is another
example of a Chinese company trying to reduce its environmental impact
(ibid, pp. 75–6). Chinese investment in renewable energy is also cited as a
major positive contribution (see section 8.4.4).
A number of reasons have been put forward to explain Chinese firms’
poor environmental performance. First, as seen in Chapter 1, it is only rel-
atively recently that environmental issues have come to the fore in China
itself and that firms have become more accustomed to having to take their
environmental impacts into account at home. Second, during the early
years of the Go Global strategy, the Chinese government paid scant atten-
tion to the environmental impacts of FDI. The earliest attempts to provide
guidance on the environmental aspects of Chinese companies’ overseas
operations came with the State Forestry Administration and the Ministry
of Commerce’s (MOFCOM) ‘Guide on Sustainable Overseas Silviculture by
Chinese Enterprises’ in 2007, and the ‘Guide on Overseas Sustainable For-
est Management and Use by Chinese Enterprises’ two years later. The first
219
comprehensive environmental guidelines for Chinese foreign investors only

came out in 2013, when MOFCOM and the Ministry of Environmental Pro-
tection (MEP) published their ‘Guidelines on Environmental Protection in
Overseas Investment and Cooperation’.39
NGO criticism of the environmental effects of Chinese operations
abroad has come mainly from international non-governmental organiza-
tions (NGOs), and very little concern has been expressed from Chinese
civil society. As a result the China Council for International Cooperation
on Environment and Development (CCICED) claims that Chinese firms are
fifteen to twenty years behind their Western counterparts in terms of adopt-
ing environmental approaches in their foreign investments (CCICED, 2011,
p. 112).
Third, it has been claimed that Chinese banks are prepared to fund
projects which have been rejected by other lenders on environmental
grounds and that Chinese firms have been able to win infrastructure
and extractive-sector contracts because of lower environmental standards
(Bosshard, 2008). Although the China Exim Bank has produced ‘Guidelines
on Environmental and Social Impact Assessment of Loan Projects’ and the
China Development Bank has its ‘Guidelines on Environmental Protection
Project Development Review’, covering environmental impact assessments
and project reviews of environmental impact, and requiring compliance
with local environmental laws and regulations, these tend to be less com-
prehensive than those of multilateral lenders such as the World Bank, the
International Finance Corporation, and the US Exim Bank (Gallagher, 2013).
Critique of the environmental impacts of Chinese firms is often accom-
panied by an implicit, and sometimes explicit, assumption that Northern
companies, which are subject to stricter environmental regulation at home
and have been pressured by NGOs to adopt environmental codes of con-
duct, abide by significantly higher standards. However, this presents a rather
rosy view of the environmental behaviour of Northern transnationals on
the ground in SSA (Hilson, 2012). It also ignores the diversity of Chinese
firms operating in the region, which, as seen in Chapter 6, range from large
central SOEs to private SMEs and individual entrepreneurs. Several stud-
ies have shown substantial differences in the environmental performance
of Chinese companies in SSA. A study of seven Chinese hydropower SOEs
found that their environmental management ranged from good to poor
(Jensen-Cormier, 2015, Tables 3 and 4).
39
A survey of Chinese firms in three African countries carried out in 2015 found that 60 per
cent of respondents had not heard of the Guidelines, and only 13 per cent could claim that they
were familiar with them (Weng and Buckley, 2016, Figure 4).
220
There is some evidence that large SOEs tend to perform better environ-
mentally than smaller private companies (CCICED, 2011, p. 112; Tang and
Sun, 2016, p. 74). A study in Mozambique, Kenya, and Uganda by the
International Institute for Environment and Development showed greater
awareness of Chinese government guidelines for foreign investors amongst
SOEs than in private firms (Weng and Buckley, 2016). Despite this, the sheer
scale of SOE operations is likely to mean that in absolute terms they have a
greater environmental impact overall (Tang and Sun, 2016, p. 75).
Other factors besides national origin may contribute to poor environmen-
tal performance by Chinese companies. Chinese extractive firms have been
latecomers in SSA, finding that US and European firms had already acquired
the most accessible resources. They have, therefore, tended to operate in
more remote areas which are often more ecologically sensitive and in some
cases, are located in National Parks, such as SINOPEC in Gabon and the Bui
Dam in Ghana. They also lack experience of operating in Africa, and there is
evidence that Chinese companies with a longer history of operating overseas
tend to perform better environmentally (CAITEC et al., 2015, Chapter 7).
Although there are considerable differences in the environmental prac-
tices and performance of Chinese companies in SSA, the perception remains
that, in general, Chinese firms tend to be more environmentally damag-
ing than Western ones. Relatively few comparative studies have tested this
empirically. One sector in which there has been more research on China’s
environmental impacts on SSA is forestry.
8.4.3 Timber Case Study

China’s imports of timber have increased rapidly since the year 2000, when
restrictions were placed on domestic logging, and it is now the largest im-
porter of tropical timber in the world. Although only a relatively small share
of China’s imports of wood come from SSA, timber exports to China are a
significant source of foreign exchange for several countries including Gabon,
Equatorial Guinea, Mozambique, and the Republic of Congo (Wilkes, 2016,
p. 19). Exports to China and investment by Chinese firms have been widely
criticized for contributing to deforestation in SSA (EIA, 2012; Freeman and
Xu, 2015).
EXPORTS TO CHINA
Several characteristics of the Chinese market influence the environmental
impact that trade is likely to have in Africa, in contrast with the markets in
developed countries. First, imports concentrate mainly on unprocessed logs.
Although the share of round-wood logs in total Chinese imports of timber
has fallen in recent years as some African countries have imposed restrictions
221
on log exports, they still account for the bulk of imports from Africa (Wilkes,
2016, p. 190). While there is a slight advantage in terms of a lower tariff than
on processed wood, the main reasons for this preference for raw logs are the
high efficiency of Chinese sawmills and the strong demand in China for
by-products such as woodchips and shavings. As a result, logs account for a
much higher proportion of timber exports from Cameroon and the Republic
of Congo to China than to other markets, particularly the EU (Kozak and
Canby, 2007).
A second characteristic of the Chinese market is that there is a demand for
a wide range of different kinds of wood, unlike demand in the North, which
is much more selective in terms of the types of species required (Cerutti et al.,
2011).
Third, there is much less demand for certified wood products in China
than there is in developed-country markets. Forestry has widely recognized
certification schemes, such as the Forest Stewardship Council (FSC) Forest
Management and Chain-of-Custody certificates and the Programme for En-
dorsement of Forest Certification, which provide for mutual recognition of
national standards that meet certain sustainability benchmarks. These cer-
tification schemes are much more prevalent in developed-country markets
than in China, and they provide a means by which consumers can distin-
guish between wood products made from sustainable timber and those that
are not. A Greenpeace (2015) study of Chinese companies operating in the
Congo Basin found that only three out of sixteen companies interviewed had
been asked by their customers to provide FSC certification. The degree of Chi-
nese consumers’ awareness of industry practices in tropical timber-producing
countries is low (Huang et al., 2013, p. 349).
Fourth, government regulation of imported timber and wood products
is stricter in developed-country markets than in China. The EU Forest Law
Enforcement Governance and Trade Action Plan (FLEGT) and the US Lacey
Act require importers of all wood products to demonstrate the legality of the
timber source (Huang et al., 2013, p. 349). Although the Chinese govern-
ment has taken some action to check illegal logging, this has concentrated
mainly on domestic Chain-of-Custody certification, and has no relation to
the legality of wood imported from third countries (Freeman and Xu, 2015,
p. 332). As far as imported timber is concerned, China has preferred to issue
guidelines rather than regulations and legal means (ibid, p. 334).
Finally, a significant proportion of Chinese imports of timber comes from
illegal logging. Freeman and Xu, (2015, p. 328) estimate that more than half
of Chinese imports come from illegal sources. A number of major Chinese
timber importers have been linked to illegal logging in the Congo Basin
(Greenpeace, 2015, pp. 16–19; EIA, 2019). As Table 8.1 indicates, a much
higher proportion of exports to China from several SSA countries is likely to
222
Table 8.1. Percentage of Exports of Wood Products

at High Risk of Illegality, by Destination, 2013
China EU
Cameroon 37% 14%

Congo 84% 20%
DRC 79% 38%
Ghana 36% 10%
Source: Based on illegality estimates compiled by Chatham House

and official national trade statistics. Data compiled by James Hewitt
for Chatham House.
be illegal than is the case with the exports to the EU. These illegal imports are
likely to be particularly harmful to the environment of the countries from
which they are sourced because loggers ignore local regulations designed to
restrict deforestation.
Most of these characteristics of Chinese demand make it more likely that
exporting to China will have a negative impact on forests in the country of
origin. The fact that wood is not processed within SSA means that a dollar
of exports involves more environmental cost than would be the case if there
was more value added locally. Although less selectivity might mean that ex-
ports to China would cause more deforestation, in fact, it has been suggested
that because logging that is more selective requires strong penetration into
core forest areas, the reverse is likely to be the case (Brandt et al., 2014). The
limited demand for certified wood products and the lack of regulation of im-
ports to China, together with the extensive trade in illegal timber, all tend to
make exports to China more environmentally damaging than those to the
EU or USA.
Two factors might modify any tendency for such a dualistic market struc-
ture to emerge, with sustainable timber exported to the USA and the EU and
illegal or unsustainably produced timber exported to China. First, a signif-
icant portion of the timber imported to China is incorporated into wood
products and furniture for export, and where the destination market is the
EU or the USA, there is still a need to provide evidence of the origin of the
timber used.40 This has been an important driver for firms in China to ob-
tain FSC Chain-of-Custody Certificates. Between 2010 and 2013, 2,412 such
certificates had been issued in China (Blackmore et al., 2013, Table 1).
The second factor that might reduce differences between exports to China
and those to developed-country markets is that large TNCs or SOEs may
find it easier to adopt a uniform standard for their exports irrespective of
40
Between 1999 and 2009, exports accounted for about a quarter of total consumption of
wood products in China (Huang et al., 2013, p.349).
223
the destination market.41 Overall, however, it is likely that wood exports to

China have a greater negative environmental impact compared with exports
to other markets.
CHINESE INVESTMENT
Although the forestry sector in SSA accounts for a relatively small share of
total Chinese outward foreign direct investment, the number of approved
projects has increased significantly from eight in 2007 to eighty-four in 2015,
with operations in twenty-five countries (Li and Yan, 2016). Chinese com-
panies are particularly involved in Gabon, where about a third of logging
companies are Chinese owned (Wilkes, 2016, p. 27) and in other countries
in Central and Southern Africa, including the Republic of Congo, Mozam-
bique, and Zambia. Chinese firms investing in SSA include large SOEs such
as the Jilin Sengong Group in Equatorial Guinea, Zhong Lin International
in Gabon, and large private firms such as Yihua Wood in Gabon, as well as
SMEs (Wilkes, 2016, p. 25).
While there is evidence that wood exported to China is likely to be pro-
duced in a less sustainable way than exports to Northern markets, does the
nationality of the firms involved also make a difference to the environmental
impact? Here what little evidence exists is less clear.
Most of the comparative studies that have been carried out look at dif-
ferent types of firms’ environmental practices and degree of regulatory
compliance rather than their actual environmental impact. In Cabo Delgado
province, Mozambique, it was found that European firms were more likely
than Chinese companies to be operating with an approved management
plan (Wertz-Kanounnikoff et al., 2013). A comparison of European and Asian
(many of them Chinese) companies in the Republic of Congo also found that
a higher proportion of the European firms complied with the requirements
of the country’s Forest Management Plan. However, European firms had the
greater impact on deforestation. This was attributed to the more selective
logging by European firms, which meant that they had to open up more ar-
eas of core forest in order to obtain a given volume of timber (Brandt et al.,
2014).
Studies of Gabon have come to conflicting conclusions regarding the ex-
tent to which Chinese firms operate without management plans and the
required licences, although it is noted that such practices are also common
amongst non-Chinese firms (Freeman and Xu, 2015, pp. 339–41). A study of
41
Examples from other sectors include the Chilean copper SOE, CODELCO, which is reported
to apply the same standards across its projects regardless of the end market (Blackmore et al., 2013,
p. 23), and TNCs such as Cargill, ADM, and Bunge, which export agricultural products from Brazil
to both Northern and Southern markets and have well-developed sustainability policies (ibid,
p. 37).
224
two European and one Chinese firm in Cameroon concluded that the market
to which the firms exported affected their logging practices more than the
nationality of the firm (Cerutti et al., 2011). The differences in deforestation
by European and Asian firms in the Republic of Congo can also be explained
by the fact that the Asian market for timber is much less selective than the
European market in terms of species (Brandt et al., 2014).
More evidence is needed before coming to any definitive conclusions
about the relative environmental impacts of Chinese and other firms. There
is more convincing evidence that exports to China and those to Northern
markets might have different implications. Although this may involve higher
standards in exporting to the developed world, formal compliance may not
always lead to less environmental degradation.
8.4.4 Wind and Solar Power

While there are widespread concerns about the negative environmental im-
pacts of many Chinese infrastructure projects in SSA, one area where there
are potential positive impacts, particularly in terms of climate change, is the
involvement of Chinese firms in renewable energy in the region. As seen in
Chapter 1, China has become a world leader in renewable energy. According
to the International Energy Agency, China will install 40 per cent of global
wind energy and 36 per cent of solar capacity between 2015 and 2021 (Buck-
ley and Nicholas, 2017, p. 1), and half of the top-ten manufacturers of both
wind turbines and solar cells in the world were Chinese companies in 2015
(Buckley and Nicholas, 2017, Figure. 2: Mints, 2016, Table 2).
Chinese firms are involved in hydropower, solar, wind, and biomass
projects in SSA.42 Renewables account for 56 per cent of new power genera-
tion capacity built in SSA since 2010, which is planned to come on stream by
2020. The bulk of this (49 per cent) is accounted for by hydropower, while
other renewables account for 7 per cent (IEA, 2016, Figure. 4). Although hy-
dropower projects produce low-carbon energy, large dams, which account
for the bulk of such projects, can have negative social and environmental
impacts, as discussed. In terms of positive environmental benefits, the focus
is mainly on wind and solar power.
At the Forum on China-Africa Cooperation meeting in 2009, Chinese
Premier Wen Jiabo announced that China would carry out one hundred
clean-energy projects in Africa. It is not clear how far this pledge has been
met or how far the projects that have been carried out were market driven
rather than specifically linked to government commitments (Esterhuyse and
42
For a review of the literature on China’s involvement in energy transitions in Africa, see
Shen (2020).
225
Burgess, 2015, p. 1). There has, however, been an increased presence of China
in renewable energy in Africa. Between 2000 and 2017 Chinese finance for
wind and solar projects in Africa came to $1.5 billion (Muñoz-Cabré et al.,
2018, Table 9).
China’s involvement in wind and solar power in SSA has taken three
forms: exports of renewable energy equipment; investment in manufac-
turing equipment; and construction of generation capacity (Conrad et al.,
2011, Chapter 3). The most important has been the export of equipment
such as photovoltaic (PV) panels, solar water heaters, and wind turbines.
Although there has been talk of Chinese investment to produce such equip-
ment in the region, the only significant example so far has been Jinko Solar,
which opened a factory producing solar panels in Cape Town in 2014 (Shen
and Power, 2017, p. 13). An earlier attempt to set up a PV manufacturing
plant in Kenya failed (Conrad et al., 2011, p. 32). There has been talk of
Longyuan establishing facilities to produce wind turbines in South Africa,
but these have not yet materialized (ibid, p. 33). Chinese firms have been
more involved in constructing wind farms and solar power plants than in
manufacturing equipment in SSA. These include wind farms in South Africa
and Ethiopia and solar power projects in South Africa, Senegal, Kenya, and
Rwanda (IEA, 2016, Map 1; Tan et al., 2013, Annex 1 and 2). China is also
involved in a trilateral project with the United Nations Development Pro-
gramme and African countries (Ghana and Zambia) to promote the transfer
of renewable energy technology from China to Africa under the UN’s Sus-
tainable Energy for All (SE4ALL) project, which aims to enhance off-grid,
community-based electrification (IEA, 2016, Box 6).
Chinese involvement in renewable energy in SSA has primarily been com-
mercially driven. The rapid expansion of renewables in China has led to
substantial overcapacity in both wind turbines and solar panels. New in-
vestment in wind farms in China slowed down from around 2010, and as
a result Chinese firms began exporting on a significant scale, with exports
of wind turbines tripling between 2011 and 2013 (Shen and Power, 2017,
p. 6). The solar industry was much more export oriented from the outset, but
it has been hit by a slowdown in demand in developed-country markets and
increasing protectionism against Chinese solar products. A number of Chi-
nese PV manufacturers collapsed between 2012 and 2013, but even so, there
continues to be substantial excess capacity. The firms that survived looked
for new markets outside the EU and the USA, and there has been a mas-
sive increase in exports to Africa (ibid., p.8). All the Chinese investment in
Africa in solar power and almost three-quarters of investment in wind power
between 2000 and 2017 was financed by commercial sources (both SOEs
and private) rather than the policy banks (Muñoz-Cabré et al., 2018, Tables
10 and 11).
226
Although the Chinese government is able to point to its role in developing

renewable energy in SSA as part of its contribution to international efforts
to mitigate climate change, this has not been a major driver. It is hard to
argue that environmental factors are an important factor behind China’s in-
volvement in power generation in Africa when coal-fired and gas-fired power
plants account for a much greater share of capacity compared with wind or
solar power.43 While there is significant potential for expansion of wind and
solar power in the region, and China is well placed to contribute to such
expansion, so far this potential remains largely unexploited.
8.4.5 Conclusion
The picture that emerges of China’s environmental impact in SSA is more
mixed than the purely negative one that is often painted. There is evi-
dence that in some cases, most notably timber, exports to China are likely
to be more environmentally damaging than exports to developed-country
markets are, although environmental damage is by no means confined to
exports to China. In the case of petroleum or minerals, there is less reason
to suppose that the destination of exports leads to significant differences
in the environmental impact of production. In these sectors differences
in environmental impact are likely to be associated more with differences
between companies of different origin than with the destination of their
exports.
The environmental impact of Chinese companies overseas is becoming
a more important concern for both the Chinese government and some of
the companies involved. From the government’s point of view, reports of
environmentally destructive activities by Chinese companies undermine its
narrative of ‘mutual benefit’ and South-South cooperation used to promote
its soft power in Africa. The larger Chinese companies that now operate
globally are also under increased pressure to operate in an environmen-
tally responsible way. It is still too early to say how far the new guidelines
from MOFCOM and MEP will be a significant factor in promoting a shift in
behaviour, bearing in mind that they are only recommendations and com-
panies are not obliged to follow them. There are signs, however, that Chinese
companies’ environmental management and performance improves as they
acquire more experience of operating abroad.
The problems of environmental degradation arising from trade and in-
vestment in SSA are in large part a reflection of weak governance in the
43
The International Energy Agency (IEA) (2016, Figure 4) estimates that 20 per cent of capacity
added between 2010 and 2020 was based on coal, 19 per cent on gas, and only 7 per cent on
renewables other than hydropower.
227
region. There is no doubt that in many SSA countries the lack of effective
regulation is a major factor that has allowed Chinese (and other) resource
extraction companies to cause environmental damage. As Tan-Mullins and
Mohan’s (2013) comparison of Ghana and Angola shows, where there is a
more active civil society and stronger local legislation, as in Ghana, Chinese
companies are likely to cause less damage than in a country such as Angola,
where power is highly concentrated in the hands of a narrow elite. Simi-
larly, the relatively limited development of renewable energy (apart from
hydropower) is also in part the result of the governments of the region’s
lack of appropriate policies and commitment. A more sustainable pattern
of development requires changes within the African countries and not sim-
ply better performance by external actors, whether they are from China or
elsewhere.
Econometric Analysis of Political Factors
1. Political Determinants of China’s Economic Involvement in SSA

In order to analyse the impact of political conditions in SSA on Chinese in-
volvement, three additional variables were added to those used to explain
Sino-SSA relations in Chapter 6. These variables measure the impact of the
degree of democracy, the extent of control of corruption, and the level of
political stability. If the critics of Chinese involvement are correct, each of
these variables is negatively related to the level of Chinese trade, investment,
projects, and loans in the region.
Three political indicators obtained from the World Bank’s World Gover-
nance Indicators (WGI) are used in the analysis. These have the advantage of
having been published annually since 2002 for all of the countries covered.
They are also widely used in the literature, and fit well with Western critics’
claims about China’s political role in SSA. ‘Voice and Accountability’ is taken
as a measure of the extent to which a country is democratic in a broad sense.
‘Control of Corruption’ is assumed to be inversely related to the extent of
corruption in a country and a measure of its government’s determination
to deal with corruption problems. Finally, ‘Political Stability and Absence of
Violence/Terrorism’ provides an indication of the degree of political risk in
a country.
As in Chapter 6, panel regression was used and random or fixed-effect
results are reported depending on the results of applying the Hausman test.
228
Table A8.1. Effects of Voice and Accountability on Sino-SSA Economic Relations

trade imports exports stock projects
(1) (2) (3) (4) (5) (6)
Voice/ accountability 0.007* −0.03*** 0.008** −0.002 0.03** −0.01

Log China GDP 1.54*** 1.23*** 1.65*** 3.40*** 0.69** 0.78*
Log SAA GDP 0.56*** 1.69*** 0.82*** 1.47*** 2.39*** 0.59***
Openness 0.005*** 0.013*** −0.001 −0.002 −0.005 0.01
Minerals 0.81*** 3.50*** 0.25 0.31 −0.06 0.19
Fuels 0.64*** 1.44** 0.42** 2.02*** 3.15*** −0.57
Recognition of Taiwan −0.08 −0.01 −0.52*** −0.93** −1.63*** −0.45
UN voting 0.25 −0.67 0.08 −0.26 −0.71 −0.24
Observations 604 594 604 604 604 604
R-squared 0.46 0.70 0.70 0.47 0.30 0.20
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent level
Table A8.2. Effects of Control of Corruption on Sino-SSA Economic Relations

(1) (2) (3) (4) (5) (6)
Control 0.003 −0.01 0.01*** −0.00 0.006 −0.008

of corrup-
tion
Log China 1.56*** 1.15*** 1.68*** 3.39*** 0.72** 0.73*
GDP
Log SAA 0.56*** 1.64*** 0.82*** 1.49*** 2.46*** 0.57***
GDP
Openness 0.005*** 0.013*** −0.001 −0.002 −0.005 0.01*
Minerals 0.83*** 3.60*** 0.29 0.31 −0.01 0.27
Fuels 0.63*** 1.72*** 0.47** 2.00*** 3.10*** −0.48
Recognition −0.07 −0.07 −0.50*** −0.93** −1.60*** −0.47
of Taiwan
UN voting 0.29 −0.77 0.14 −0.26 −0.59 −0.30
Observations 604 594 604 604 604 604
R-squared 0.48 0.67 0.70 0.47 0.31 0.19
As before, the dependent variables were lagged by one year to avoid problems
of reverse causality. Because the WGI indicators are not available for 2001, a
year of data was lost compared to the estimates in Chapter 6. The impact of
229
Table A8.3. Effect of Political Stability on Sino-SSA Economic Relations

(1) (2) (3) (4) (5) (6)
Political 0.002 −0.01* 0.004** 0.003 0.01** 0.000

stability
Log 1.56*** 1.16*** 1.67*** 3.40*** 0.80** 0.75*
China
GDP
Log SAA 0.56*** 1.62*** 0.83*** 1.43*** 2.31*** 0.56***
GDP
Openness 0.005*** 0.013*** −0.001 −0.001 −0.005 0.009
Minerals 0.79*** 3.69*** 0.22 0.29 −0.12 0.35
Fuels 0.60*** 1.87*** 0.40** 2.04*** 3.12*** −0.21
Recognition −0.08 −0.05 −0.51*** −0.93** −1.62*** −0.47
of
Taiwan
UN 0.27 −0.70 0.11 −0.24 −0.56 −0.27
voting
Observations 604 594 604 604 604 604
R-squared 0.49 0.66 0.70 0.48 0.32 0.18
each of the three variables on the six measures of Chinese relations with SSA
was tested separately. The results are reported in Tables A8.1–8.3.
2. Political Effects of Chinese Economic Involvement in SSA

In order to test the impact of China on governance in SSA, the same three
WGI variables discussed earlier were used as dependent variables. Lagged
values of several measures of China’s economic presence were used as in-
dependent variables: these were China’s share of a country’s total trade, its
share of the FDI stock, the value of completed Chinese projects per capita,
and China’s share in total loans received. Based on previous studies, several
other control variables were also included in each of the regressions. These
were GDP per capita, population, and the share of fuels and of minerals in to-
tal exports. GDP per capita was expected to be positively related to the levels
of the governance variables, whereas the other three variables were expected
to have a negative impact on them. These were also lagged to avoid problems
of reverse causation.
230
Table A8.4. Impact of Economic Relations with China on Governance
Control of corruption Political stability Voice & accountability
SSA GDP per capita 5.63*** 8.0*** 4.77**

SSA population −3.07* −5.22*** −1.98
Fuels −17.7*** −11.02*** −0.94
Minerals 1.22 10.34** 4.50*
China’s trade share −3.21 −5.48 1.89
China’s FDI share −1.47 1.62 −0.64
Chinese projects p.c. 0.28* 0.50*** 0.11
China’s loan share −0.20 −0.55 1.00
Random/fixed RE RE FE
Observations 559 559 559
R-squared 0.24 0.44 0.04
Variable Source
Control of corruption World Bank, World Governance Indicators

Political stability World Bank, World Governance Indicators
Voice and accountability World Bank, World Governance Indicators
SSA GDP per capita GDP per capita in constant US$: World Bank, World Development
Indicators
SSA population UNCTADStat
Fuels Share of fuels in total exports: UNCTADStat
Minerals Share of ores and minerals in total exports: UNCTADStat
China’s trade share Share of China in total trade: UNCTADStat
China’s FDI share Share of China in total stock of FDI: MOFCOM and UNCTADStat
Chinese projects p.c. Chinese economic cooperation per capita: National Bureau of Statistics of
China and UNCTADStat
China’s loan share Chinese loans divided by Chinese + DAC loans: SAIS-CARI and OECD
231
Part III
China and Latin America and the
Caribbean
9
China’s Economic Expansion in Latin

America and the Caribbean
9.1 Introduction
Relations between the Peoples Republic of China (PRC) and Latin America
and the Caribbean (LAC) are a relatively recent development.1 Until the
1970s, all countries in the region, apart from Cuba, continued to maintain
diplomatic relations with Taiwan. In 1971, Chile, under the socialist Popular
Unity government, recognized the PRC, but many Latin American countries
did not do so until after 1979, when the USA and PRC established diplomatic
relations and when China began its economic reforms. Eight countries in
the region continue to recognize Taiwan and do not have diplomatic rela-
tions with the PRC, making the region the most significant concentration of
countries that maintain relations with Taiwan.
It was during the 1990s that China began to increase its political engage-
ment with Latin America. It first established a ‘strategic partnership’ with
Brazil in 1993. Relations with the region took off at the turn of the century.
Further strategic partnerships were signed with Venezuela (2001), Mexico
(2003), Argentina (2004), Peru (2008), and Chile (2012). Chinese Presi-
dents Hu Jintao and Xi Jinping have visited Latin America on a number of
occasions, while most Latin American leaders have undertaken state visits
to China. Although relations with the region remain mainly at a bilateral
level, China has engaged in a number of regional initiatives. It was eventually
allowed to join the Inter American Development Bank (IADB) in 2008, after
1
Latin America and the Caribbean, in this study, include thirty-three politically independent
countries, which are listed in the Appendix to this chapter. It does not include Caribbean terri-
tories that are dependencies of other states, such as the Cayman Islands and the British Virgin
Islands.
its application was initially blocked by the USA. It has had observer sta-
tus at the Organization of American States since 2004, and has established
dialogues with regional organizations such as Mercosur and the Andean
Community. However, the first regional summit between China and the
countries of the region, the China-CELAC (Community of Latin American
and Caribbean States) Forum, was not held until 2015.
Economic relations between China and LAC remained extremely limited
throughout the 1990s, but there has been dramatic growth since the start of
the twenty-first century. Initially this focussed on trade, but since the late
2000s, there has been an increased presence of Chinese companies through
foreign direct investment (FDI), construction and engineering projects, and
lending by Chinese banks. Acquiring raw materials has been a key part of
China’s involvement in Latin America, but it is by no means the only aspect.
The need to find new markets for Chinese goods has also been a factor in
the growth of Chinese exports to the region and of some FDI and loans. This
chapter describes the main characteristics of Sino-Latin American relations,
the main actors involved, and the drivers that have led to closer economic
links.
9.2 The Growth of Sino-Latin American Relations
China’s economic relations with LAC have taken a number of forms, all of
which have increased considerably since the start of the Millennium. This
section documents the growth of bilateral trade, foreign investment, and
projects undertaken by Chinese firms in the region, and loans and aid pro-
vided by China to LAC. The significance of China for LAC varies considerably
between the different kinds of relationships.
9.2.1 Trade
Trade is central to Latin America’s economic relations with China. In the late
1990s, total trade (imports plus exports) between China and Latin America
was only around US$5–8 billion a year. Bilateral trade grew dramatically from
the turn of the century, to reach more than $300 billion in 2019. Despite
setbacks at the time of the global financial crisis and again at the end of
the commodity boom, China’s imports from Latin America increased almost
sixty-fold, and exports to the region almost thirty-fold between 1999 and
2019 (see Figure 9.1).
Trade between China and Latin America has been relatively balanced
overall, in contrast with China’s deficit in trade with Sub-Saharan Africa
236
China’s Economic Expansion in Latin America and the Caribbean
US$ Bilions 200
150
100
50
0
96
98
00
02
04
06
08
10
12
14
16
18
19
19
20
20
20
20
20
20
20
20
20
20
–50
Imports Exports Trade Balance
Figure 9.1 China’s trade with Latin America, 1995–2019 (US$ Billion)
Source: UNCTADStat.
(SSA). When commodity prices fell after 2012, China enjoyed a trade surplus
with the region but this moved into deficit when prices began to recover
at the end of the decade. The overall picture hides substantial variations
between countries, with China running trade deficits with Brazil, Chile, Peru,
Venezuela, and Uruguay, while it has surpluses in trade with other Latin
American countries, particularly Mexico.
Trade between China and LAC is predominantly inter-industry trade, with
relatively little of the intra-industry trade in parts and components, which
characterizes flows within global value chains (GVCs) (Ortiz-Velásquez and
Dussel-Peters, 2016). LACs participation in GVCs is much lower than in other
regions such as the EU and Asia (OECD, 2016, p. 108).2 The region has not,
therefore, taken advantage of the possibility of more complex trade relations
with China that integration into GVCs could provide.
China’s imports from the region are dominated by primary products
and resource-based manufactures, while exports are almost entirely of non-
resource-based manufactures. China’s imports from LAC are more heavily
concentrated in primary products than those of the USA, the EU, and Japan
(Figure 9.2). The share of primary products in China’s imports from LAC has
2
Mexico is an exception because of its high integration with the USA as a result of NAFTA.
237
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
China Japan USA EU
Primary prods RBM Low tech Medium tech High tech
Figure 9.2 Shares of different products in imports from Latin America, 2017–19
Source: UNCTADStat
also increased in recent years.3 As a result, the growing share of the region’s
exports going to China has led to the ‘recommodification’ or ‘reprimariza-
tion’ of its export structure (Rosales and Kuwayama, 2012, pp. 92–107; Su,
2017, pp. 582–6).
Agricultural products, fuels, and minerals account for almost 90 per cent
of China’s imports from the region. The top products that China imported
from Latin America in 2017–19 were oil seeds (mainly soybeans), iron ore and
concentrates, petroleum, copper ores and concentrates, and refined copper,
making up more than two-thirds of total imports from the region. They are
all primary products or resource-based manufactures with a limited degree
of processing, such as refined copper.
Although the low level of processing of raw materials exported to China
and the very limited exports of manufactured goods partly reflects the fact
that Latin America’s comparative advantage is largely based on natural re-
sources, the higher share of such products in exports to China than to other
markets suggests that this is not the whole story. In fact Chinese policies to
promote manufacturing at home have made it more difficult for exporters
of processed products to access the market. One example of this is China’s
import of soybeans from Argentina. In the 1990s China promoted its own
crushing industry through a variety of incentives and protectionist policies,
3
The average share of primary products in Chinese imports from the region increased from
39 per cent in 2005–7 to 67 per cent in 2017–19, while the share of resource-based manufac-
tures (RBMs) fell from 44 per cent to 26 per cent over the same period (own calculation from
UNCTADStat data).
238
so that imports of soybean flour virtually ended, to be replaced by imports

of unprocessed soybeans (see Box 9.1).
There are success stories of Latin American exporters breaking into the
Chinese market. Wine exports from Chile to China are growing rapidly,
with exports from the leading producer Concha y Toro increasing from a few
hundred cases in 2000 to more than 16,000 in 2011 (Thomson, 2012). There
are also some cases of non-traditional exports from Latin America which oc-
cur within GVCs. These include integrated circuits from Costa Rica (until
Intel switched production to Asia) and Mexico, and engine parts from Brazil
and Mexico. However, these have not had a significant impact on the overall
pattern of trade.
One significant aspect of Chinese exports to Latin America is the way in
which they have diversified from low-tech manufactures to products that
are more sophisticated, so that medium-, and high-technology products are
now more significant than low-technology products. Chinese cars, comput-
ers, mobile phones, and machinery are becoming increasingly common in
the region.
Although Latin America is a relatively small trading partner for China
compared with the USA, EU, and China’s East Asian neighbours, the region
has increased its share of both Chinese imports and exports in recent years. In
the late 1990s, Latin America accounted for around 2 per cent of total imports
to China, but by 2019, this had increased to around 8 per cent (UNCTAD
Stat, n.d.). China’s dependence on Latin America is particularly significant
for certain key commodities: around a quarter of China’s imports of iron ore
and about two-thirds of its imports of copper ore come from Latin America.
The region (mainly Brazil and Argentina) also provides more than half of
China’s imports of soybeans4 .
Prior to China becoming a member of the World Trade Organization
(WTO), Latin America accounted for less than 3 per cent of Chinese ex-
ports. Since 2001, the region has increased in significance, and by 2012, it
accounted for more than 6 per cent of Chinese exports worldwide (UNCTAD
Stat, n.d.). Since 2012, the share of Chinese exports going to the region has
declined as growth in Latin America has slowed.
China is clearly more important to Latin America as a trade partner than
Latin America is to China. The share of Latin American exports going to
China rose from less than 2 per cent in the early 2000s to over 12 per cent
by 2019, while imports from China increased from just over 3 per cent to
around 18 per cent over the same period. China has overtaken the EU both
4
In 2018 and 2019 the region supplied three-quarters of China’s imports of soybeans following
a drop in Chinese imports from the United States as a result of the US-China trade war.
239
as a source of imports for the region, and as a destination for its exports. The
USA continues to be a more important market for Latin America than China,
but this partly reflects the close ties between Mexico and the Dominican
Republic-Central America Free Trade Agreement (DR-CAFTA) countries and
the USA.
As this suggests there are considerable variations in the extent of trade
linkages with China between individual countries. China accounts for more
than 15 per cent of imports in all the major LAC countries, although the
share is lower in Central American and Caribbean countries which rely
more heavily on the USA and neighbouring countries and several of which
still maintain diplomatic relations with Taiwan (Table A9.1). There are even
starker differences between countries in terms of their dependence on the
Chinese market for their exports. In the period 2017–19, exports to China
only accounted for more than 10 per cent of total exports for six countries
in the region: Chile, Peru, Brazil, Uruguay, Venezuela and Cuba (Table A9.1).
For Mexico and the Caribbean and Central American countries the share of
exports going to China was extremely low.

Chinese investment in Latin America is a relatively recent phenomenon. De-
spite the rapid expansion of trade relations during the first decade of the
twenty-first century, Chinese companies only began to invest in the region
on a significant scale towards the end of the decade in the aftermath of the
global financial crisis.
As noted when discussing Chinese outward FDI (OFDI) in SSA in
Chapter 6, the official Chinese data are problematic, and they underestimate
the true level going to countries in the region. In the case of Latin America,
a further source of confusion is that FDI figures sometimes quoted for the re-
gion include investment in Caribbean tax havens, particularly the Cayman
Islands and the British Virgin Islands, which between them account for over
90 per cent of the stock of Chinese FDI in the LAC area as a whole. These tax
havens are not included in the figures used here. According to the Chinese
Ministry of Commerce (MOFCOM) figures, the total stock of Chinese FDI in
LAC (excluding the Cayman and British Virgin Islands) at the end of 2019
was $18 billion (Figure 9.3).
This is a substantial underestimate of the real level of Chinese FDI in the
region. In 2010, Sinopec spent $7.1 billion acquiring a 40 per cent share
of the Spanish firm Repsol’s Brazilian operation. This was more than dou-
ble the total stock of Chinese FDI reported by MOFCOM at the end of
2010. SINOPEC’s investment was not included in the official Chinese figures
240
30,000
25,000
20,000
15,000
10,000
5,000
0
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
MOFCOM Flows MOFCOM Stock Monitor CGIT
Figure 9.3 Chinese OFDI in Latin America, 2003–19 (US$ Million)

Source: MOFCOM, 2020, Statistical Bulletin of China’s Outward Foreign Direct Investment; American
Enterprise Institute/Heritage Foundation, China Global Investment Tracker; Dussel Peters (2020b).
because it was made through a Sinopec subsidiary in Luxembourg, rather

than by the parent company.5
Estimates of Chinese FDI in the region based on media announcements
give much higher figures. ECLAC estimates that China invested US$7.3
billion in the region between 1990 and 2009, and a further $63.5 billion
between 2010 and 2015 (Perez-Ludena, 2017, Table 2). Another recent es-
timate put total Chinese investment in LAC between 2000 and 2019 at
US$135 billion (Dussel Peters, 2020b, Table 2). The American Enterprise In-
stitute (AEI)/Heritage Foundation China Global Investment Tracker database
reports US$130 billion of Chinese investment in the region between 2005
and 2019.6 Figures based on media reports tend to inflate aggregate FDI be-
cause not all announced projects are actually implemented, and when they
are, they may be scaled back. Nevertheless, these figures do confirm that the
official MOFCOM figures underestimate the true level of Chinese investment
in the region.
How significant is Latin America as a destination for Chinese FDI? If one
compares the MOFCOM figures with the global stock of Chinese outward
investment, Latin America accounted for less than 1 per cent of the total in
5
A study by the Brazilian Central Bank estimated that around 90 per cent of investment by Chi-
nese firms in Brazil between 2010 and 2016 was made through third countries and not therefore
included in the MOFCOM figures (BCB, 2018, Figure 14).
6
China Global Investment Tracker, available at: http://www.aei.org/china-global-investment-
tracker/ (accessed 18 October 2016).
241
2019. Even if Hong Kong is excluded from the total, Latin America’s share
of China’s total FDI stock only came to less than 2 per cent (own calculation
from MOFCOM data).7 This may well underestimate the true significance
of the region if a high proportion of Chinese FDI comes via other coun-
tries. According to the China Global Investment Tracker, over 10 per cent of
cumulative Chinese investment between 2005 and 2020 was in LAC.
How does the level of Chinese investment in Latin America compare to
other sources of inward investment to the region? Despite large recent in-
flows, China’s share of total inward investment in Latin America remains
low. Recent estimates suggest that, based on official figures, China accounted
for less than 1 per cent of the stock of FDI in the region (Table A9.1). Even
taking the higher unofficial estimates of Chinese FDI, the share of China in
inward investment in recent years has only been around 5–6 per cent of total
inflows (ECLAC, 2015, p. 36). Dussel Peters (2020b, Table 1) estimates that
China accounted for 6 per cent of total FDI in the region between 2011 and
2019 rising to around 8 per cent towards the end of the period.8 This still
means that it is a relatively minor player compared to the EU and the USA
(40 per cent and 25 per cent of the total, respectively; ECLAC, 2013, p. 11).
Not surprisingly, the most important destination for Chinese OFDI in LAC
has been Brazil which accounts for between a third and a half of invest-
ment in the region.9 Other major destinations for Chinese firms are Peru,
Argentina and Venezuela.10 Chile has also recently become an important
area for investment. Mexico, the second largest economy in the region how-
ever receives relatively little Chinese OFDI, relative to its overall economic
importance, although it is expected to grow in future (Dussel Peters, 2019).
Colombia too has received relatively less Chinese investment than other
LAC countries (Velosa, 2019). The country with the highest share of Chinese
OFDI in its total stock of inward investment in 2019 is Venezuela which has
seen a substantial drop in investment from other sources since 2011. Several
resource-rich Caribbean countries such as Guyana, Jamaica, Suriname, and
7
In 2019 the stock of Chinese FDI in two Caribbean tax havens, the Cayman Islands and the
British Virgin Islands, came to US$418 billion, accounting for almost a fifth of the total world-
wide. Since these are unlikely to be the final destinations of Chinese FDI, there is an argument
for excluding them from the comparison with investment in Latin America.
8
Another estimate indicates that China accounted for 6.7 per cent of total FDI in LAC between
2015 and 2019 (own calculation from Ray and Barbosa, 2020, Figure 10).
9
According to Red ALC Brazil accounts for 36 per cent of cumulative investment in the re-
gion between 2000 and 2019, while the corresponding figure for CGIT is 52 per cent. The official
MOFCOM figure for the share of the stock of OFDI in the region at the end of 2019 is lower
at 22 per cent, but as mentioned earlier these official figures vastly underestimate the extent of
investment by Chinese companies in Brazil.
10
For more details on Chinese OFDI in individual Latin American countries, see Dussel Peters
(ed.), (2019) and the special issue of the Journal of Chinese Political Science (Blanchard (ed.), 2019).
242
Trinidad and Tobago also have relatively high shares of Chinese investment
compared to the rest of the region (see Table A9.1).
The bulk of Chinese investment in Latin America has been in natural re-
source sectors. In the period up to the Global Financial Crisis over 90 per cent
of investment was in raw materials but since then there has been diversifi-
cation into other sectors, particularly manufacturing and utilities. Although
three-quarters of cumulative investment up to 2012 was still in resource sec-
tors, this fell to less than half between 2013 and 2019.11 This is still much
higher than the region’s FDI from other countries as only a quarter of all FDI
in the region was in resources (ECLAC, 2015, p. 37). The most significant sec-
tor in terms of Chinese OFDI in Latin America is metals, which accounted
for more than a quarter of all Chinese investment announced in the re-
gion between 2005 and 2020, according to the AEI/Heritage Foundation. The
other major sector for investment is oil and gas, which accounted for almost
20 per cent of total Chinese investment in the region in 2005–20.12
All of these studies are based on information collected from published
databases and media reports, and they only include large-scale investments
and, thus, overestimate the share of extractive industries by failing to capture
some smaller investments, particularly those by private firms. However, these
are unlikely to change the general picture that emerges: that Chinese invest-
ment in Latin America has been heavily oriented towards resource extraction
despite recent diversification into manufacturing and utilities and services.

Chinese construction and engineering projects, which are not regarded as
FDI, grew rapidly from the time of the Global Financial Crisis to 2015. The
economic slowdown in the region in the second half of the decade led to
a drop in Chinese activity and the cancellation of a number of projects.13
Both the official data on projects completed and unofficial figures based on
announcements show a similar pattern (Figure 9.4).14
11
Own calculation from Red ALC-China database, available at https://www.redalc-china.org/
monitor/informacion-por-pais/busqueda-por-pais (accessed 16 March 2020).
12
Own calculation from American Enterprise Institute/Heritage Foundation, China Global
Investment Tracker, available at: https://www.aei.org/china-global-investment-tracker/ (accessed
27 November 2020).
13
Two major high-speed rail projects were cancelled in Venezuela and Mexico. The project to
build a canal in Nicaragua between the Caribbean and the Pacific has also been stalled.
14
Unlike the case of OFDI where the official Chinese figures are substantially lower than those
provided by unofficial sources based on media and other sources, the official figures for contracted
projects are larger than the two alternative estimates that are available. It is more than double
the corresponding figure from the China Global Investment Tracker database for the same period
and 80 per cent greater than that provided by the Monitor de la Infraestructura China en America
243
25,000
20,000
15,000
10,000
5,000
0
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
NBS CGIT Red-ALC
Figure 9.4 Chinese contracts in Latin America, 2005–19 (US$ million)

Source: National Bureau of Statistics of China; American Enterprise Institute/Heritage Foundation,
China Global Investment Tracker; Dussel Peters (2020a).
Despite considerable growth, Chinese infrastructure projects are much

less significant in Latin America than in SSA. The total value of completed
contracts in Latin America between 2005 and 2019 came to $132 billion com-
pared to over $400 billion in SSA over the same period, according to the
Chinese National Bureau of Statistics. Chinese construction companies face
greater competition from regional rivals in LAC than in SSA.
Venezuela has been the most significant market for Chinese contractors
in the region over the period, despite falling off recently in the face of the
economic crisis in that country. The other main countries in terms of con-
tracts have been Argentina, Brazil, and Ecuador.15 Towards the end of the
decade Bolivia also became an important destination for Chinese infras-
tructure companies. When looked at in terms of the value of contracts per
Latina. This suggests that the official figures are more comprehensive than those collected from
media announcements.
15
For more details, see the case studies on Argentina (Stanley, 2018). Brazil (Hiratuka, 2018)
and Ecuador (Garzón and Sastro, 2018) .
244
Other
7%
Transport
Other Energy 28%
16%
Oil
4%
Coal Construction
5% 8%
Utilities
Gas
Hydro 1%
5%
23% Agriculture
2%
Technology
1%
Figure 9.5 Sectoral distribution of the value of Chinese project contracts in LAC,
2005–20
Source: American Enterprise Institute/Heritage Foundation, China Global Investment Tracker
capita, the highest levels are in Caribbean countries with small populations
(Bahamas, Antigua and Barbuda, and Dominica). Other countries with rel-
atively high levels ((over $1000 per capita between 2005 and 2018) include
Ecuador, Guyana, Jamaica, Suriname, Trinidad and Tobago, and Venezuela,
all of which are oil or mineral rich (Table A9.1).
According to the China Global Investment Tracker, and the Monitor of Chi-
nese Infrastructure Investment in Latin America, energy has been the most
important sector for contracts in the region, followed by transport.16 Be-
tween them, these account for over 80 per cent of the total between 2005
and 2019. Although energy accounts for more than half of the value of con-
tracts, the most important subsector is hydropower. Oil and gas together
account for less than 10 per cent of the total (Figure 9.5). The main sector for
transport contracts is railways, with large deals in Venezuela and Argentina.
As was seen earlier, LAC is far less important for China as a location of
construction projects than Asia or Africa (Figure 4.2). At its peak in 2015 the
region accounted for 10 per cent of the value of projects completed abroad by
China, but since then its share has fallen to around 8 per cent (NBS database).
This makes it slightly more important for China relative to other regions than
exports of goods to LAC in recent years. In absolute terms however, the total
16
Unfortunately the official Chinese figures on economic cooperation do not give a breakdown
by sector.
245
value of Chinese exports to the region in the late 2010s was more than ten
times the annual revenue from completed contracts (see Figures 9.1 and 9.4).
There are no comprehensive data on the share of all infrastructure projects
in LAC that are built by Chinese firms, but there are indications that this has
increased significantly in recent years. Figures for the largest 250 interna-
tional contractors show that the share of Chinese firms in the region almost
doubled from 12.9 per cent in 2014 to 23.7 per cent five years later (ENR,
2015, p. 40; ENR, 2020, p. 40). China still lags well behind Europe which
accounted for 60 per cent of the value of international contracts in LAC in
2019.
There are expectations that the invitation to participate in the Belt and
Road Initiative (BRI) that was extended to LAC countries at the China-
CELAC Ministerial Forum in Santiago in January 2018 will boost Chinese
involvement in infrastructure in the region. There is some evidence that an-
nouncements of infrastructure projects in the region has picked up, although
it is not clear whether this was a result of countries signing up to the BRI
(Jenkins, 2021).
9.2.4 Chinese Loans and Aid

As noted in Chapter 6, China does not publish data on official financial flows
on either a country or a regional basis. A recently developed database has put
together information on loans provided by the Exim Bank, and the China
Development Bank (CDB) to LAC governments and state-owned enterprises
annually.17 This estimates that between 2005 and 2019, these institutions
lent a total of around US$140 billion to LAC. This does not cover all Chinese
lending to the region since the Chinese commercial banks have also started
lending in recent years.18
Chinese lending was minimal before 2007 but became substantial at the
time of the global financial crisis (Figure 9.6). At its peak in 2010, Chinese
lending to Latin America was significantly greater than that of either the
World Bank or the IADB, while China’s Exim Bank has lent more than four
times as much as the US Exim Bank in Latin America since 2005 (Gallagher
et al., 2012, p. 7). Although lending declined after 2010, it peaked again in
2015.
A second indicator of China’s financial involvement in LAC is the total
outstanding sovereign debt of the region to China. A recent study by Horn
et al. (2019) has estimated the total indebtedness of countries to China and
17
The Inter-American Development Dialogue China-Latin America Finance Data Base is avail-
able at: http://www.thedialogue.org/map_list (accessed 1 December 2020).
18
See Bilotta (2018) and Ugarteche and de Leon (2019) on the growth of the Chinese state-
owned commercial banks, ICBC, BOC, and CCB in LAC.
246
120,000
100,000
80,000
60,000
40,000
20,000
0
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
New Loans Debt to China
Figure 9.6 Chinese loans and debt in Latin America, 2005–19 (US$ Million)
Source: China-Latin America Finance Data Base; Horn et. al. (2019).
Figure 9.6 shows the total for LAC extracted from their database. This shows
that debt grew from very low levels in the middle of the first decade of the
twenty-first century to almost $110 billion in 2016.19
In addition to bilateral lending China also created several regional funds in
2015 and 2016: The China-Latin American Production Capacity Cooperation
Investment Fund of $30 billion, the Special Loan Program for China-Latin
America Infrastructure Projects for $20 billion and the China-LAC Coopera-
tion Fund of $10 billion.
Chinese loans to Latin America were dominated by one country,
Venezuela, which received 45 per cent of the total loans provided to the
region between 2005 and 2019, despite having received no new loans
since 2016; and four countries together—Venezuela, Brazil, Argentina, and
Ecuador—accounted for over 90 per cent of the total.
Looked at from the LAC side, Venezuela and Ecuador, as well as some of
the small Caribbean countries that have hosted significant Chinese projects
(Antigua and Barbuda, the Bahamas, and Dominica) and Jamaica are the
countries that are most heavily indebted to China. In each case the estimated
debt to China in 2017 came to more than 10 per cent of GDP (Table A9.1).20
Over 40 per cent of all Chinese loans to Latin America were classified as
being for infrastructure, while over a third went to the energy sector.21 It
should not be assumed that all the loans for energy were related to China’s
19
This is less than the total amount of loans extended by the Chinese policy banks as reported
China-Latin America Finance Data Base since some of the loans have been repaid or written off.
20
For more details on individual countries see Zapata Rosso (2019) on Bolivia. Castro Salgado
(2019) on Ecuador, Piña (2019) on Venezuela and Minto (2019) on the Caribbean.
21
Own elaboration from the Inter-American Dialogue database. The on-line version of the
database shows a much higher share of energy in total lending, but this appears to be because
247
demand for resources since a significant share was to finance local electricity
generation and transmission. Less than 2 per cent of all loans went to the
mining sector. As in SSA, more than half of Chinese loans to Latin America
were commodity backed, particularly in Venezuela and Ecuador (Brautigam
and Gallagher, 2014, Table 1). Both Venezuela and Ecuador are regarded as
high-risk countries, and they have low credit ratings, so ensuring repayment
through commodity exports helps to reduce the risk for Chinese lenders.
Because many Latin American countries are classified as middle income,
they have not been major recipients of aid. According to China’s State Coun-
cil, LAC accounted for only 12.7 per cent of Chinese aid funds in 2009 and
8.4 per cent in 2010–12. Based on the earlier estimates of global Chinese aid,
this would only amount to around US$430 million in 2008. More recently
it has been calculated that Chinese aid to the region came to $560 million
in 2013, representing about 7 per cent of total aid flows to the region and
making China the fifth-highest-ranked donor (Stallings, 2017, Table 4.2).
It is clear that only a small proportion of Chinese financial flows to the
region can be classified as ODA. Although total financial flows from China
to Latin America in recent years have been roughly similar to those to Africa,
its aid flows to the region are less than a sixth of the level of Chinese aid to
Africa.
9.3 Key Actors in China-Latin American Relations
Latin America plays a less significant role in China’s foreign policy than
Africa does. China’s Ministry of Foreign Affairs (MOFA) issued its first policy
paper on Latin America in 2008, two years after producing the equivalent
document on Africa (PRC, 2008). Much of the paper is concerned with eco-
nomic relations. A second policy paper published in November 2016 also
emphasized economic relations (PRC, 2016). Although diplomatic relations
are formally channelled through MOFA, economic relations have largely
been driven via the policy banks and major state-owned enterprises (SOEs).
Economic relations between Latin America and China involve a number
of different actors (Dussel Peters and Armony, 2015; Creutzfeldt, 2017). Ex-
ports are dominated by a number of large companies, including some Latin
American SOEs such as CODELCO in Chile and PDVSA in Venezuela, large
private Latin American companies such as Vale in Brazil, and major transna-
tional corporations such as Cargill, BHP-Billiton, and Rio Tinto, as well as
Chinese-owned oil and mining companies. These companies are responsible
energy-backed loans are classified under energy, even though the loan does not go to the energy
sector.
248
for the Latin American exports of oil, minerals, and soybeans that account
for the bulk of all exports to China.
The actors involved in importing from China are more diverse. They in-
clude major transnational corporations such as LG, Samsung, and Dell, who
supply their Latin American subsidiaries from China. They also include ma-
jor department stores and retail chains in the region that rely on imports of
Chinese consumer goods. Chinese companies such as Lenovo and Huawei
export to Latin America on a significant scale. There is also an important
informal market for imported consumer goods from China in many Latin
American countries, often involving contraband goods which may have
been illegally produced.22 The main Chinese investors in Latin America are
SOEs. Dussel Peters (2020b, Table 5) estimates that three-quarters of the total
amount invested by Chinese firms in the region between 2000 and 2019
came from SOEs. Although private firms accounted for more than half of all
cases, they operate on a much smaller scale than investing SOEs. They have
however increased their share of total investment to about a third in recent
years.
The companies with the largest investments in the region are Sinopec,
the China National Offshore Oil Corporation (CNOOC), the China National
Petroleum Corporation (CNPC), State Grid, and Three Gorges Corporation
(Dussel Peters, 2020b, Table 7), all of which are owned by the central gov-
ernment. Sub-national SOEs such as Shougang Iron and Steel, controlled
by Beijing municipality, and Tongling Nonferrous Metals, owned by Anhui
province, have also made significant investments in the region (Gonzalez-
Vicente, 2012). Some private Chinese firms have also invested in Latin
America on a smaller scale.
A growing number of Latin American firms has invested in China. These
include food producers such as the Mexican Bimbo and Gruma Groups
and Marfrig from Brazil; companies such as the Brazilian aircraft manufac-
turer, Embraer, and electrical motor manufacturer, Weg; and the Argentinean
firm Tenaris, which produces steel tubes (IADB, 2012, 2014). Although the
amount of investment involved is far smaller than China’s OFDI in Latin
America, it does mean that some firms in the region have a direct inter-
est in relations with China over and above those that are purely trade
related.
To an even greater extent than Chinese FDI, project contracts in Latin
America are dominated by central SOEs which accounted for 98 per cent of
the total value announced between 2005 and 2019 (Dussel Peters, 2020a,
p. 10). The top five Chinese companies involved in the period were the
22
See for example Gomez-Aguiar (2012) on Mexico’s extensive imports of Chinese CDs and
Ǿdegaard (2017) on Chinese clothing imports in Peru.
249
China National Nuclear Corporation, the Power Construction Corporation

of China, China Communications Construction Company, China Energy
Engineering Group and China Railway Construction Company, all of which
are centrally owned. Between them these five companies were responsible for
more than two-thirds of the value of contracts signed (Dussel Peters, 2020a,
Table 5). Only two out of a total of 86 projects listed were carried out by
private firms that only began to become involved after 2015.
In contrast to the situation in SSA, where China’s main lender has been the
Exim Bank, the CDB has led the way in Latin America.23 In addition to the
two policy banks, the Industrial and Commercial Bank of China (ICBC) has
also lent to the region.24 Unlike the Exim Bank, the CDB does not give aid,
and much of its lending has been to Latin American SOEs such as Petróleos de
Venezuela, S.A. (PDVSA) in Venezuela, and Petrobras in Brazil.25 As already
noted, Chinese aid (narrowly defined) is very limited in Latin America, so
there is little direct involvement by government ministries such as those for
health or agriculture in China’s relations with the region.
Table 9.1 summarizes the main types of actors involved in the various eco-
nomic relations between China and LAC. The table distinguishes between
public and private-sector actors and highlights the pervasive role of Chi-
nese state actors including central SOEs, provincial and municipal SOEs,
the policy banks, and the state-owned commercial banks.26 The private
sector is mainly involved in trade, and this includes LAC and transnational
companies, as well as some Chinese manufacturers and traders.
9.4 Chinese Interests in Economic Engagement in Latin America
As elsewhere, China’s economic relations with Latin America can be analysed

in terms of the strategic political and economic interests of the Chinese state
and the commercial objectives of Chinese firms. Most analysts of Sino-Latin
23
Gallagher et al. (2012, p. 5) estimates that the CDB accounted for 82 per cent of loans made
by Chinese banks up to that time, whereas the Exim Bank’s share was only 12 per cent. Data from
the Inter-American Dialogue database that are more recent show a lower share for the CDB and
an increase in loans from Exim Bank and other lenders.
24
Its share, according to Gallagher et al. (ibid.) came to 6 per cent.
25
For more information on the Chinese policy banks’ involvement in Latin America, see
Sanderson and Forsythe (2012, Chapter 4), Downs (2011, Chapter 2), Song (2019) and Hernández-
Cordero (2019).
26
See Dussel Peters (2015) for a discussion of the omnipresent role of China’s public sector in
relations with LAC.
250
Table 9.1. Key actors in Sino-LAC economic relations
Public Sector Private Sector
Exports to China LAC SOEs (CODELCO; PDVSA) Extractive TNCs (Vale; BHP-
Billiton)
Chinese SOEs (CNPC; Sinopec) Agribusiness TNCs (Bunge;
Cargill)
Imports from China LAC governments and SOEs Manufacturing TNCs (Dell; Sam-
Chinese SOEs sung) Chinese manufacturers
(Huawei) LAC retailers
(Falabella) Individual traders
Chinese FDI in LAC Central SOEs (CNPC; State Grid) Large Chinese firms (Huawei;
Sub-national SOEs (Shougang; Geely) (minor role)
Tongling)
LAC FDI in China LAC Translatinas (Bimbo;
Embraer)
Projects Chinese SOEs (Power Construc- Insignificant
tion Corporation of China; China
Communications Construction
Company)
Loans Chinese Policy Banks (CDB) Chi- None
nese State Commercial Banks
(ICBC)
American relations consider China’s interest in the region to be primarily

economic and commercial rather than political. However, there are those,
particularly in the USA, who see China’s growing economic relations with
Latin America as part of a broader geopolitical strategy to challenge US hege-
mony and bring about a multipolar world.27 In this view, ‘markets and raw
materials are only part of the attraction that Latin America holds for Beijing
. . . the larger and arguably more important motivation of Beijing’s strategy
is geopolitical, not economic’ (Dreyer, 2006, pp. 1–2).
This section considers the relative importance of the various factors that
have contributed to the growth of China’s economic relations with Latin
America.
9.4.1 Strategic Diplomatic Objectives

Latin America presents China with a rather different situation from SSA in
terms of its political interests in the two regions. Whereas SSA has not been
subject to a single hegemonic external power, the USA has played this role in
Latin America and the region is often referred to as ‘Uncle Sam’s backyard’.
27
This is part of a broader debate in international relations on whether China is a status quo
power or a revisionist power, and how far it is seeking to change the global order. See Shambaugh
(2013, Chs 3 and 4); Struver (2014).
251
This has made China’s growing relations with Latin America a particular con-
cern in the USA, and has made China cautious in its involvement in the
region.
Some authors have identified competition with the USA as one of China’s
key objectives in expanding its presence in Latin America (see Ellis, 2009,
Chapter 2; Johnson, 2005). Some claim that since 9/11, the USA has tended
to neglect Latin America, which has created a vacuum that China has moved
in to fill (Urdinez et al., 2016). It has also been argued that China sees
a growing presence in the USA’s ‘backyard’ as a means of countering the
US presence in East Asia (Yu, 2015). This implies that China will partic-
ularly focus its economic engagement on those countries which are most
opposed to US influence in the region, such as Venezuela, Ecuador, and
Bolivia. This view is particularly prevalent amongst neo-conservatives, who
regard China’s growing involvement as a strategic threat to US interests in the
region.28
This view of the ‘Chinese threat’ to the USA contrasts sharply with one
that sees China’s growth in Latin America as driven by strategic economic
and commercial concerns and plays down the significance of geopolitical
considerations. Chinese scholars stress that China recognizes Latin America
as a US sphere of influence and has been very careful to avoid antagonizing
the USA by allying itself too closely with Latin American governments that
are hostile towards the USA (Shixue, 2008).
This is consistent with the view, attributed to Deng Xiaoping, that China
should keep a low profile in international affairs,29 and corresponds closely
to the official view of the Chinese government, which emphasizes China’s
‘peaceful rise’30 and a ‘harmonious world’.31
Most non-Chinese commentators share the view that China’s increasing
economic relations with Latin America are not primarily politically moti-
vated, and that closer political relations with China are a consequence rather
than a cause of China’s growing economic involvement (Trinkunas, 2016).
The pattern of Chinese trade and investment in Latin America is consistent
with China’s emphasis on national sovereignty and non-interference in the
internal affairs of other countries, which means that it is willing to do busi-
ness with a range of different regimes. It has developed strong economic links
28
See Sun (2012) for a Chinese perspective on US views of the threat posed by China.
29
The terminology used was that China should ‘bide its time, hide its brightness, not seek lead-
ership, but do some things’. At the 2010 annual meeting of China’s Association of International
Relations participants agreed to nine principal policy recommendations, amongst them ‘Do not
confront the United States’ and ‘Do not be the chief of the “anti-Western camp”’ (Shambaugh,
2013, pp. 19–20).
30
The term ‘rise’ was regarded as too threatening and was replaced by ‘development’ in
government terminology (ibid., p. 21).
31
Ibid., p. 25.
252
with countries such as Chile and Peru, which are friendlier towards the USA,
as well as with countries that have been critical of US imperialism, such as
Venezuela and Ecuador.32 It has also been careful to maintain relations with
Latin American countries even when their governments change from left
to right of centre, as occurred in Argentina when President Macri replaced
Christina Fernandez de Kirchner in 2015.
One area where there is clear evidence that political factors have played
a key role in determining economic engagement is in relation to Taiwan.
Countries that recognize Taiwan obtain much less OFDI and virtually no
loans from China, although the lack of diplomatic relations does not have a
significant impact on trade flows with China (Piccone, 2016, Figure 2).
Competition with Taiwan to obtain diplomatic recognition under its
One China Policy was a consistent feature of Chinese foreign policy up
to 2008 and was particularly intense in Central America, which has the
largest concentration of countries of any size which still recognize Taiwan
(Aguilera-Peralta, 2010). In 2007, Costa Rica broke off relations with Tai-
wan and established them with the PRC. As a result, China bought US$300
million of Costa Rican government bonds and provided US$20 million in
aid for reconstruction after major flood damage occurred.33
Between 2008 and 2016, when there was an informal truce between Bei-
jing and Taipei, there were no further switches of diplomatic allegiance.
With the return of Taiwan’s Democratic Progressive Party to power in 2016,
the PRC renewed its effort to get more countries to switch recognition, and
Panama broke off relations with Taiwan and recognized Beijing in 2017, fol-
lowed by the Dominican Republic and El Salvador in 2018, and Nicaragua in
2021. It is likely that other countries in the region will also establish relations
with the PRC in the foreseeable future. It seems, however, that in recent years,
diplomatic relations are no longer a prerequisite for Latin American countries
to have economic relations with China. This is most dramatically illustrated
by the planned construction by the Hong Kong Nicaragua Canal Devel-
opment Investment Company (HKND) of the inter-oceanic canal through
Nicaragua, which still had diplomatic relations with Taiwan at the time.
32
Although the close economic links between China and Venezuela might seem to support
the view that China is motivated by a desire to back a regime that is hostile to the USA, in fact
it was the Chavez government that sought support from China, which was reluctant to respond
out of a concern about provoking a confrontation with the USA (Corrales, 2010).
33
Taiwan responded by offering additional aid to two of its allies in the region, Guatemala and
Nicaragua (Aguilera-Peralta, 2010, p. 177).
253

The Chinese government’s most important economic objective in Latin
America is to ensure a secure supply of resources, particularly oil and minerals
(Zheng et al., 2012, pp. 11–13). Latin America is also important to China in
terms of its strategy for food security, since it is a major supplier of soybeans,
which are used as animal feed. As noted earlier, oil, minerals, and agricul-
tural products have accounted for almost 90 per cent of China’s imports from
Latin America in recent years.
Although raw materials are clearly important in terms of Chinese im-
ports from Latin America, this does not necessarily indicate that China’s
involvement is driven by strategic concerns over resource security rather
than commercial considerations that reflect comparative advantage. Oil is
strategically the most important commodity from China’s point of view.
Although access to minerals is critical for particular industries such as steel
and electronics, the significance of oil is all pervasive through its role in
energy supplies and transport. Food security is also a crucial objective for
China, and while imports play a part, it is mainly achieved through domestic
production.
The clearest evidence of a strategic economic interest in the region can be
found in the case of oil. Although oil does not constitute a major part of Latin
America’s exports to China, the region has helped to diversify its sources of
supply, increasing its share of Chinese imports from less than 1 per cent in
2003 to 8 per cent in 2011 (Camus et al., 2013, Figure 4.6).
The two main strategies for increasing control of supply are through di-
rect ownership by Chinese SOEs and the use of long-term contracts for the
supply of resources in return for Chinese loans. As noted earlier, Chinese
FDI in Latin America has been concentrated in oil and minerals. However,
two factors limit the extent to which FDI is helping to secure supplies for
the Chinese market. First, the total production of oil by Chinese companies
in LAC is only a fraction of Chinese imports from the region. Second, not
all of the resources owned by Chinese companies find their way to China. In
Venezuela, for example, it is estimated that 50 per cent of the oil obtained by
Chinese companies does not go to China, most of it being sold to the much
closer US market, which is more profitable for the companies (Hogenboom,
2014, p. 636).34
China has made a number of oil-backed loans to Venezuela, Brazil, and
Ecuador in recent years. The total amount lent in such deals between 2007
and 2011 came to US$47 billion (Brautigam and Gallagher, 2014, Table 1).
34
Sanderson and Forsythe (2012, Chapter 4), suggest that part of the oil obtained by Chinese
companies in Brazil and Ecuador is sold on the world market rather than being exported to China.
254
The exact amount of oil supplied under these agreements is not generally
published, but in the case of Ecuador it has been reported that they cover
90 per cent of oil exports (Ruiz, 2016). As in the case of ‘equity oil’ owned by
Chinese companies, this is not a guarantee that oil obtained in this way will
be shipped to China.
In the case of copper, diversification of sources of imports to China has
seen Latin America’s share decline, mainly as a result of a fall in Chile’s share,
while those of Peru and Mexico have increased, contributing to increased
diversification (Camus et al., 2013, Figure 4.11). There is less evidence of
diversification in the case of iron ore imports to China.
There has been some investment by Chinese mining companies in Latin
America, but there is no evidence that this has been part of a strategic plan
by the Chinese state to secure supplies. The desirability of OFDI as a means
of overcoming resource insecurity is controversial in China. While some pol-
icy thinkers see it as a major motive for investing in foreign mines, others
argue that it is a high-risk strategy. A PRC State Council report in 2004
points to the risks of acquiring poor quality resources, unexpected changes
in host government policy, social instability, and macroeconomic problems
(quoted in Koch-Weser, 2014, p. 14). In contrast to oil, there have been
no reported mineral-backed loans in the region, suggesting that strategic
economic concerns have not been a significant factor.
Three countries supply the bulk of China’s soybean imports: Argentina,
Brazil, and the USA. There has been little diversification of supply, but
imports from Latin America help ensure that China does not become overly
dependent on the USA for a key input required to ensure food security. With
growing demand in China, the government has had a clear strategic interest
in expanding imports of beans from Latin America. Purchases and leasing of
land by Chinese firms in the region have been very limited, and what there
is does not necessarily contribute to food security in China (Jie and Myers,
2017); nor are there any reported loans backed by agricultural products in
the region.
The corollary of the view that China’s strategic objective in Latin America
is to secure supplies of raw materials is the concern that has been expressed,
particularly in the USA, that China is seeking to ‘lock up’ the region’s re-
sources. However, most experts agree that this is not happening (Kotschwar
et al., 2012). Latin America’s main contribution to China’s resource security
is allowing it to diversify its oil supplies, reducing its dependence on the
Middle East.
A second strategic economic objective for China is to obtain markets
for its exports and reduce its reliance on the North American and Euro-
pean markets, particularly in the aftermath of the global financial crisis.
255
Although Latin America only accounts for 6 per cent of China’s total exports,
it contributed 10 per cent to the growth of Chinese exports between 2007
and 2012, as demand for Chinese goods in Europe and North America was
affected by the crisis (UNCTADStat, n.d.). The region has also acquired in-
creased significance as a result of the trade war between China and the
USA.
When China joined the WTO in 2001, many Latin American countries
did not grant it market economy status, which made it easier for them to
take anti-dumping measures against Chinese exports. Obtaining this sta-
tus became an important aim in Chinese economic diplomacy, and several
countries, including Argentina, Brazil, Chile, and Peru, agreed to recognize
China as a market economy during President Hu Jintao’s visit to the region
in 2004. China has also signed free trade agreements (FTAs) with three
Latin American countries, Chile, Peru, and Costa Rica, improving Chinese
exporters’ access to their markets.
Chinese loans to Latin America have also been used to promote exports
through directly tying them to Chinese goods or denominating part of the
loan in Renminbi (RMB), which can only be used in China. In Venezuela, for
example, loans have been used to import machinery from the XCMG Con-
struction Machinery Company (Sanderson and Forsythe, 2012, p. 137). In
2010 the Venezuelan government signed a contract to buy 300,000 house-
hold electrical appliances for low-income households from the Chinese firm
Haier.
A third objective has been to build up Chinese companies so that they
can compete on an international scale against Western multinationals. This
provides a further motive for supporting the expansion of large Chinese com-
panies in Latin America as part of the Go Global strategy. A large part of
the loans provided by the Chinese government has gone to fund projects
that are carried out largely by Chinese construction and engineering com-
panies. In Venezuela, for example, an ICBC oil-backed loan in 2012 was
used for 20,000 units of social housing built by CITIC Group (Sanderson and
Forsythe, 2012, p. 137).
Finally, China has used mercantilist policies to ensure that imports from
the region tend to be in unprocessed form. This is reflected in the structure
of exports from the region to China, which include a larger share of primary
products than Latin American exports to other markets (see Figure 9.2). This
is partly due to the Chinese government’s strategy of promoting downstream
value-added activities in China and importing raw materials in unprocessed
form. The experience of the Argentine soya industry illustrates this, as shown
in Box 9.1.
256
Box 9.1 ARGENTINA AND CHINA: THE SOYBEAN CONNECTION
Soybeans have been described as ‘one of the most essential inputs in the global food
industry’ (Turzi, 2017, p. 170). Soybeans are processed in crushing plants to produce
oil and soybean meal. The latter has a high concentration of protein and is widely used
as feed in intensive livestock farming. It can also be processed into products for human
consumption, such as soy flour, soy sauce, and tofu, as well as being used as a meat
substitute in a variety of vegetarian foods. Soybean oil is the world’s most commonly
used edible oil.
Chinese imports of soybeans have grown rapidly since the mid-1990s. In 1995
China was essentially self-sufficient in soybeans, but since then, domestic consumption
has risen five-fold while production has remained unchanged (Turzi, 2017). Increased
demand in China has been driven by the improvement in living standards, which has
led to growing consumption of meat and, hence, the need for animal feed derived
from soybeans.
Argentina is the third-largest producer and exporter of unprocessed soybeans in
the world after the USA and Brazil, and the largest exporter of soy oil and soy meal
(Oviedo, 2015, p. 119). Soybeans and soybean oil account for more than two-thirds of
all Argentinean exports to China (ibid., Table 3). Argentina is the third-largest supplier
of soybeans to China after the USA and Brazil. China accounts for more than 80 per
cent of Argentina’s total soybean exports. However, despite being the world’s largest
exporter of soybean oil and meal, less than 20 per cent of Argentina’s oil and none of
its soybean meal are exported to China (ibid., Table 1).
This pattern of trade, in which Argentina’s exports to China are concentrated on un-
processed soybeans, was not always the case. In the late 1990s, processed soybeans
(oil and meal) accounted for a much greater share of Argentinean exports than un-
processed beans. Since the start of the millennium, however, the reverse has been the
case, with crude soybeans accounting for the bulk of exports, and soy meal exports
disappearing altogether (López et al., 2010, Table 19; Oviedo, 2015, Table 1).
This change came about as a result of the decision by the Chinese authorities in the
late 1990s to promote a local oilseed crushing industry through a variety of incentives.
As a result there was substantial investment in new plants in China, particularly in
coastal areas, to provide access to imported soybeans (López et al., 2010, pp. 17–18).
Some of these plants were established by the same major grain multinationals that
own processing plants in Argentina, such as Bunge, Cargill, and Louis Dreyfus. As a
result China was able to become largely self-sufficient in soybean meal, although it
continues to import some soy oil.
Argentina’s dependence on the Chinese market was brought into sharp relief when
the Chinese government banned imports of Argentinean soy oil in 2010. While the
stated reason was a failure to meet phytosanitary standards, the Chinese action was
widely seen as a response to restrictions on Chinese imports that had been put in place
by the Argentinean government.
9.4.3 Commercial Objectives

The commercial objectives of Chinese firms are not entirely separate from
the strategic economic objectives of the Chinese state. Indeed, government
257
policies are often intended to ensure that commercial interests coincide with
the strategic aims of the state. There are also areas where the interests of firms
and those of the state overlap, for example, where oil companies and the
government have a common interest in diversifying their sources of supply.
It is nevertheless worth considering the role of market forces in explaining
the behaviour of Chinese firms and financial institutions, particularly given
the perception in many quarters that Chinese firms act at the behest of the
Chinese state or the Chinese Communist Party.
The pattern of trade between China and Latin America is to a consider-
able extent a reflection of their comparative advantage, with Latin America a
relatively resource-rich region with abundant agricultural land relative to its
population while China is resource-scarce and labour-abundant. Although
market forces are modified by government trade and industrial policies,
commercial considerations play a major role in driving both China’s im-
ports from Latin America and its exports to the region. Latin America is a
low-cost source of the copper, iron ore, and soybeans, which Chinese pro-
ducers require, and China a booming market for Latin American exporters.
At the same time, transnational corporations producing computers, mobile
phones, TVs, and many other products have used China as a low-cost base
to supply their Latin American operations, and department stores and re-
tailers in the region have sought out cheap Chinese products in order to
increase their profit margins. Meanwhile, Chinese manufacturers, facing in-
tense competition and excess capacity at home, have been motivated to find
new markets.
The bulk of Chinese FDI in Latin America has been by SOEs, making the
debate between those who see Beijing as a ‘puppeteer’ and those who ar-
gue that ‘the business of business is business’ (Blanchard, 2011) particularly
relevant. Both camps are represented in the literature on Chinese FDI in the
region. Dussel Peters (2012) argues that ‘ownership matters’ and that as most
Chinese FDI is controlled by the Chinese state it is, therefore, qualitatively
different from other FDI in Latin America. In contrast, Lin Yue (2013) high-
lights the differences between central and provincial SOEs and argues that
there is no coordinated strategy (p. 26).
Despite the fact that the majority of Chinese investment has been by SOEs,
studies of particular sectors and firms support the view that, while they enjoy
government support, they operate with considerable autonomy and their
investments reflect their commercial interests.
The importance of resource seeking as a motive for Chinese FDI in Latin
America is clear from the concentration in the oil and gas and mining
258
industries discussed earlier. Chinese companies have entered the oil in-
dustry,35 partly through the acquisition of stakes in existing firms such as
Sinopec’s purchase of 40 per cent of the subsidiary of the Spanish firm Rep-
sol in Brazil and CNOOC’s acquisition of a 50 per cent stake in Bridas in
Argentina in 2010. In other cases, particularly in Venezuela and Ecuador,
they have entered the industry by forming joint ventures with state-owned
companies.
The oil industry accounts for a major share of Chinese investment in the
region and is all in the hands of the four central SOEs. However, despite this,
the oil companies enjoy considerable autonomy, and their investments in
Latin America are largely motivated by long-term profitability and growth.
This is reflected in the fact that, as mentioned earlier, a significant portion
of the oil that they export from Latin America does not go to China. In this
case it seems that the commercial interests of the oil companies weigh more
heavily than China’s resource security.
In mining, there is a greater variety of forms of Chinese ownership than
in the oil and gas industry including provincially, municipally, and centrally
owned SOEs and private firms.36 Despite receiving state support, these firms
follow profit-driven strategies. Some are vertically integrated and own mines
in Latin America to supply their downstream operations in China. Shougang
Iron and Steel made the first investment by a Chinese SOE in Latin America
in 1992, when it bought the Marcona mine from the Peruvian government.
This was long before China adopted its Go Global strategy, and was prompted
by a desire to obtain reserves with a high iron ore content to supply its Chi-
nese iron and steel plants (Gonzalez-Vicente, 2012, p. 51). Other Chinese
companies such as Minmetals and some private miners were content to sell
their Latin American production on the world market.
Although initially the bulk of Chinese FDI in Latin America was of the
resource-seeking variety, market-seeking investment has increased signifi-
cantly since the Global Financial Crisis. The share of services and domestic
market oriented investment increased from less than 5 per cent between 2000
and 2009 to almost 40 per cent from 2010 to 2019.37 Initially FDI by SOEs was
almost entirely in resource extraction, although it later diversified into utili-
ties, while the overwhelming majority of private Chinese FDI (84 per cent in
35
On Chinese investment in oil and energy in Latin America, see Koch-Wesser (2015);
Hogenboom (2014); and Sun, H. (2014).
36
For accounts of Chinese mining investment in Latin America, see Koch-Weser (2014);
Gonzalez-Vicente (2012); and Kotschwar et al. (2012).
37
Own calculation from the Monitor de la OFDI China database. The share of manufacturing
also increased from 3 per cent to 10 per cent between the two periods.
259
terms of value) was linked to the domestic market (Dussel Peters, 2012, p. 15).
Lin (2013) also finds that whereas central government SOEs tend to concen-
trate in resource extraction and construction, provincial SOEs and private
firms tend to focus mainly on manufacturing and commercial activities.
Chinese investment in manufacturing in Latin America has often involved
firms first exporting from China and then moving to assembly and local
production to avoid import restriction (ECLAC, 2011, pp. 177–8). Gree, a
Chinese manufacturer of air conditioners, was one of the first Chinese com-
panies to begin production in Latin America when it opened a plant in Brazil
in the late 1990s, after a number of years importing its products from its
factories in China (ECLAC, 2011, Box III.5).
In other cases, Chinese firms have established operations in Free Trade
Zones in Latin American countries where they can assemble and package
products imported from China and sell them on the local market without
paying import duty. Huawei and TCL assemble electronic products in Tierra
del Fuego for the Argentinean market, while Lenovo has used the Manaus
Free Trade Zone to supply the Brazilian market.38
There are also examples of Chinese companies acquiring Latin American
firms in order to enter the local market. One of the most significant was
the purchase of seven electricity transmission companies in Brazil in 2010
by State Grid, the Chinese SOE that is the largest electricity company in the
world.39 This was the company’s largest investment outside Asia. In 2018 and
2019 State Grid made further acquisitions of electricity companies in Chile,
and China Three Gorges took over Luz del Sur in Peru.
There has been some market-seeking investment in Latin America to
supply not just the domestic market but also neighbouring countries. The
Chinese motor manufacturers Chery and Lifan have both established assem-
bly operations in Uruguay, mainly as a platform for entering the Mercosur
market (Bittencourt and Reig, 2014).40
Market-seeking has also been a key to the expansion of Chinese projects
in the region. Firms involved in construction and engineering projects in
LAC have mainly been motivated by two factors. First, the slowdown in
infrastructure construction at home has led them to look for alternative mar-
kets elsewhere. Second, the infrastructure gaps in most LAC countries have
created good opportunities for expansion for Chinese companies that had al-
ready acquired overseas experience in Asia and Africa (Chauvet et al., 2020,
p. 54).
38
See López and Ramos (2014) on Huawei in Argentina and Barbosa et al. (2014) on Lenovo
in Brazil.
39
See Barbosa et al. (2014) for a case study of State Grid’s operations in Brazil.
40
The Chery plant in Uruguay was closed in 2015 but the firm continues to produce vehicles
in Brazil for the Mercosur market.
260
There are a few cases where Chinese FDI in Latin America has been mo-
tivated by strategic asset acquisition. These have mainly been a result of
global investments made by Chinese companies which have resulted in their
acquiring Latin American subsidiaries. The most noteworthy example was
the acquisition of IBM’s PC business by Lenovo, which gave the Chinese
firm subsidiaries in Mexico and Brazil. More directly, it has been suggested
that the links between Sinopec and Petrobras in Brazil were partly moti-
vated by the Chinese company’s interest in accessing Petrobras’ experience
in deep-water operations (Husar and Best, 2013).
As shown in Chapter 5, both the CDB and the Exim Bank are policy banks
with specific mandates to support the development of the Chinese economy
and Chinese exports. As such, they are more liable to be subject to strategic
government priorities than other SOEs. However, they are also expected to
operate on a commercial basis.
The debate over Chinese commodity-backed loans is central to interpret-
ing the role played by the Chinese banks. One view sees these loans as part
of a strategic move by the Chinese government to secure supplies of oil, but
in practice a significant proportion of the oil obtained in these deals does
not end up in China. An alternative view that emphasizes the commercial
interests of the banks sees the loans-for-oil deals into which the CDB has
entered in Venezuela and Ecuador differently: rather than a means by which
China obtains a secure supply of oil, they are a strategy used by the Bank to
reduce the riskiness of loans to countries with a low credit rating. By lend-
ing to these countries it can obtain relatively high returns without having to
bear an excessive level of risk, because payment is made through the sale of
oil to Chinese companies (Sanderson and Forsythe, 2012, Chapter 4).41
9.5 Latin American Interests in Expanding Economic Relations

with China
The other side of the growing Sino-Latin American economic relations is

Latin American interest in expanding ties. Although the response to China’s
re-emergence in Latin America has been largely reactive, it is clear that it has
been partly shaped by interests in the region. Again, these interests can be
usefully divided into Latin American states’ strategic political and strategic
economic objectives, and the commercial motives of economic actors.
From a geostrategic point of view, the re-emergence of China has been
seen by some as providing an opportunity to counterbalance US influence
41
Economy and Levi (2014, p. 56) point out that some loan-for-oil agreements allow the
amount of oil supplied to be reduced when the oil price rises. This makes sense if the purpose of
the deal is to reduce the risk of the loan, but not if the aim is to secure supplies for China.
261
in the region.42 The most obvious case where a Latin American government
has sought Chinese support to counter the USA politically was in Venezuela
under President Chavez (1999–2013).43 However, China was reluctant to be
seen as deliberately challenging the USA in the region. Recently, the Bolivian
and Ecuadorean governments have also looked to China as a counterweight
to US hegemony. However, most of the governments of the region have not
sought to develop their relations with China for geostrategic purposes.
Some governments in the region have seen expanding relations with
China as a way of increasing ‘policy space’: it makes them less vulnerable
to the conditionalities of the Washington Consensus and gives them greater
scope to pursue alternative economic policies free from external pressures
(Kaplan, 2016). This is particularly attractive for left-wing governments in
the region that reject neoliberalism and are keen to re-establish a signifi-
cant role for the state in their economies. For example, in Ecuador, when
the National Assembly passed a law in 2010 which required the renegotia-
tion of contracts with transnational corporations in the oil industry, Chinese
companies proved more willing than Western ones to accept the new terms
(Hogenboom, 2014).
Despite the political interest of some Latin American states in develop-
ing closer economic relations with China, the main strategic objectives of
most governments in the region in expanding relations with China are eco-
nomic. The rapid growth of the Chinese economy has made it an attractive
market for governments which are keen to increase their exports and find
new markets. There have been numerous visits to China by Latin American
presidents, frequently accompanied by trade delegations. Although exports
continue to be concentrated in a narrow range of primary products, govern-
ments have been keen to diversify exports. The expansion of non-traditional
exports was an important motive for the Chilean and Peruvian governments
in negotiating FTAs with China.44 In some countries, such as Chile, where
SOEs contribute significantly to exports, and Argentina, which taxes agricul-
tural exports, governments have also seen their revenues rise as a result of
their growing relations with China.45
42
See, for example, Cesarín (2007) and Le-Fort (2006).
43
See section 11.3.4 for a discussion of relations between China and Venezuela.
44
See Wise (2016), who notes that these FTA negotiations were initiated by the Latin American
side. The case of Costa Rica, the third Latin American country to sign an FTA with China, is
rather different. Because the trade agreement followed the establishment of diplomatic relations
in 2007, Costa Rica’s exports to China, unlike those of the other two countries, were mainly
manufactures not primary products, and an FTA was seen as a way of getting a foothold in trans-
Pacific value chains.
45
See López and Ramos (2009, pp. 110–12) on the contribution to Argentinean tax revenues
of agricultural exports to China, and Barton (2010, Table 10) on the increase in Chilean revenues
from copper.
262
Governments in Latin America, as elsewhere around the world, have also

been keen to attract Chinese FDI in order to raise the rate of accumula-
tion. In Chile, Peru, and Costa Rica, the expectation that the agreements
would help attract Chinese investment was an important motive for negoti-
ating FTAs with China (Wise, 2016). Although levels of Chinese FDI in Latin
America have remained modest overall, this has not dented expectations in
the region.
Those countries in the region that have defaulted on debts in the re-
cent past, such as Argentina, Ecuador, and Venezuela, and, therefore, find
it difficult to access international capital markets or can only do so at very
high interest rates, have a particular interest in obtaining loans from China.
As one South American diplomat is quoted as saying, ‘given the choice
between the onerous conditions of the neoliberal Washington Consensus
and the no-strings-attached largesse of the Chinese, elevating relations with
Beijing was a no-brainer’ (Piccone, 2016, p. 6). It is not surprising, therefore,
that these countries are amongst the top recipients of Chinese loans in the
region. This is a reminder of the fact that the distribution of such loans can-
not be explained solely in terms of China’s interests as it also reflects Latin
American governments’ desire to borrow. In some cases, these loans have
helped incumbent governments to obtain support in the run-up to impor-
tant elections. In Venezuela, Chinese loans were seen as having helped the
government increase social spending during the 2012 presidential election
campaign (Ellis, 2017).
Although the strategic economic interests of governments have played
some role in the region’s relations with China, on the Latin American side
they have been largely driven by commercial interests. Exports have boomed
as a result of Latin American firms and transnational corporations taking ad-
vantage of high commodity prices. Some Latin American companies have
also invested in China as part of their global expansion, taking advantage
of the rapidly growing Chinese market. The growth of imports from China
has also been driven by Latin American retailers’ interest in obtaining cheap
consumer goods and by many transnational corporations (TNCs) with op-
erations in Latin America optimizing their global supply-chain strategies to
import parts and components or finished products from affiliates or contract
manufacturers in China.
9.6 Empirical Analysis of the Determinants of Sino-LAC

Economic Relations
In order to explore further the factors behind the growth of economic rela-
tions between China and Latin America, we use a similar economic model to
263
that used in Chapter 6 to analyse Sino-SSA relations. Because three countries

in the region have signed FTAs with China, a dummy variable was included
to indicate whether or not a country had an FTA with China, so that the full
model specification becomes:
logYit = c + alogChinaGDPt–1 + blogLACGDPi,t–1 + dOPEN,i,t–1 +

eDISTi + fLANDLi + gMINi,t–1 + hFUELi,t–1 + jTAIi,t–1 + kUNi,t–1 + lFTAi,t–1 + έ
Where:
Y Indicator of economic relation with China in constant US$
China GDP China’s GDP in constant US$
LAC GDP Latin American countries’ GDP in constant US$
OPEN Trade/GDP Ratio
DIST Distance from China in ‘000 miles
LANDL 1 for landlocked countries
MIN Share of ores and minerals in total exports
FUEL Share of fuels in total exports
TAI 1 for countries which recognize Taiwan
UN Share of country’s votes that coincide with China
FTA 1 for countries with FTA with China
The data used cover thirty-two Latin American and Caribbean countries over
the period 2002–15. The dependent variables reflect the whole range of Chi-
nese economic relations with LAC and include LAC exports to and imports
from China, the stock of Chinese FDI in Latin America, the value of Chinese
economic cooperation projects, and Chinese loans to the region.46
As in Chapter 6, commercial variables are identified with market size
(measured by Chinese and Latin American GDP variables) and trade costs
(measured by an economy’s openness and geographic variables such as dis-
tance and being landlocked). Since China’s main strategic economic concern
in the region is to obtain secure supplies of natural resources, we again use
the share of minerals and fuels in a country’s exports as indicators of its
strategic significance. Two variables are used as indicators of political align-
ment: whether a country has diplomatic relations with Taiwan or with the
PRC; and the extent to which a country’s votes at the UN coincide with those
of China. Finally, all of the independent variables are lagged by one year to
avoid problems of reverse causation.
46
Data for trade flows and the value of Chinese projects were available for the full period. FDI
stock covers the period from 2003 onwards, and Chinese financial flows are for the period from
2005. See the Appendix for a list of variables and sources.
264
Table 9.2. Determinants of Sino-LAC economic relations, 2002–15
Bilateral Chinese Chinese FDI stock Project Loans

trade imports exports (4) contracts (6)
(1) (2) (3) (5)
Log China 1.47*** 1.81*** 1.29*** 2.49*** 1.40*** 3.93**

GDP
Log LAC GDP 0.98*** 1.72*** 1.09*** 0.82*** 0.69*** 0.49**
Openness 0.003* 0.009*** 0.005*** 0.03*** 0.02*** 0.006
Landlocked −0.62 0.05 .089* 0.19 −2.91* −1.02
Distance 0.01 0.3*** −0.0004 −0.02 0.006 0.48*
Minerals 0.71 3.62*** 1.08*** 6.23*** 3.21 −0.90
Fuels 0.26 0.23 −0.19 0.03 3.81*** 9.56***
Recognition of 0.05 0.43 0.04 −4.63*** −2.14*** −0.92
Taiwan
UN voting 0.23 −0.87 0.63* −1.44 −0.68 4.53
FTA −0.15 −0.81** 0.06 −0.20 0.54 −1.59
Random/fixed RE RE RE RE RE RE
Observations 443 430 443 411 443 348
R-squared 0.85 0.86 0.92 0.57 0.49 0.28
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent levels
9.6.1 Trade Flows

Total trade flows between LAC and China are, as would be expected, posi-
tively affected by both China’s GDP and that of its Latin American partners
(Table 9.2, col. 1). The more open the economy in the region, the more it
trades with China, although perhaps surprisingly, the existence of an FTA
does not appear to generate more bilateral trade. Other factors that are usu-
ally regarded as affecting trade costs, such as the distance between partners
and whether a country is landlocked, are not significant.47
Rather surprisingly, specialization in mineral or fuel exports is not associ-
ated with a higher level of trade with China, despite the importance of such
products in the basket of LAC exports to China. This may reflect the fact that
unlike SSA, LAC is a significant exporter of agricultural products to China,
as well as of minerals and fuels.
There is no evidence that trade is affected by strategic diplomatic consider-
ations. Having diplomatic relations with Taiwan does not have a significant
negative effect on bilateral trade, and alignment with Chinese foreign policy
as reflected in a country’s voting pattern at the UN does not have a positive
impact.
47
All Latin American countries are quite distant from China, which may explain why the
distance variable is not significant. There are only two landlocked countries in the region.
265
When Chinese imports and exports are considered separately, the pattern
remains broadly similar (see Table 9.2, cols. 2 and 3). Chinese and LAC GDP
and openness are significant for both imports and exports. The major differ-
ence is that although specialization in minerals does not have a significant
impact on the level of bilateral trade, when considered separately, both ex-
ports and imports tend to be higher for mineral exporters. This is consistent
with the high share of ores and metals in Latin American exports to China.
Paradoxically, China appears to import less from countries with which it has
an FTA, although aggregate trade is unaffected.
9.6.2 Chinese FDI

Although there are reasons to believe that the official Chinese data on FDI
underestimates China’s level of investment in Latin America it may still
provide an indication of the drivers of FDI, provided that it is not systemat-
ically biased in favour of certain countries. Since flows of FDI to individual
countries can fluctuate significantly from year to year, the variable analysed
was the stock of FDI, which provides a better indication of the determinants
of long-term Chinese involvement than annual inflows.
The commercial factors that explain trade (GDP in China and LAC, and
the openness of the LAC economy) are also significant determinants of FDI
(Table 9.2, col. 4). The theoretical effects on FDI of geographic factors, such
as distance and a country’s access to the sea, are ambiguous because they
depend on the type of FDI involved. Higher trade costs tend to encourage
market-seeking investment and discourage efficiency-seeking investment.
Neither variable has any effect on Chinese FDI in Latin America.
Given that so much of Chinese FDI in Latin America has gone into the oil
and gas industry, it is perhaps surprising that there is no significant relation-
ship between FDI stocks and specialization in fuels. There is some evidence
of an impact of mining on FDI. Despite the fact that Chinese FDI in LAC is
dominated by SOEs, the effects of strategic economic considerations are less
clear than might be expected.
The importance of strategic political considerations in determining a
country’s stock of FDI is shown by the large and statistically significant neg-
ative impact of relations with Taiwan. Given the importance of SOEs in FDI,
this is likely to reflect the effect of policies to isolate Taiwan that Beijing pur-
sued up to 2008. The fact that China does not have diplomatic relations with
a country is also likely to increase the risk and difficulty of investing there
for Chinese firms. However, there is no evidence that alignment with China’s
international positions in the UN has any effect of Chinese FDI.
266

The determinants of Chinese projects in Latin America are very similar to
those of OFDI (Table 9.2, col. 5). China’s GDP and that of each of its Latin
American partners have positive impacts on the value of projects completed,
as does the openness of the host economy. Distance has no significant effect,
whereas being landlocked has a weak negative effect.
There is a significant difference in terms of strategic economic factors in
one area: whereas FDI tended to be positively correlated with specialization
in mineral exporting, more economic cooperation projects are located in
fuel-exporting countries.48 Although, as shown previously, the projects that
China carries out in LAC are not in the main in the oil and gas industry,
China has been active in signing resources for infrastructure (R4I) projects in
the region, all of which have been backed by oil exports. Chinese contrac-
tors have a high level of involvement in infrastructure projects carried out
under these deals, and this explains why a disproportionate share of Chinese
contracts is in fuel-exporting countries.
The most significant diplomatic factor affecting Chinese projects in the
region is whether a country recognizes Taiwan. Alignment with China in
the UN, however, does not have any impact. These results are very similar to
those observed for FDI, suggesting that SOEs involved in construction and
engineering projects may be subject to very similar pressures to those that
investors face.
9.6.4 Chinese Loans

Although the data on Chinese bank lending to LAC are limited, it is possible
to estimate the main drivers using data from the Inter-American Dialogue
China-Latin America finance database for the period 2005–15.49 Like other
aspects of China’s economic relations with LAC, there is a significant rela-
tionship between the levels of loans and GDP levels in both China and LAC
(Table 9.2, col. 6). Other factors affecting trade costs, including openness, are
not significant determinants of lending.50
In terms of strategic economic considerations, there is evidence of a strong
positive relationship between loans and specialization in fuel exports. This
48
In contrast a similar study by Feng et.al. (2018) found that, for those LAC countries with
diplomatic relations with the PRC, both oil and mineral resources, (as measured by the share of
oil and mineral rents in GDP) had a positive impact on the value of fulfilled contracts. In the case
of countries which recognized Taiwan, only mineral rents were statistically significant.
49
The Inter-American Dialogue data on loans are based on media reports and may, therefore,
be less comprehensive in terms of its coverage, particularly of the smaller countries in the region,
than the official statistics that are used here for trade, FDI, and contracted projects.
50
There is a positive correlation between loans and distance, but this is only significant at the
10 per cent level, and it does not make any economic sense.
267
is hardly surprising, given that loans-for-oil deals account for more than half
of Chinese lending to LAC (Brautigam and Gallagher, 2014). Mining does
not have the same strategic significance in terms of Chinese loans.
What is surprising is that strategic diplomatic factors do not have a statis-
tically significant impact on Chinese lending to a country. Given that loans
are provided by Chinese state banks, one would expect political factors to
play a significant role. However, in contrast to the situation for FDI stocks
and Chinese projects, where relations with Taiwan had a significant negative
impact, Table 9.2 shows no such relationship in the case of loans.51 Nor is
there any evidence that China lends more to countries that support it within
the UN,
9.7 Conclusion
The relative importance of different factors in Sino-Latin American relations

depends on the type of relation involved. Trade, which remains the most im-
portant economic relationship, is mainly driven by the commercial interests
of Chinese, Latin American, and transnational companies. While the Chi-
nese government’s strategic objectives sets some of the parameters within
which companies make their decisions, particularly by providing support to
Chinese firms to ‘Go Global’ and through the trade and industrial policies
used to encourage processing within China, major decisions about where to
sell or to invest are made at the corporate level.
Chinese FDI and projects in Latin America are also largely driven by
commercial factors. Strategic economic considerations, particularly the ac-
quisition of secure supplies of resources, play a part, but appear to be trumped
by the commercial interests of firms seeking to make a profit when it comes to
deciding whether to export to China or to the world market. The economet-
ric analysis in section 9.6 shows that mining economies tend to attract more
Chinese FDI, and that engineering projects tend to be concentrated in fuel-
exporting countries. Strategic diplomatic considerations are also important
in relation to countries that recognize Taiwan, which receive less Chinese
FDI and a lower value of projects.
Strategic economic considerations play a more significant role in Chinese
lending to the region, although here again, the main lender, the CDB, enjoys
considerable autonomy and adopts strategies which will earn good returns
while at the same time trying to reduce its exposure to risk. Loans are used
51
Although in this specification, diplomatic relations with Taiwan are not statistically sig-
nificant, in a specification which includes control of corruption as an additional independent
variable, recognition of Taiwan did have the expected negative effect (see Table A11.1).
268
strategically to promote Chinese exports through tying part of them to pur-

chases of Chinese goods or denominating them in RMB. Loans can also
be used to try to increase the security of resource supply, although this is
not entirely successful in the case of oil. Loans do, however, help Chinese
companies expand globally in line with China’s ‘Go Global’ strategy.
Geopolitical considerations also play a role, since loans are not usually
granted to countries that do not have diplomatic relations with Beijing.52
Although the distribution of Chinese loans, of which more than half go to
Venezuela, might appear to support the view that China is using its economic
resources to support left-wing regimes that are hostile to the USA, Gallagher
and Irwin (2017) see this rather differently. They point out that most Chinese
loans to Latin America are not subsidized and are made on commercial terms
by the Chinese banks. Although the interest rates charged are lower than
those charged by Western banks, this is mainly because of the way in which
loans are structured to ensure repayment, reducing the risk to the Chinese
lender. There is no evidence that China’s loans have been motivated by a
desire to support regimes that oppose the USA, and the Chinese government
tried to distance itself from the anti-USA rhetoric of Venezuela’s President
Chavez.
What is true is that countries, such as Argentina, Ecuador, and Venezuela,
that have found it difficult to access international financial markets or have
only been able to do so at very high interest rates because of their past records
of default, have been keen to borrow from China. These countries have found
the terms offered by the CDB and other Chinese lenders relatively attractive,
so it is not surprising that they account for a significant proportion of China’s
loans in Latin America. This, however, is a reflection of economic interests on
both sides, rather than evidence of a politically motivated strategy to expand
Chinese influence in the region.
The most clearly political form of economic engagement is through aid,
but as shown earlier, the amount of Chinese aid to Latin America is rela-
tively limited. It is also widely distributed to almost all of the countries in
the region that recognize Beijing.53 Aid has been used strategically to com-
pete with Taiwan for recognition amongst the countries in the region. The
smaller Caribbean islands have received a disproportionate share of Chinese
aid, relative to their size, reflecting the importance of competition with Tai-
wan in the region, and the fact that as independent countries, they all have
votes in the UN (Stallings, 2017).
52
The only example included in the China-Latin America Finance Database of a Chinese loan
to a country which recognizes Taiwan was made to Honduras in 2013.
53
The exceptions are Argentina, Brazil, and Chile, which China regards as too advanced to
receive aid (Stallings, 2017).
269
Table A9.1. Significance of economic relations with China by country in LAC
Share of Share of Chinese OFDI Chinese China

China in China in stock/ total Projects ($ Debt/ GDP
Imports exports inward FDI) p.c.) 2017
2017–19 2017–19 2019 2005–19
Antigua and Barbuda 4.8% 0.0% 0.5% 4,839 10.5%*

Argentina 18.5% 8.3% 2.6% 237 2.3%
Bahamas 1.8% 0.6% 0.6% 7,781 20.9%
Barbados 6.9% 3.3% 0.8% 765 3.4%
Belize 9.9% 0.1% 0.0% 274 0.0%
Bolivia 18.2% 4.7% 4.0% 386 9.1%
Brazil 19.1% 25.6% 0.7% 105 1.2%
Chile 23.7% 31.2% 0.4% 95 0.4%
Colombia 20.2% 8.9% 0.1% 62 0.0%
Costa Rica 12.9% 2.8% 0.1% 140 1.6%
Cuba 15.7% 14.4% N/A 207 0.2%*
Dominica 3.0% 0.0% 1.0% 4,314 19.5%
Dominican Republic 12.9% 2.2% 0.0% 25 0.0%
Ecuador 18.0% 8.2% 3.3% 1,096 11.8%
El Salvador 11.9% 1.6% 0.0% 0 0.0%
Grenada 7.6% 0.1% 2.2% 1,262 7.0%*
Guatemala 11.0% 0.9% 0.0% 29 0.0%
Guyana 8.1% 1.6% 3.1% 1,325 4.7%
Haiti 2.2% 0.8% 0.0% 23 0.0%
Honduras 9.5% 0.4% 0.1% 58 0.0%
Jamaica 6.9% 1.9% 5.3% 1,086 10.9%
Mexico 17.8% 1.6% 0.2% 70 0.1%
Nicaragua 11.7% 1.1% 0.1% 42 0.0%
Panama 19.6% 4.8% 0.8% 424 0.0%
Paraguay 30.9% 0.3% 0.0% 6 0.0%
Peru 23.3% 27.8% 1.2% 194 3.7%
Saint Kitts and Nevis 2.9% 0.6% 0.0% 0 0.0%
Saint Lucia 1.8% 3.9% 0.4% 130 0.0%
Saint Vincent and the 8.8% 0.1% 2.9% 429 0.0%
Grenadines
Suriname 13.1% 1.6% 6.4% 1,462 6.2%
Trinidad and Tobago 7.6% 0.6% 7.5% 1,620 1.2%
Uruguay 19.0% 23.1% 0.8% 115 0.1%
Venezuela 15.1% 15.2% 13.9% 1,370 16.4%
Total 18.1% 11.4% 0.8% 214 2.0%
Sources:
Cols. (1) and (2): UNCTADStat.
Col. (3): UNCTADStat for total inward FDI and MOFCOM (2016) for Chinese OFDI.
Col. (4): NBS Database for value of Chinese projects and UNCTADStat for population.
Col (5) Horn et al. (2019).
Notes
* Own estimate based on data on total Chinese loan commitments to 2017 from Gallagher and Myers (2020) and
Minto (2019), Table 1.
10
China’s Economic Impacts on Latin America
10.1 Introduction
Debate over the impacts of China on Latin America has raised many of the
same issues that were discussed in the case of Sub-Saharan Africa (SSA), but
with different emphases. This chapter considers the economic impacts. Once
more there are divergent views between the official Chinese position, which
emphasizes mutual benefit, and those in the West and within the region
who are often critical of key aspects of the relationship. The critics claim that
the growth of China has contributed to the primarization of Latin American
exports and to premature deindustrialization.
The framework presented in the Introduction (Table 0.1) and that was used
to discuss China’s impact on SSA in Chapter 7 is also relevant in looking at
Latin America. The distinctions between complementary/competitive and
direct/indirect impacts have been used to analyse the effects of China on the
region (Jenkins et al., 2008). The complementary/competitive dichotomy is
sometimes discussed in terms of some Latin American countries being ‘win-
ners’ and others ‘losers’ as a result of China’s impact (Funakushi and Loser,
2005; González, 2008). Broadly speaking, South American countries whose
economies are complementary to China are identified as winners, while Mex-
ico and the Central American countries and the Dominican Republic are seen
as losers. There are also likely to be winners and losers within countries in
terms of both sectors and particular social groups.
Section 10.2 considers the impact of China on Latin American exports
of commodities, and its effects on economic growth in the region. Chinese
involvement in infrastructure has, until very recently, been much less sig-
nificant in Latin America than in SSA, so this is discussed briefly in the third
part of the chapter. More emphasis is put on the impact on the manufac-
turing sector, which has been a major area of concern in the region. The
chapter ends with a more detailed consideration of China’s impact on three
key countries in the region: Brazil, Mexico, and Chile.
10.2 Exports to China and the Commodity Boom
As seen in the last chapter, commodity exports from Latin America to China
grew rapidly from the end of the 1990s, and China became the most impor-
tant export market for several countries in the region. However, dependence
on the Chinese market was not as high in Latin America as in SSA; even in
Chile, where China accounted for the largest share of exports, less than a
third of the country’s total exports went to China.1 While this suggests that
the direct effect of exports to China was less than in SSA, the region was
also affected indirectly by the growth of Chinese demand and its effect on
commodity prices and the terms of trade. As a result there were significant
gains for some commodity exporters, but also worries about the possibility
of catching Dutch Disease.
10.2.1 Direct Effects

The countries in the region which rely most heavily on the Chinese market
apart from Chile are Peru, Brazil, and Uruguay. As discussed in Chapter 9,
the main products that China imports from Latin America are soybeans, iron
ore, copper, and petroleum. Only a small share of Latin American petroleum
exports go to China, so the direct effects on the oil industry in the region
are not significant. China imports a much higher share of Latin America’s
minerals, suggesting that the effects here may be more important. The main
exporters are Chile and Peru, for copper, and Brazil, for iron ore. Both min-
erals have alternative markets, and as standardized commodities, they could
be sold elsewhere by exporters in the absence of demand from China. China
has not played a major role in the growth of mineral production in Chile
or Brazil, but Chinese firms have made significant investments in Peruvian
mining (Sanborn and Chonn, 2015).
China has had a significant direct effect on Latin American exports in the
case of soybeans, which it imports mainly from Argentina and Brazil. Three-
quarters of Brazil’s soybean exports and over 80 per cent of Argentina’s go to
China, and it would not have been possible for such a massive expansion of
soybean acreage to have taken place in the two countries in the absence of
the growing demand from China.
10.2.2 Indirect Effects

Although the direct impacts of trade with China on Latin American ex-
ports are limited to a few countries, the indirect effects are more widespread.
1
This compares with more than half the total exports of Mauritania, the Democratic Republic
of the Congo (DRC), Sudan, and Angola.
272
These vary according to the type of product in which different countries

specialize. One indicator of the indirect effects is the change in the terms
of trade.2 Between 2002 and 2011, fuel-exporting countries such as Bolivia,
Colombia, Ecuador, and Venezuela saw a significant improvement in their
terms of trade, as did mineral exporters (Chile and Peru). Argentina and
Brazil, which export a range of products including fuels, minerals, agri-
cultural products, and some manufactures, also saw their terms of trade
improve. A second group of countries, made up mainly of agricultural ex-
porters, saw little change in the terms of trade over the period. The only
countries which experienced a significant fall in their terms of trade were
those that specialize in exports of manufactures such as Costa Rica, the
Dominican Republic, and El Salvador.3 There is a clear geographical pattern,
with the South American economies seeing an improvement in their terms
of trade while Central American and Caribbean countries experienced little
change or deterioration.
Although demand from China is by no means the only factor affecting
the terms of trade, it is clear that countries which have experienced im-
provements in their terms of trade have tended to produce commodities
that China demands, while those specializing in commodities where China
has had a limited impact such as tropical agricultural products, and those
which export manufactured goods, have been the losers. This is confirmed
by studies which have tried to separate out the effect of China from other
factors affecting commodity prices. Looking at the period before the global
financial crisis (2002–7), the Latin American countries which gained most in
terms of net exports as a result of the effects of China on commodity prices
were Peru, Chile, Bolivia, Brazil, and Venezuela, while Uruguay and most
Central American countries lost out (Jenkins, 2011, Table 6).
10.2.3 The Downside of Commodity Exports

Latin America is the original home of the Prebisch-Singer thesis concerning
the tendency for the terms of trade of primary commodity exporters to dete-
riorate. It is hardly surprising then that the increased reliance on exports of
such products to China is not necessarily seen as beneficial. Although during
the commodity boom the tendency was for the prices of primary products
to increase relative to those of manufactured goods, this could be seen as
a temporary interruption to the long-term trend, which would eventually
reassert itself. The decline in commodity prices since 2011 lends support to
this view.
2
What follows is based on UNCTADStat data.
3
Although Mexico is also an exporter of manufactures, its terms of trade improved over the
period since it is also an oil exporter and benefitted from increased oil prices.
273
A second concern is the possibility that increased demand for commodi-

ties leads to Dutch Disease effects. One indicator of such a possibility is the
appreciation of a country’s real exchange rate. The Latin American country
where the real exchange rate appreciated most between 2002 and 2011 was
Brazil. It is often cited as an example of a country that experienced Dutch
Disease while benefitting from increased Chinese demand and rising com-
modity prices. Although other factors, contributed to the appreciation of the
exchange rate, particularly high capital inflows, increased trade with China
was also a factor (Jenkins, 2015).
As pointed out earlier, commodity booms do not necessarily lead to Dutch
Disease. Other Latin American countries which benefitted from increased ex-
ports to China and rising commodity prices did not suffer from such large
appreciation as Brazil. Chile, which saw virtually the same improvement as
Brazil in its terms of trade between 2002 and 2011, experienced a much
smaller appreciation of its exchange rate over that period.4 Chile is often
cited as an example of a country which has developed effective policies
to deal with the problems generated by a commodity boom (Kulkarni and
Hartman, 2014). This underlines the point that the effect of China on com-
modity exports does not have to lead to negative outcomes associated with
Dutch Disease.
Another concern is that commodity prices tend be volatile. Indeed, in
the period between 2003 and 2010, commodity prices in Latin America were
more volatile than in any other period since 1960 (UNCTAD, 2012, Figure 1).
As seen in Chapter 9, the region’s exports to China are more concentrated
in primary products and resource-based manufactures than exports to tra-
ditional markets, and the share of such products in total exports has been
increasing over time. There are grounds for concern that such primarization
or re-commodification of exports will contribute to increased volatility, and
that this can have a negative impact on economic growth (van der Ploeg,
2011, pp. 386–8).
10.2.4 Exports and Economic Growth

There is little doubt that China’s growth and integration with the global
economy has had a positive impact on the exports of the region as a whole.
The real question is whether this contributes to economic growth. Before
2000 there was very little connection between growth in China and growth
in Latin America. The increased weight of China in the global economy
and the growth of bilateral ties between China and the region have meant
4
Whereas Brazil’s Real Effective Exchange Rate appreciated by over 80 per cent between 2002
and 2011, Chile’s only increased by 12 per cent over the period.
274
that the correlation between the two regions’ economic performances has
increased since the start of the millennium.5 There is also evidence that
those countries whose exports to China increased most after China joined
the WTO saw their growth rates increase (Hou, 2019).
This suggests that in the short and medium term, the growth of China has
had a positive effect on economic growth in Latin America. The longer term
impacts of increasing commodity exports are less clear-cut. One particular
problem is that it has led to deindustrialization as capital and labour shift
out of manufacturing (see section 10.4). More generally, there are concerns
that the structural changes which have been brought about in Latin America
as a result of China’s increased global presence will create a ‘resource curse’
in the region.
However, most of the economic mechanisms that are held to contribute
to the negative impact of natural resources are not set in stone, and can be
affected by government policy.6 Governments can operate counter-cyclical
macroeconomic policies to offset the effects of fluctuations in revenue from
commodity exports with prudent long-term fiscal policies. They can also use
various policies to prevent excessive appreciation of the exchange rate in the
face of a resource boom and put in place measures to protect the manufactur-
ing sector. Industrial policies can also be used to encourage local processing
and local suppliers in extractive industries, and taxes can be levied to raise
the share of revenue retained locally. This suggests that Latin American
governments are, at least in part, responsible for any longer-term negative
consequences of the growth of Chinese demand for resources.
10.3 China’s Contribution to Infrastructure Development
In Latin America the share of gross domestic product (GDP) spend on infras-
tructure investment averaged 2.4 per cent between 1992 and 2013 (Serebrisky
et al., 2015, p. 8). A significant infrastructure deficit emerged in the 1980s
with the debt crisis and the subsequent privatization of many state-owned
utilities. The share of public infrastructure investment fell dramatically, and
this was not compensated for by an increase in the share of private invest-
ment (Perrotti, 2011, Table 1). Several estimates suggest that the region needs
to invest at least 5 per cent of GDP in infrastructure. This implies an ad-
ditional $150 billion a year (Serebrisky et al., 2015, pp. 7–8; Cavallo and
5
See Calderón, 2009, pp. 51–4; Cesa-Bianchi et al., 2011, Fig. 2; World Bank, 2011, Fig. 1.6 for
evidence of the increased correlation between Chinese and Latin American output.
6
For discussions of possible policies to avoid some of the pitfalls associated with resource
dependence, see Frankel (2012) pp. 15–19 and Saad-Filho and Weeks (2013), pp. 15–18.
275
Powell, 2019, Chapter 7). The shortfall in infrastructure investment in a sam-

ple of six LAC countries has been estimated to have reduced the rate of GDP
growth by around 1 per cent a year (Cavallo and Powell, 2019, Chapter 7).
The priority sectors in terms of investment requirements are electricity and
roads (CAF, 2011, Table 4).
Chinese involvement in infrastructure in Latin America has not been on
the same scale as in SSA. Projects completed by Chinese firms in the region
between 2005 and 2019 were less than a third of the value of contracts in SSA
over the same period.7 The gap was even wider for the seventy-four Chinese
companies ranked amongst the top international contractors, which earned
more than five times as much revenue in Africa8 as in Latin America and
the Caribbean (LAC). These Chinese contractors accounted for less than a
quarter of the Latin American market in 2019, compared to over 60 per cent
in Africa (ENR, 2019, p. 40).
Chinese projects are concentrated in three countries, Venezuela, Brazil,
and Ecuador, which between them account for almost two-thirds of the to-
tal spend. These are also the countries which, along with Argentina, have
received the lion’s share of loans from the Chinese policy banks. In the
case of Venezuela and Ecuador, many of these loans have been backed by
oil sales to Chinese state-owned enterprises (SOEs) (Gallagher et al., 2012).
A significant portion of the loans has been used to finance transport and
energy infrastructure projects carried out by Chinese companies (Grasnow,
2015). In Venezuela companies involved have included China Railway En-
gineering Corporation, Sinohydro, China Construction Corporation, China
CAMC Engineering Co., and State Grid (Ellis, 2014, pp. 60–1; Sanderson
and Forsythe, 2012, pp. 136–9). In Ecuador Chinese companies have been
particularly active in energy projects with Sinohydro building the Coca
Codo Sinclair Dam and the Gezhouba Group involved in the Soplodora
hydroelectric project (Ellis, 2014, pp. 62–3).
China’s contribution to meeting the infrastructure needs of other Latin
American countries has been relatively limited up to now. In recent years the
annual value of Chinese contracts has been in the range of $10–15 billion,
less than 10 per cent of the amount required to close the region’s infras-
tructure gap. Also given that these projects have been concentrated in a few
countries, the impact on investment in most economies in the region has
been very limited.
This may well change in the not-too-distant future. In 2015 the China
Development Bank (CDB) launched the Special Loan Program for China-
Latin America Infrastructure Project with a total credit line of $20 billion,
7
Calculated from China National Bureau of Statistics database.
8
This includes North Africa, as well as SSA.
276
to provide funds for Chinese firms undertaking projects in the region.9

The signing of BRI Memoranda of Understanding between China and 20
LAC countries has also raised expectations. Despite the problems faced by a
number of Chinese projects,10 there is still optimism amongst many com-
mentators that China will contribute more to infrastructure development in
the region in future (Dussel Peters et al., 2018; Chauvet et.al., 2020).
10.4 China’s Impact on Latin American Manufacturing
A major concern in Latin America has been that China is having a negative
impact on the region’s manufacturing sector and contributing to deindus-
trialization.11 The rapid growth of imports of Chinese goods has given rise
to complaints by business leaders and their trade associations and to de-
mands that governments impose protectionist measures. In Colombia the
shoe manufacturers claimed that more than 70 per cent of shoe factories
had closed because of Asian competition, and demanded more protection
from the government (El Espectador, 2013). In Peru, the National Indus-
tries Society (SNI) accused China of dumping textiles and garments at prices
that did not even cover the cost of the raw materials used (Murphy et al.,
2007). In Brazil the Federacão das Indûstrias do Estado de São Paulo (Feder-
ation of Industries of the State of São Paulo, FIESP) and a number of sectoral
associations affected by Chinese competition have called for increased gov-
ernment support and the implementation of safeguard measures against
China (Paraguassu, 2007).
At the regional level, calls have been made for joint actions to stem the
tide of Chinese competition. At the eighth World Footwear Congress held in
Guanajuato, Mexico in 2010, China was strongly criticized, and the president
of Argentina’s Chamber of the Footwear Industry called on Latin American
countries to join to form a strong united front ‘to defend local industries
from the diverse Chinese practices such as under-billing or using Panama to
triangle and ship their shoes to the rest of the continent’ (MercoPress, 2010).
The president of the Mexican steel association, CANACERO, pointed to the
9
China-CELAC Forum, http://www.chinacelacforum.org/eng/ltdt_1/t1269472.htm (accessed
10 December 2016).
10
Several major Chinese infrastructure projects in Ecuador and Venezuela have experienced
problems and delays (Deniz and Boria, 2017). In 2016 plans to build a high-speed rail link between
Tinaco and Anaco in Venezuela were abandoned in the face of the country’s deepening economic
crisis. The planned canal linking the Caribbean with the Pacific coast of Nicaragua is also stalled.
11
This section focuses on the effect on Latin American and Caribbean (LAC) manufacturing of
competition from Chinese products in both the domestic market and the export market. There is
a further indirect effect associated with the shift in capital and labour out of manufacturing into
commodity exporting sectors as a result of the commodity boom discussed in section 10.2.
277
impact that Chinese competition is having on the region’s steel industry at a

meeting of directors of the Latin American Iron and Steel Institute (ILAFA) in
Mexico City in May 2011 (CANACERO, 2011), while the president of ILAFA
has spoken of the need to reverse the process of deindustrialization in the
region (Ternium, 2011).
Latin American manufacturers face competition from Chinese products
not only in their domestic market; those who have successfully developed ex-
ports complain that they are losing out to Chinese exporters in third markets
as well. Furthermore, they face barriers when they want to export to China,
which means that the playing field is not level.
How justified are these complaints, and how real is the fear that Latin
American countries are losing their industrial base to China? Is the picture as
dark as it is sometimes painted, or are there positive aspects to the increasing
availability of Chinese products, and is there evidence of technology transfer
and increased opportunities for local suppliers which can offset any negative
effects?
10.4.1 Competition in the Domestic Market

After the Second World War, the Latin American countries embarked on
strategies of import-substituting industrialization using tariffs and other pro-
tectionist measures to promote the development of local manufacturing
activities. These policies were to a large extent maintained for more than
three decades until the debt crisis of the early 1980s. This led to a reversal as
most countries adopted the policies that came to be known as the Washing-
ton Consensus, of which the most prominent was trade liberalization. Tariffs
in the region were reduced from an average of almost 60 per cent in 1985 to
under 15 per cent a decade later, and many non-tariff barriers were also re-
moved (Lora, 2011, pp. 369–71).12 As a result the Latin American economies
became much more open and the share of imported goods in the region’s
markets increased.
This contributed to a relative decline of the manufacturing sector in many
Latin American countries that has been characterized as ‘premature dein-
dustrialization’ (Palma, 2008; Rodrik, 2016a). The share of manufacturing
value added in GDP in Latin America fell by more than ten percentage points
between 1980 and 2003, and the share of manufacturing employment also
12
Whereas non-tariff trade barriers applied to more than a third of the region’s imports before
trade began to be liberalized, by the mid-1990s, they only affected 6 per cent of imports (Lora,
2011, p. 371).
278
fell, although by a smaller amount.13 This was a marked change from the
situation that existed before 1980, when, with the exception of Argentina,
the manufacturing sector increased its share of employment in Latin America
(Palma, 2011, Figure 23.15).
This process of deindustrialization in Latin America, triggered by the
switch in economic policy in the 1980s, was already well under way by
the time China joined the World Trade Organization (WTO) in 2001. As a
member, China would eventually face the same tariffs as other WTO mem-
bers, although there was a transition period during which imports from
China continued to be restricted. Despite these remaining restrictions, as
discussed in Chapter 9, Latin American imports from China grew rapidly,
and, as a result, the share of Chinese-produced goods in local consump-
tion increased significantly. The latest figures show that imports from China
account for more than 15 per cent of the apparent consumption of manufac-
tures in Chile, Peru, and Uruguay and over 10 per cent in Colombia, Costa
Rica and Mexico (see Figure 10.1).14 Only in Brazil, with its more developed
and protected industrial sector, was the share of Chinese products less than
10 per cent.
The average shares shown in Figure 10.1 hide much higher levels of
Chinese import penetration in particular industries.15 In Colombia and Peru,
Chinese imports accounted for more than half of apparent consumption
in radio, TV and communications equipment, and in office, accounting,
and computing machinery, and more than a third of leather and footwear.
In Chile more than half of local consumption in leather and footwear,
wearing apparel and computer, electronics and optical equipment came
from China (see Table 10.1). Two types of industries stand out in terms
of the share of Chinese goods: traditional low-technology products such
as textiles, clothing, footwear, and furniture, and high- and medium-high-
technology products such as computers, electronic and electrical products,
and in the more advanced countries, electrical and non-electrical machinery
(see Table 10.1).16
13
In 1980 manufacturing accounted for 28.2 per cent of GDP and 16.5 per cent of total em-
ployment. These shares fell to 16.7 per cent and 14.2 per cent respectively in 2003 (Palma, 2008,
Tables 1 and 2).
14
Apparent consumption is defined as production plus imports minus exports. Import pene-
tration is usually measured as imports divided by apparent consumption.
15
Brazil, Chile, Colombia, Mexico, and Peru were the only major LAC countries where suffi-
ciently disaggregated data was available to arrive at meaningful estimates of import penetration
at the industry level.
16
The classification of industries by technological intensity is based on the Organization for
Economic Co-operation and Development (OECD)’s taxonomy. It is worth bearing in mind
that products classified as high technology do not necessarily involve advanced technological
279
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
00
02
04
06
08
10
12
14
16
18
20
20
20
20
20
20
20
20
20
20
Brazil Colombia Costa Rica Mexico Peru Uruguay Chile
Figure 10.1. China’s share in apparent consumption of manufactures in selected

Latin American countries, 2000–18
Sources: UNIDO for Brazil, Colombia, Costa Rica, Peru and Uruguay; OECD STAN for Chile and
Mexico.
These two groups of industries represent rather different situations in

terms of the impact of increased imports from China. Since the early
2000s, China’s increased market share in low-technology industries has come
mainly at the expense of domestic manufacturers, despite the fact that in
Latin America these are often the industries with the highest level of protec-
tion.17 Chinese exports in these sectors have also been a significant target of
anti-dumping actions by Latin American governments.18
In contrast, high-technology sectors tend to be less protected and to have
higher overall levels of import penetration. Here the increased presence of
imports from China in recent years has come mainly at the expense of im-
ports from other countries. In Chile, Colombia and Peru, which are typical
of the majority of countries in the region, domestic production accounts for
a low share of the market for high-technology goods, so there has been very
little impact on local producers. Even in Brazil, where these industries are
more developed, much of the gain made by imports from China has been at
the expense of a fall in the share of other imports.
processes, since they may only be assembled in China from parts and components produced
elsewhere.
17
Labour-intensive industries tend to be the most protected in the region (Moreira, 2016,
p. 43 and Fig. 33).
18
Textile and footwear is the second most important sector in value terms for Latin American
anti-dumping measures against China, after plastic and rubber products (Moreira, 2016, Fig. 43).
280
Table 10.1. Industries with the highest level of Chinese import penetration
Brazil 2017 Chile 2016 Colombia 2017 Peru 2017 Mexico 2018
Office, Leather & Office, Radio, TV, & Electrical

accounting, Footwear accounting, commu- equipment
and comput- (61.3%) and comput- nications (43.1%)
ing machinery* ing machinery equipment
(23.7%) (64.8%) (67.6%)
Textiles Wearing apparel Radio, TV, & Office, Computer,
(18.5%) (59.6%) commu- accounting, electronic,
nications and comput- and optical
equipment ing machinery equipment
(59.6%) (61.3%) (40.4%)
Electrical ma- Computer, Leather & Textiles Furniture & other
chinery electronic, footwear (42.2%) manufacturing
(15.6%) and optical (41.5%) (35.9%)
equipment
(51.4%)
Non-electrical Textiles Textiles Leather & Leather &
machinery (45.2%) (28.3%) footwear footwear
(12.3%) (33.8%) (15.8%)
Leather & Electrical Furniture & other Electrical ma- Wearing apparel
footwear equipment manufacturing chinery (15.7%)
(10.0%) (33.2%) (26.9%) (25.7%)
Wearing apparel Furniture & other Electrical ma- Medical, preci- Machinery &
(9.5%) manufacturing chinery sion and optical equipment
(30.7%) (24.7%) instruments n.e.c. (15.6%)
(24.7%)
Furniture & other Fabricated metal Basic metals Wearing apparel Textiles
manufacturing products (21.4%) (19.4%) (14.0%)
(8.7%) (26.8%)
Sources: United Nations Industrial Development Organization and World Integrated Trade Solution for Brazil,
Colombia, and Peru; OECD’s Database for Structural Analysis for Chile and Mexico.
Notes: Brazil, Colombia, and Peru are based on International Standard Industrial Classification (ISIC) Rev.3
classifications, and Chile and Mexico on ISIC Rev.4.
* Also includes ISIC Rev.3 industries 32 and 33 (Radio, TV, & communications equipment; and Medical, precision,
& optical equipment).
The increased share of imports from China in these industries partly re-
flects the changing sourcing strategies of the transnational corporations,
which have relocated their production, or at least the final stages of pro-
duction, of computers, radios, TVs, and other electrical and electronic
products to China. It has also been driven by the increased international
competitiveness of some Chinese companies such as Huawei and ZTE
that have displaced other imports. As a result there is less hostility to-
wards Chinese imports in these sectors, and they are less of a target for
anti-dumping measures than the low-technology industries (Moreira, 2016,
Figure 43).
What then have been the effects of increased Chinese competition on the
manufacturing sector in LAC? Although not all of the growth of imports from
China has come at the expense of domestic production in Latin America,
281
there is evidence from a number of countries that there has been displace-
ment of local manufacturers by Chinese imports. Several studies based on
firm-level data have found that increased import competition from China
had a negative effect on the sales of local producers.19
How big an impact have imports from China had on local production in
these countries? One indication of this is how much larger production would
have been if local producers had not lost market share to China. If Chinese
import penetration had not displaced local production between the early
2000s and the early to mid-2010s, the latter would have been 2.5 per cent
higher in Brazil, 3.2 per cent higher in Colombia, 6.0 per cent in Peru and
6.2 per cent higher in Mexico. As with the data on the extent of import
penetration, this is a relatively modest impact on the manufacturing sector
as a whole.
Although the overall impact of Chinese competition on local manufac-
turing is negative, this hides considerable heterogeneity between sectors and
between different types of firms. The reduction in production is much greater
in certain industries than the overall averages estimated above. For example
it was over 20 per cent in textiles in Brazil, Colombia, and Peru, and in leather
and footwear in Colombia and Peru. At the firm level, it is smaller, less pro-
ductive manufacturers that have been worst affected in Mexico (Blyde and
Fentanes, 2019), Peru (Mercado et.al., 2019), and El Salvador (Li and Moreira,
2019a).
It is possible under certain circumstances for increased imports from
China to have a positive effect on local manufacturing. There are sev-
eral potential channels through which this could occur. First, increased
competition can lead to firms responding by improvements in produc-
tivity and innovation. However the evidence for several LAC countries is
that increased Chinese competition has been associated with lower pro-
ductivity performance amongst domestic producers (Moreira and Stein,
eds., 2019, Figure 4.2). Second, imports of low-cost Chinese inputs or
capital goods can help reduce production costs and increase profitability
for local producers. There have been very few studies that have analysed
this channel, but those that have do not find evidence of a significant
effect.20
Overall therefore the impact of increased Chinese imports has been nega-
tive for the manufacturing sector in LAC providing a basis for the complaints
that have been voiced by local industrialists. On the other hand, there are
19
Studies have been carried out under the auspices of the IADB on Mexico (Blyde and Fentanes,
2019), Peru (Mercado et al., 2019), El Salvador (Li and Moreira, 2019a), and Colombia (Molina,
2020).
20
See Blyde and Fentanes, (2019) on Mexico and Li and Moreira (2019a) on El Salvador.
282
benefits to consumers from import competition because cheaper Chinese

goods help to reduce the cost of living.
10.4.2 Competition in Export Markets

Concern over the impact of China on Latin American manufacturing is not
confined to competition in the domestic market. Many countries in the re-
gion have developed significant exports of manufactures, and these too face
increased competition from China. Although initially it was thought that
this would only be a problem for Mexico, because of its exports to the USA,
recent research has shown that it has affected a wider range of countries in-
cluding Brazil, the Central American countries, and the Dominican Republic
(Jenkins, 2010b, 2014; Dussel Peters, 2016).
Mexico is the country where most concern has been felt about the ef-
fects of Chinese competition. Since the signing of the North American Free
Trade Agreement (NAFTA) with the USA and Canada in 1994, Mexico had
become increasingly dependent on the US market and was the second most
important source of imports to the USA, after Canada. However, many of the
products that Mexico exported to the USA competed directly with Chinese
goods. In 2003 China overtook Mexico as the second-largest exporter to the
USA.21 Mexico saw its share of the US market for a range of products includ-
ing textiles, garments, TVs, PCs, telephone equipment, and furniture fall as
China’s exports increased (Watkins, 2007; Ruiz Chávez, 2007).
The small Central American countries (El Salvador, Guatemala, Honduras,
Nicaragua, and Costa Rica) and the Dominican Republic were also badly af-
fected by Chinese competition in the US market. These countries were in
a similar situation to Mexico in that they had established export-processing
and free trade zones in the 1960s and 1970s and had seen their exports to the
USA, particularly of textiles and garments, grow significantly in the 1990s.
However, following China’s entry into the WTO in 2001 and the ending
of the Agreement on Textiles and Clothing, which had imposed quotas on
international trade in these products, at the beginning of 2005, the Cen-
tral American countries and the Dominican Republic lost market share in
the USA to China on a significant scale (Jenkins, 2010b). Indeed the threat
posed by Chinese competition in the US market was one of the arguments
put forward in favour of signing the Dominican Republic-Central America
Free Trade Agreement (DR-CAFTA) between these countries and the USA. At
the time, the Office of the US Trade Representative (2005, p. 1) claimed that
DR-CAFTA would ‘provide regional garment-makers . . . a critical advantage
in competing with Asia’.
21
See section 10.5.2 for a fuller discussion of the Mexican case.
283
The impact of Chinese competition on Central America has been felt

primarily in the garment industry, which accounts for the bulk of the
region’s manufactured exports to the USA and is a significant source of em-
ployment in the region.22 While Central America and China held roughly
similar shares of US imports of garments at the start of the 2000s (around
12 per cent each), by the end of the decade, China’s share had increased
to 38 per cent, while that of Central America had fallen to 8.7 per cent
(Gallagher, 2010).23
The original members of MercoSur (Argentina, Brazil, Paraguay, and
Uruguay) also lost market share in the USA to China after 2001, although
they were not as seriously affected as Mexico and the Central American
countries (Jenkins, 2010b). The least-affected countries in the region were
the Andean countries, because their exports to the USA were mainly of pri-
mary products which did not face Chinese competition. However in terms
of the impact on the exports of manufactured goods, these countries also
experienced losses to China (Jenkins, 2010b, Table 11.5).
Concern over the impact of Chinese competition on Latin American ex-
ports initially focussed on developed-country markets, particularly the USA,
but it has also become an issue within the regional market since the mid-
2000s.24 Recent research has shown that the increased presence of China has
led to a reduction in the level of regional integration with LAC as imports
from China displace regionally sourced goods (Dussel Peters, 2016). Brazil
has been particularly affected by increased Chinese competition in the Latin
American market, as it has the most developed industry in the region. Since
regional exports tend to have higher technological content than those to
developed-country markets, Chinese competition in these markets is making
it more difficult for other countries to upgrade their manufactured exports
(Dussel Peters, 2016).
Not only has a much larger number of Latin American countries seen
their exports affected by Chinese competition than was initially thought,
but also upgrading in China and the increasing range of products in which
Chinese production is internationally competitive has meant that the effects
have been felt beyond labour-intensive, low-technology industries. This has
made it difficult for Latin American exporters to move up the technological
22
In Honduras, apparel maquiladora firms employed 130,000 workers in 2004 (Agosin et al.,
2004).
23
Although China’s share of clothing imports to the USA fell after 2010, this was mainly a
result of increased imports from Vietnam and the share of Central America only recovered slightly
(Dussel Peters, 2018, Chapter IV).
24
See Gallagher and Porzecanski (2010, Table 3.4) on the impact of Chinese competition on
intraregional exports from Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico; Hiratuka
et al. (2012) on Argentina, Brazil, Mexico, and Uruguay; Jenkins (2014) on Brazil; and Dussel
Peters (ed.) (2016) on the major sub-regions within LAC.
284
ladder and offset the losses of market share to China in low-technology

or labour-intensive products by increasing their exports of high-technology
products (Gallagher and Porzecanski, 2010, Chapter 4).
10.4.3 Latin American Exports of Manufactures to China

As seen in Chapter 9, there is little sign of Latin American countries starting
to diversify their exports to China; they continue to be heavily concentrated
in primary products and resource-based manufactures involving limited
processing. Even countries which enjoy preferential access to the Chinese
market, such as Chile and Peru, which have signed Free Trade Agreements
(FTAs) with China, have not developed significant exports of manufactures
(Wise, 2016).One factor which has contributed to the lack of manufactured
exports from the region has been Chinese tariff and non-tariff barriers. Pro-
tection, which increases with the level of processing, makes it more difficult
for Latin American exporters to add value to the raw materials that they ex-
port to China. As the Inter-American Development Bank economist Mauricio
Mesquita Moreira (2016, p. 5) comments: LAC’s exporters still face significant
barriers to penetrating the Chinese market, which are particularly binding for
natural resource-intensive sectors, where LAC has strong comparative advan-
tages and where diversification is more likely to occur. Even more worrying
is the fact that the relevance of these barriers often increases with the levels
of processing and the sophistication of the exports.
It is not surprising that, given the highly competitive nature of Chinese
manufacturing and the barriers to increased levels of processing, LAC exports
of manufactures to China have been very limited and have not compensated
for Latin American producers’ loss of domestic and foreign markets.
10.4.4 Technology Transfer and Local Linkages

Two potential positive impacts on Latin American manufacturing of grow-
ing trade and investment with China are technology transfer and new
opportunities for local producers through backward and forward linkages.
Official Chinese documents identify technology transfer and research and
development (R&D) as important areas for cooperation between China and
Latin America. China’s 2016 Policy Paper refers to ‘the expansion of coopera-
tion with Latin American and Caribbean countries in high-tech fields such as
information industry, civil aviation, civil nuclear industry and new energy,
to build more joint laboratories, R&D centres and high-tech parks’ (PRC,
2016, para 2.8), and to helping Latin American and Caribbean countries in
their industrial upgrading. The China and Community of Latin American
and Caribbean States (CELAC) Forum Cooperation Plan, adopted in Beijing
285
in 2015, also refers to increasing the transfer of technology and know-how

between the two sides (CELAC, 2015).
These statements are a reflection of aspirations more than achievements in
terms of technology transfer from China to Latin America. Although China
has invested heavily in R&D at home, there is little evidence that Chinese
firms are transferring technology to Latin America on a significant scale. A
recent report by ECLAC concluded that ‘the results in terms of transferring
technology, promoting research and development and creating good-quality
jobs have, in most cases, fallen short of expectations’. (ECLAC, 2018, p.
96). Most of the collaboration that is taking place between China and Latin
America in science and technology has been at the inter-governmental level
in areas such as aerospace where there has been cooperation on satellites
with Brazil and astronomical observation with Chile and Argentina.
The nature of the economic relations between China and LAC has limited
the extent of technology transfer in the productive sectors. As was noted
in Chapter 9, much of Chinese FDI in Latin America has been in the en-
ergy and mining sectors. A study of technology transfer between China and
Brazil in the energy sector concluded that so far the extent of transfers has
been limited, despite the objectives set out in high-level agreements between
the two governments (Husar and Best, 2013). There is some evidence of Chi-
nese technology in renewable energy being transferred to Latin America (see
Borregaard et al., 2017 on Chile), but Chinese companies only accounted for
2 per cent of total investment in alternative energy in LAC between 2005 and
2017 (Salazar-Xirinachs, 2019, p. 6).
The overall picture does not suggest that China is making a significant
contribution to technological upgrading in the industrial sector either. The
fact that investment in manufacturing in the region has tended to be market-
seeking and mainly in assembly activities, means that it has not involved
advanced technology or extensive R&D in the region. Recently some Chi-
nese technology companies such as Baidu, Tencent and Meituan Dianping
have entered Latin America (Guzman, 2019) but there are questions over the
extent of technology that is transferred and the amount of real R&D that
they do in the region.25
The nature of Chinese foreign direct investment (FDI) in the manufactur-
ing sector in LAC has also meant that few local linkages are developed, since
Chinese firms rely mainly on imported parts and components. Some Chinese
manufacturing companies have set up in free trade zones such as Manaus in
Brazil and Tierra del Fuego in Argentina, where they can import parts duty-
free to assemble products which are then sold throughout the country. Major
25
For example Huawei has an R&D centre in Mexico, but this only has fourteen employ-
ees and is mainly involved in modifying software for local clients (Micheli and Carrillo, 2016,
pp. 52–3).
286
Chinese companies such as Lenovo in laptops and TCL in televisions, air con-
ditioners, and mobile phones have established plants in Tierra del Fuego.
In Manaus the Chinese firm Kinski assembles motorbikes, and Gree makes
air conditioners, while the electronics firm CCE, owned by Lenovo, makes
laptops, desktop computers, tablets, and televisions. Even when operating
outside such free trade zones, Chinese firms often rely heavily on imports
from China for their inputs.
10.4.5 Conclusion
The Latin American economies had already seen a weakening of their man-
ufacturing sectors before China emerged as a significant player. Some com-
mentators have described many of the countries of the region as being caught
in the ‘middle-income trap’, unable to compete with low-wage countries in
labour-intensive low-technology industries and lacking the technological ca-
pabilities to compete with developed countries in high-technology sectors
(Paus, 2017). The rise of China has intensified this squeeze on middle-income
countries in LAC as it upgraded its manufacturing production (Paus, 2020).
The trade liberalization that occurred in the late 1980s and 1990s meant
that once China had become a member of the WTO its exports of manu-
factures were well placed to enter the Latin American market. In some cases
these exports were the result of transnational corporations (TNCs) switch-
ing production from other Asian countries to China, and had relatively
little effect on production within Latin America. In low-technology indus-
tries and increasingly in medium-low-technology industries, such as rubber
and plastic products and basic metals (especially iron and steel), Chinese im-
ports came to replace domestic production in the region. At the same time,
WTO membership gave China better access to developed-country markets,
and increased competition affected exports from Mexico and the Central
American and Caribbean countries, particularly to the USA. These negative
effects on some Latin American manufacturers were not offset by significant
gains in terms of growing exports of industrial products to China or increased
Chinese investment or technology transfer in Latin America.
10.5 China’s Economic Impact on Brazil, Mexico, and Chile
Brazil, Mexico, and Chile represent three contrasting situations in terms of

their economic relation with China. Brazil is China’s most significant eco-
nomic partner in Latin America and the Caribbean (LAC). It has elements
of both complementary and competitive relations with China with signifi-
cant exports of primary products, while at the same time the manufacturing
287
sector has faced increased competition from Chinese products at home and
abroad. Mexico’s relations with China have been mainly competitive with
particular attention being given to the loss of market share to China in the
USA. Chile’s economy is complementary to China’s as it benefitted from the
growing Chinese demand for copper, its main export.
10.5.1 Brazil
Brazil is the largest and most diversified economy in Latin America, and
is China’s most significant partner in the region. It was the first country
in Latin America to be recognized as a strategic partner by China in 1993.
Brazil and China are both members of the BRICS (Brazil, Russia, India, China,
and South Africa) group of countries, and cooperate internationally. Brazil
is China’s most significant economic partner in Latin America in terms of
trade and investment. From the Brazilian point of view, China has been its
most important export market since 2009 and is its most important source
of imports.
Because of the size and diversity of its economy, Brazil has a complex
economic relationship with China. As an exporter of primary products, it
benefitted from the growing Chinese market and the commodity boom be-
tween 2002 and 2011. On the other hand, parts of the manufacturing sector
have faced competition from Chinese products both at home and in export
markets in the North and in Latin America. Not surprisingly, there are very
different views of the economic impact of China on the country.
COMMODITY EXPORTS
Brazil’s three most important exports to China are soybeans, petroleum and
iron ore, which account for more than four-fifths of its total exports. Around
three-quarters of Brazil’s exports of soybeans and more than half of its exports
of oil and iron ore go to China, making it by far the most important market
for these products.
Soybean exports to China increased from 3.2 million tonnes in 2001 to 58
million tonnes in 2019, accounting for virtually the entire growth of Brazil’s
soybean exports. The increase in cultivation in Brazil during this period was
therefore almost entirely down to the growth of demand from China. Brazil
also benefitted from the increase in world prices for soybeans, which rose by
more than 150 per cent during the commodity boom (2002–11). Again, as
seen in Chapter 3, this was partly a result of increased demand from China.
The bulk of Brazil’s soya exports to China have been unprocessed beans
to supply the Chinese crushing industry. Although there have been some
exports of soybean oil to China, in recent years these have been less than
1 per cent of the value of exports of unprocessed soybeans. Clearly exports to
288
China are concentrated at the initial stages of the value chain, with very little
processing taking place in Brazil. This is a result of the removal of export taxes
on unprocessed soybeans in 1995 and the measures taken by the Chinese
government to promote its local crushing industry. As a result the proportion
of Brazil’s total soybean production that was crushed domestically fell from
95 per cent in 1995 to less than 50 per cent in recent years (Oliveira and
Schneider, 2016, p. 172).
The economic gains from the soy boom in Brazil have been captured
mainly by global and Brazilian agribusiness, including the leading com-
modity traders ADM, Bunge, Cargill, and Dreyfus, and large-scale Brazilian
agribusinesses such as Grupo Amaggi and Vanguarda Agro. Unlike Argentina,
where the government imposes significant export taxes on agricultural ex-
porters so that soybeans made a significant contribution to government
revenues (López and Ramos, 2009, pp. 210–13), in Brazil, soybean exports
have not been taxed since the mid-1990s. Proposals to introduce a tax on
exports have been consistently blocked by the agricultural lobby. In 2016
the Brazilian Minister of Agriculture, Blairo Maggi, one of the largest soy-
bean producers in Brazil, described the tax idea as ‘crazy’, and the proposal
was dropped (Cordonnier, 2016).
Brazil’s exports of iron ore to China increased from 28 million tonnes in
2001 to 208 million tonnes in 2019. The share of Brazil’s iron ore exports
going to China went up from under a fifth to over half over the same period.
The foreign exchange generated by exports increased even more rapidly up
to 2011 as a result of the commodity boom. Subsequently falling iron ore
prices led to a decline in the value of exports to China, but then recovered
in the second half of the decade.
As seen in Chapter 3, the growth in demand from China was a major con-
tributor to the increase in iron ore prices during the commodity boom. The
global market for iron ore is highly integrated, and supply is dominated by
three major companies: BHP-Billiton, Rio Tinto, and the Brazilian firm Vale.
Although Brazilian exports of iron ore to China grew significantly, this was
a reflection of China’s increased share in global steel production, and Brazil’s
share of Chinese ore imports fell slightly during the commodity boom. Chi-
nese firms were not directly involved in the expansion of Brazilian mining,
so that the major impact on the Brazilian industry was through increasing
prices.
As was the case with soybeans, the bulk of Brazil’s exports of iron ore
to China is exported without further processing. Exports of iron and steel
have been less than a tenth of the value of Brazil’s iron ore exports in recent
years.
The Brazilian iron ore mining industry is dominated by Vale (formerly
CVRD), which was government-owned until it was privatized in 1997. The
289
second-largest iron ore exporter is CSN Mining, a subsidiary of the Brazilian

Steel Company, another formerly state-owned enterprise. Major TNCs such
as BHP-Billiton and Anglo American are also involved in the sector. Clearly,
the benefits of the boom in iron ore have been highly concentrated amongst
a small number of Brazilian and transnational companies.
These companies benefit from low mining royalty rates and an absence
of any taxes on exports of iron ore. A proposed 10 per cent tax on exports
was turned down by the Brazilian Congress in 2012, and there has been a
conflict over government efforts to require iron ore exporters to sell to their
subsidiaries overseas at arm’s-length prices rather than lower internal trans-
fer prices. A study by the Instituto Justica Fiscal in Brazil claimed that Vale
avoided US$13.3 billion in payments to the government as a result of trans-
fer pricing between 2009 and 2015 (Fowler, 2019).26 In 2019 Vale published
its first Tax Transparency Report which showed that it paid $859 million in
mining taxes, an effective tax rate of 4.4 per cent (Vale, 2019b, p. 27).
EFFECTS ON MANUFACTURING
As well as being a resource-rich country, which means that certain sectors
are complementary to the Chinese economy, Brazil also has a substantial
manufacturing sector which faces competition from China. This high-
lights the problem of identifying countries in Latin America as winners or
losers in terms of their complementary or competitive relationship with
China.
The share of manufacturing in Brazil’s GDP has been falling since the
1980s, and has led to a debate between orthodox economists who see it as a
return to a more normal pattern following the artificial expansion of indus-
try as a result of import-substituting policies (Bonelli and Pessoa, 2010), and
heterodox economists who argue that it is the result of specific economic
policies, particularly in terms of financial openness and the overvalua-
tion of the exchange rate (Bresser-Pereira and Marconi, 2009; Soares et al.,
2011).
Although it is clear that Brazilian manufacturing was declining rela-
tively (although not absolutely) before China joined the WTO, the in-
creased import penetration of goods from China and competition from
Chinese products in export markets has put further pressure on Brazilian
industry.
As seen in Figure 10.1, China’s share of the Brazilian market for manu-
factured goods increased from less than 1 per cent in 2000 to 7.5 per cent
in 2015. Brazil remains a relatively protected economy, with only about
a third of apparent consumption of manufactures provided by imports.
26
These allegations have been denied by the company (Vale, 2019a).
290
Since China has been the main target of anti-dumping cases brought by
the Brazilian government in recent years, it is likely that in the absence of
such protectionist measures its market share would have increased even more
rapidly.27
The industries which have been most affected by Chinese competition in
the domestic market are textiles, clothing, leather and footwear, electrical
and non-electrical machinery, and computers, radios, TVs, and communica-
tions equipment (see Table 10.1). Manufacturers producing for the domestic
market have frequently called on the government to take action against
Chinese imports. In 2010 the Brazilian Shoe Manufacturers Association,
(Abicalçados) was successful in obtaining anti-dumping duties on footwear
imports from China. In 2011 the Brazilian Textile Industry Association (ABIT)
called on the government to investigate imports of denim from China, while
the Brazilian Machinery and Equipment Association, (ABIMAQ) made sev-
eral requests for safeguard measures to be applied against Chinese imports.
However, all of these requests were rejected (Rossone et al., 2011).
Although Brazilian manufacturing produces mainly for the domestic
market, with government assistance some sectors have been successful in de-
veloping exports. Chinese competition has led to the loss of export markets
in both developed countries and other Latin American markets. A survey by
the National Confederation of Industry (CNI) reported that over half of the
Brazilian exporters covered faced competition from China in foreign mar-
kets, and two-thirds of these had lost customers to Chinese exporters (CNI,
2011). Several reports by FIESP have made estimates of the negative impact of
Chinese competition on Brazilian exports to the USA, the EU, and Argentina
suggesting that there have been significant losses (FIESP, 2007; FIESP, n.d.).
A number of academic studies have analysed the impact of China on
Brazilian exports to the USA, the EU, and other Latin American countries (de
Sousa, 2018; Filgueiras and Kume, 2010; Hiratuka and Cunha, 2011; Jenk-
ins, 2014; Lélis et al., 2012; Machado and Ferraz, 2006). These too show
that Brazilian exports have been negatively affected by Chinese competi-
tion. Export industries that have lost market share to China include footwear,
electrical and non-electrical machinery, and wood and furniture, as well as
iron and steel, rubber, organic chemicals, and vehicles in the Latin American
market (Jenkins, 2014, Table 8).
27
China was affected by forty-six of eighty-two trade defence measures adopted by Brazil
(Global Trade Alert database at http://www.globaltradealert.org/site-statistics (Accessed 31 Oct.
2013). Although the Brazilian government agreed in 2004 to recognize China as a ‘market econ-
omy’ within the WTO, this was never formally approved, making it easier for Brazil to impose
restrictions on Chinese exporters.
291
FDI, LOANS, AND INFRASTRUCTURE

As the largest economy in the region, it is not surprising that Brazil has been
an important destination for Chinese FDI. However, China’s share of FDI in
Brazil is still very low, accounting for a mere 4 per cent of the total stock of in-
ward investment in 2015, putting China eighth amongst countries investing
in Brazil between Japan and the United Kingdom (BCB, 2019, Table 6).28 The
major destination of Chinese FDI has been electricity and gas, which in 2018
accounted for more than half of the total, reflecting the Chinese SOE State
Grid’s acquisition of several Brazilian power companies. The other significant
sector was extractive industries, with over a quarter of the total. Manufactur-
ing accounted for only 5 per cent of total Chinese FDI (BCB, 2019, Table 14).
In terms of economic impacts, Chinese FDI has tended to reinforce Brazil’s
dependence on primary commodities and has done little to counter the trend
of deindustrialization.
Chinese loans to Brazil have gone mainly to the oil industry. In 2009 the
CDB lent the Brazilian state oil company Petrobras $10 billion for the de-
velopment of the pre-salt oil fields, with repayment to be made in oil. The
CDB provided a further $10 billion loan to Petrobras in 2016 to help it meet
its debt obligations. Although China has provided more than $30 billion in
loans to Brazil since 2007, its share of total Brazilian debt remains relatively
low.29
Until recently, Chinese involvement in construction and infrastructure
projects in Brazil has been relatively limited. The Brazilian construction
industry was dominated by large local companies such as Odebrecht and
Camargo Correa. Although Brazil overtook Venezuela as the most important
market in Latin America for Chinese contractors in 2018, their share of the
local market remains quite small. This is likely to increase in the future. The
involvement of Brazilian construction companies, particularly Odebrecht,
in the ‘Lava Jato’ scandal bribing politicians and government officials to win
contracts has weakened their position significantly, opening up a space for
Chinese companies both within Brazil and elsewhere in LAC where Brazilian
contractors were a major force.
The announcement in 2017 of a $20 billion infrastructure investment
fund, with three-quarters of the capital contributed by China and a quar-
ter by Brazil, is also likely to lead to an expansion of Chinese companies.
The fund will be used mainly to support railway construction to link Brazil’s
soy- and corn-growing regions to the ports (Reuters, 2017). As with FDI, the
effect will be to reinforce dependence on commodity exports. In 2020 Brazil
28
These figures refer to the ultimate origin of FDI in Brazil and, therefore, include investment
from China which is channelled through other countries.
29
Trinkunas (2016, Table 3) estimates that in 2015 Chinese loans accounted for just over
3 per cent of Brazil’s total foreign debt.
292
joined the Asian Infrastructure Investment Bank, making it eligible for loans
from the bank.
CONCLUSION
The growth of China has contributed to both the deindustrialization of the
Brazilian economy and a shift in the composition of its exports towards pri-
mary products. The differential effects of growing relations with China have
created both winners and losers within Brazil. The main beneficiaries have
been a relatively small group of powerful global and Brazilian agribusinesses
and mining corporations. These are represented by the Brazil-China Busi-
ness Council (CEBC), which brings together major exporters to China such
as Vale, Usiminas, and Suzano Papel e Celulose, investors in China such as
Embraer, and Chinese firms with interests in Brazil. They emphasize the ben-
efits that the growth of China brings to Brazil through trade and investment
and stress the contribution that Chinese imports and investment make to
increasing Brazilian competitiveness. On the other hand, industrial interests
represented by the National Confederation of Industry (CNI), FIESP, and sec-
toral chambers of commerce have been highly critical of the negative effects
of Chinese competition on the manufacturing sector.
The Brazilian government did not capitalize on the growth of exports
during the commodity boom to obtain significant increases in government
revenue that could be used to promote upgrading. Chinese competition did
help to keep down prices of manufactured goods, which benefitted con-
sumers, but attempts by the Brazilian government to use industrial policy
to restructure the economy proved ineffective. Once the commodity boom
came to an end, the Brazilian economy struggled.
10.5.2 Mexico
Although Mexico is China’s second-largest trade partner in Latin America
after Brazil, the nature of this bilateral relationship is very different. Mexico
overtook Brazil as China’s largest market in the region in 2015, but Chinese
imports from Mexico are only about a fifth of the amount of those from
Brazil. As a result Mexico has a large trade deficit with China.30
This relationship has given rise to tensions between the two countries go-
ing back as far as the negotiations on China’s accession to the WTO. Mexico
was the last country to give its approval for accession, and maintained restric-
tions on imports from China for as long as possible. This reflected concern
30
The size of the deficit is a matter of debate, since Mexican and Chinese sources give very
different estimates (Dussel-Peters, 2005). In 2019 China reported a trade surplus of $32 billion
with Mexico, whereas Mexico reports a deficit of $76 billion (International Trade Centre (ITC)
data.
293
amongst Mexican policymakers that Mexican exports would suffer from

competition from Chinese goods in its major markets, particularly the USA.
Several studies identified Mexico as the Latin American country most likely
to face Chinese competition (Blázquez-Lidoy et al., 2007; Devlin et al. 2006,
Chapter 2). There was also concern that domestic manufacturers would lose
out to imports from China, where wages were much lower.
In contrast to Brazil and other South American countries, Mexico’s exports
to China are mainly of manufactured goods, and it has not developed large-
scale exports of primary products or resource-based manufactures.31 While
this might be desirable in terms of the sophistication of the export profile, it
has meant that a deficit in trade in manufactures with China has not been
compensated for by a large surplus in primary commodities.
In the absence of substantial commodity exports to China, much of the
discussion of the effect on Mexico has revolved around the impact on the
manufacturing sector, particularly on manufactured exports. Mexico devel-
oped significant exports of manufactures to the USA in the 1980s and 1990s,
initially through the maquiladora programme along its northern border. The
maquiladoras were in-bond plants which were allowed to import inputs duty-
free, as well as obtaining a number of other privileges provided that their
production was for export.32 The USA also had special categories in its tariff
schedule to allow imports from such plants, only paying duty on that part
of the value of the product that had been added in Mexico. As a result the
industry boomed in Northern Mexico with a particular concentration in tex-
tiles and apparel and the electrical and electronics industries. These were of
course the industries in which China was to become particularly competitive.
In 1994 NAFTA came into force, giving a range of Mexican manufactures
duty-free access to the US (and Canadian) markets, and Mexico overtook
Canada as the main source of imports to the USA. Its accession to the WTO
in 2001, however, gave China access to the US market on most-favoured-
nation terms, which cut the tariff preference margin enjoyed by Mexico. In
2003 it overtook Mexico as a source of imports to the USA.
If Chinese competition were to have an effect on Latin American exports
anywhere it would be on the Mexican maquiladoras. Indeed the industry,
which had grown rapidly during the 1990s, suffered a serious reverse in the
early 2000s. Employment, which had peaked at over 1.3 million in 2000,
had fallen by almost 300,000 by the end of 2003 (Sargent and Matthews,
2009, Table 2). Over the same period, total US imports from Mexico stag-
nated in dollar terms, while imports from China increased by more than
31
There has been some growth of exports of copper in recent years, but non-resource-based
manufactures continue to account for the bulk of exports.
32
See Sklair (1989, Chapter 3) and Wilson (1992, Chapter 3) for accounts of the development
of the maquiladora industry in Mexico.
294
70 per cent (own calculation from Sargent and Matthews, 2009, Table 1). The
Mexican Ministry of Labour estimated that 300 firms, mainly in the electron-
ics industry, relocated to China between 2001 and 2003 (Watkins, 2007, p.
155).
While this could indicate that China was a major cause of the crisis in the
maquila industry in the early 2000s, there were other contributory factors,
including the rising value of the Mexican peso and the removal of textile
quotas with the ending of the WTO Agreement on Textiles and Clothing in
2005. However, despite the existence of confounding factors, there is strong
evidence that Chinese competition did have a negative impact on Mexico’s
maquila exports.
Unusually, there are several studies based on plant-level data rather than
industry aggregates, which permits a much more disaggregated analysis of
the impact of Chinese competition taking account of the possible hetero-
geneity of impacts.33 All of these studies agree that US imports from China
had a negative impact on the Mexican maquiladoras. This is reflected in both
sales and employment, as well as in plant exits and entries. In other words
the greater the level of Chinese competition, the more likely it is that firms
will face falling sales and be forced to lay off workers or shut down plants
altogether. It is also more difficult for new firms to enter the industry, and
to survive if they do.
The industries which faced the greatest competition from Chinese im-
ports to the USA were apparel, footwear and leather, toys, and sporting goods.
These are relatively unskilled labour-intensive industries. On the other hand,
the lowest level of Chinese threat was in chemicals, auto parts, and food
processing, which tend to be more capital-intensive or resource-based in-
dustries (Utar and Ruiz, 2013, p. 271). This is consistent with the overall
shift in the composition of maquila exports away from traditional, labour-
intensive products. It is also reflected in the contrast between the trends in
employment in the three main sectors of maquila, with apparel declining
while electronics regained some of the levels lost at the beginning of the
decade, and auto parts expanded (Sargent and Matthews, 2009, Table 2).
How have firms responded to Chinese competition in the US market?
There is some evidence of upgrading within plants, with increases in pro-
ductivity and skill-intensity (Utar and Torres Ruiz, 2013). However Sargent
and Matthews (2008, 2009) have argued that the firms which have been most
successful in terms of surviving increased competitive pressure have adopted
a strategy that takes advantage of Mexico’s geographical position and
33
Studies include Shigeoka et al. (2006) and Utar and Torres Ruiz (2013), which both use official
Mexican data that have been made available at the plant level, and Sargent and Matthews (2008,
2009), who use their own plant survey.
295
its 2000-mile border with the USA. These firms have concentrated on ex-
ports of products with a high ratio of weight to value, and those which
require a high level of flexibility in response to demand.34 Firms that have
lost out have tended to be those producing highly standardized commodity-
type items which compete on the basis of price. These firms, whether
technologically sophisticated or producing low-technology products, have
struggled.
Chinese competition has affected not only Mexican exporters but also
those who are producing for the domestic market. As Figure 10.1 shows,
China’s share of apparent consumption in Mexico increased from less than
2 per cent in the early 2000s to more than 10 per cent by 2018. Indus-
tries with particularly high levels of Chinese import penetration included
computers and electronic goods, electrical equipment, leather and footwear,
furniture, textiles, and clothing (Table 10.1). Mexican manufacturers com-
plain that Chinese goods are smuggled into the country and that they face
unfair competition (Luna, 2014). In 2011 the Mexican Economy Secretary
expressed concern to the Chinese Commerce Minister about Chinese firms
declaring goods at falsely low prices and misclassifying products in order to
minimize import duties (Rojas-Mena, 2011).
Recently some commentators have claimed that Mexican wages are now
lower than Chinese wages (Yuk, 2013) While this may be an exaggeration,
it is certainly the case that the gap in wages between Mexico and China has
narrowed considerably since the mid-2000s (Kamil and Zook, 2013, Chart 3).
This should enable Mexico to regain some of its competitiveness with
China.
Since the global financial crisis, Mexico has reversed the decline in its share
of US imports of manufactures.35 However, this has not been at the expense
of China, which, despite increasing labour costs, has managed to maintain
its share of US manufactured imports at over a quarter of the total until it
dropped by more than 4 percentage points in 2019 as the trade war launched
by President Trump against China began to bite. Mexico has become more
competitive against other exporters to the USA as a result of increased pro-
ductivity and the depreciation of the peso against the dollar (Sirkin et al.,
2014). It also benefitted from proximity to the US market at a time when
high oil prices made it relatively more expensive to import goods from Asia
and US firms were increasingly adopting just-in-time manufacturing to hold
34
This is supported by Watkins’s analysis of China and Mexico’s exports to the US that shows
that Mexico is most competitive in products characterized by a high ratio of weight to value; qual-
ity rather than price competition; just-in-time delivery or frequent design changes; and where
protection of intellectual property is important (2013, p. 47).
35
Between 2008 and 2019, Mexico’s share of US imports of manufactures rose from
10.7 per cent to 15.1 per cent (own calculation from UNCTADStat data).
296
down the cost of inventories.36 This is in line with the emerging strategy of
manufacturers in Mexico to concentrate on exports of products which are
costly to transport or require speedy response to customer demand.

Although it is an important market for Chinese goods, Chinese investment in
Mexico has been limited. According to the official Chinese statistics, Mexico
only ranked sixth amongst LAC countries in terms of the stock of Chinese
outward FDI at the end of 2019 (MOFCOM, 2020). According to Mexican
sources, China was ranked twentieth in terms of its total stock of FDI and
only accounted for 0.25 per cent of the total in the country (Secretaría de
Economía, 2020, VI.7). The main sectors in which China invested between
1999 and 2019 were manufacturing (42 per cent of the total), information
and telecommunications (14 per cent), and mining (12 per cent) (Secre-
taría de Economía, 2020). However, given the low overall level of Chinese
investment, its contribution in each of these sectors was minimal.
A similar picture emerges in terms of Chinese lending to Mexico, with
the country ranked eighth in terms of total loans to LAC countries since the
mid-2000s. The China-Latin America Finance Database reports only one loan
to Mexico, to purchase oil-drilling equipment, provided by the China Exim
Bank (Gallagher and Myers, 2020). This loan of $1 billion represented less
than 1 per cent of total Chinese lending to the region between 2005 and
2019.
China’s involvement in infrastructure projects in Mexico has been lim-
ited and beset by problems. Less than 5 per cent of all Chinese engineering
contracts in LAC have been in Mexico in recent years (NBS, Database). The
highest-profile project, the high-speed rail link between Mexico City and
Queretaro, was cancelled as a result of a corruption scandal (Webber and
Mitchell, 2014).
CONCLUSION
The economic effects of China on Mexico are the consequence of China’s
emergence as a global manufacturing powerhouse. This has affected Mexico
both directly and indirectly. The most widely discussed impacts have been
the indirect effects on Mexican exports, particularly to the USA. It is clear
that this has had a negative impact on Mexican manufacturers, who face in-
creased competition from China, and has been a factor in reducing the level
of regional integration within NAFTA (Gallagher and Dussel Peters, 2013).
There have also been direct effects in terms of the increasing penetration of
the domestic market by Chinese imports. Although this has brought some
36
Kamil and Zook (2013). It remains to be seen whether low oil prices will reverse this shift.
297
gains to consumers in terms of lower prices, these need to be offset against

the losses in terms of employment and industrialization. Since Mexico does
not export primary commodities to China on a major scale, the trade losses
for the industrial sector are not compensated for by gains elsewhere, and nor
has there been any significant contribution from China through FDI, loans
or infrastructure projects.
10.5.3 Chile
Although Chile is a medium-sized economy in the Latin American context,
its trade with China is more significant than its size would suggest. It is
China’s second-most-important source of imports from Latin America and
the third-largest destination for Chinese exports. It was also the first country
to sign an FTA with China, in 2006.
China’s imports from Chile are dominated by copper, which in various
forms accounts for around three-quarters of the total. Chile benefitted both
directly from increased copper exports to China and indirectly from higher
copper prices owing to the growth in Chinese demand for copper during the
commodity boom. Although the value of imports from Chile declined with
the fall in copper prices after 2011, the volume of Chinese imports continued
to grow and the value increased as prices recovered.
Copper exports are an important source of revenue for the Chilean gov-
ernment. The country’s largest exporter is the state-owned mining company
CODELCO, the bulk of whose profits accrue to the state. The government
also receives significant royalties and taxes from the country’s privately
owned copper mines.37 This significant share of government revenue means
that the benefits from increased copper prices and exports to China can
be spread much more widely than in other cases where exports were in
the hands of private firms and taxes were minimal. There is widespread
agreement in the literature that copper revenues have contributed to the
improvement of living conditions in Chile (AfDB, 2016, p. 20).
Although Chile enjoyed a substantial improvement in its terms of trade
during the commodity boom, it did not experience the symptoms of Dutch
Disease. The Chilean government applied fiscal rules and created a stabiliza-
tion fund to ensure that fluctuations in copper prices and tax revenues did
not lead to excessive swings in government expenditure.38 As Kulkarni and
Hartman (2014) show, Chile was able to use government policies to avoid
Dutch Disease during the commodity boom.
37
In 2006 and 2007, copper accounted for a third of all government revenues, although by
2014, this had fallen to less than 10 per cent (AfDB, 2016, p. 8).
38
The Copper Compensation Fund (FCC) operated from 1987 to 2006, when it was replaced
by the Economic and Social Stabilization Fund (FEES) (AfDB, 2016, pp. 15–20).
298
Chile was the first country in the region to open up its domestic market
to foreign competition, following the military coup of 1973. This began a
process of trade liberalization which reduced import tariffs to 6 per cent by
2002 (Montfort, 2008, p. 3). Chile’s protected industrial sector was hard-hit
as a result, beginning the process of deindustrialization. By the time China
joined the WTO, the overall level of import penetration in the Chilean man-
ufacturing sector was already over a third (OECD, 2016, Figure 4.7). Chile
has one of the highest levels of Chinese import penetration of any country
in Latin America (see Figure 10.1).
CHILE-CHINA FTA
Chile began to negotiate an FTA with China in 2004. The agreement came
into force in 2006, and was followed by supplementary agreements on trade
in services (2010) and investment (2014). The Chilean government hoped
that this would help to increase non-traditional Chilean exports to China
and attract Chinese FDI to Chile (Wise, 2012, 2016). From the Chinese point
of view, an FTA would provide Chinese exporters with a competitive ad-
vantage in the Chilean market, although given the low tariffs in Chile, this
was relatively small. Some Chilean industrial sectors were, nevertheless, con-
cerned about increased Chinese competition. Opposition to the FTA was
particularly vocal in the textile and metallurgical industries and amongst
small and medium enterprises (León-Mariquez, 2011, pp. 165–6). In 2006 the
president of the Small and Medium Enterprise Confederation, Conapyme,
called for special support from the government in the face of Chinese com-
petition (Gachúz, 2012, p. 144). When it was signed, the agreement excluded
certain products in order to meet these concerns.39
The period following the creation of the FTA saw rapid growth in trade
between Chile and China. Exports to China continued to be dominated
by copper. Although exports of some non-traditional products, particularly
agricultural products such as fruit, wine, and salmon grew quickly, they ac-
counted for a small share of total exports. Imports from China grew even
faster than exports, although Chile continued to have a large trade surplus
with China.40
To what extent can the growth of this bilateral trade be attributed to the
FTA? The econometric estimates for the region as a whole show no evidence
that the existence of an FTA boosts bilateral trade (see Table 9.1). A limited
39
For some products, complete liberalization did not occur until 2015, while 152 products
imported from China, concentrated in textiles and clothing, were excluded altogether. Other
exclusions included specific types of cement, tyres, glass, and metal products.
40
Between 2005 and 2014, exports to China grew at an average of just under 16 per cent, and
imports grew by over 19 per cent per annum (Direcon, 2015, Table 2.3).
299
impact on Chilean exports to China is not surprising, since most of the cop-
per exported entered China duty-free before the FTA, and Chile does not
enjoy preferential terms compared to other exporters. The facts that Chile
was already a very open economy with low tariff rates prior to the signing of
the FTA with China and that it had FTAs with a number of other countries
meant that any preference margin for Chinese exporters was also small.41
Although there was some diversification of Chilean exports to China, the
gains were disappointing. Copper, which accounted for 80 per cent of ex-
ports in 2005, still made up 77 per cent of the total in 2014, despite the
fall in copper prices. Industrial products, broadly defined to include salmon
and wine, experienced a slight drop in their share from 13.8 per cent to
13 per cent over the same period. Agriculture, fishery, and forestry increased
from a very low level to make up 4.6 per cent of exports in 2014 (Direcon,
2015, Table 2.3). The number of firms exporting to China increased from
over 400 to more than 1,000 between 2005 and 2014, although only just
over 100 were regarded as well-established in the Chinese market (Direcon,
2015, p. 19).
China’s share of Chilean imports increased from around 10 per cent im-
mediately before the FTA came into force to over 20 per cent a decade later. As
elsewhere in the region, the imports included a wide range of manufactured
goods. The most important products imported included mobile phones,
computers, steel, cars, footwear, and toys (Direcon, 2015, Table 2.8). Accord-
ing to Organisation for Economic Co-operation and Development (OECD)
estimates, the share of imports from China in total apparent consumption
of manufactured goods in Chile doubled in five years from around 6 per
cent in 2005 to over 12 per cent by 2010 and continued to increase after
that (see Figure 10.1). The share was much higher in certain sectors such as
textiles and apparel, where it increased from 23 per cent to 65 per cent be-
tween 2000 and 2011, and in computers, machinery, and electronics, where
it went up from 23 per cent to 41 per cent over the same period (OECD,
2016, p. 99).

Until recently Chile had not been a significant destination for Chinese
FDI and only accounted for 3 per cent of the total stock of Chinese FDI
in LAC in 2015. Chilean figures show that only 0.1 per cent of the ac-
cumulated stock of FDI in Chile was from China in 2014 (Direcon, 2015,
Table 2.12), and total Chinese FDI since the FTA came into operation was
only $55 million, mainly in mining (Direcon, 2015, p. 27). Recently however
41
Between 2003 and 2007, Chile also signed FTAs with its other major trading partners, the
EU, the USA, and Japan.
300
major acquisitions by State Grid in electricity and Tianqi Lithium Corpo-

ration in mining have boosted China’s presence, increasing the share of
Chile in total Chinese OFDI in LAC to 6.5 per cent in 2019 (MOFCOM,
2020).
China has not been a significant source of finance for Chile. Unlike its
neighbour Argentina, Chile has a good credit rating on international mar-
kets, and has not needed to seek loans from the Chinese policy banks. The
only major finance that it has received from China was a $550 million loan
in 2006 as part of an agreement between CODELCO and Minmetals which
was tied to Chilean copper exports.
The level of Chinese involvement in infrastructure and engineering
contracts in Chile is also very limited.42 Historically the Chilean con-
struction industry has been dominated by domestic and European firms,
but there has recently been increased interest amongst Asian, includ-
ing Chinese, firms (Reuters, 2017). Chile also became a member of the
Chinese-led Asian Infrastructure Investment Bank in 2017. It is likely that
the presence of Chinese construction firms in Chile will increase in the
future.
CONCLUSION
Perhaps more than any other country in the region, China’s impact on Chile
revolves around the bilateral trade relationship. Chile has been a major bene-
ficiary of China’s demand for copper and continues to be so, despite the drop
in global copper prices. The potential downside in terms of Dutch Disease has
been avoided through the Chilean state’s control of copper revenues and
the establishment of fiscal policy rules to avoid excessive swings in public
expenditure. Copper revenues have also been used in part to fund social pro-
grammes, which have helped ensure a wider distribution of benefits than in
other countries in the region.
The fact that the Chilean manufacturing sector had already declined as a
result of the neoliberal policies of the Pinochet regime from the mid-1970s
meant that the impact of increased Chinese imports were not so devastating
in terms of plant closures and job losses as in countries with a larger and
more protected industrial sector. On the other hand, the benefits which the
Chilean government had hoped to obtain from signing the FTA with China
in terms of diversifying exports and expanding Chinese FDI have yet to be
realized.
42
In recent years Chile accounted for between 1 and 2 per cent of the value of completed
contracts by Chinese firms in LAC (NBS Database).
301
10.6 Conclusion
There is some truth in the picture that divides LAC countries into winners
and losers in terms of China’s economic impact. As Arteaga et al. (2020) show
there are significant differences in the impact of exports to China on eco-
nomic growth within the region. Whether a country is regarded as a winner
or loser, at least in the short to medium term, depends on the way in which it
was integrated into the global economy at the beginning of the twenty-first
century: those countries, mainly in South America, which had a compar-
ative advantage in minerals, fuels, and agricultural raw materials were the
main beneficiaries, while Mexico and a number of Central American and
Caribbean economies which served as export platforms for labour-intensive
manufactures supplying the US market were the main losers. The winners
also tend to be the countries that have received most investment and loans
from China.
This categorization of winners and losers, which is based on the export
specialization of different countries, only gives part of the picture. The dif-
ferences between countries are far less marked in terms of the increasing
share of Chinese manufactures on the domestic market. Throughout the re-
gion, manufacturers complain about ‘unfair’ competition from China. In
the longer term, concerns over deindustrialization and the primarization
of exports arose across LAC. For the winners, resources were attracted into
the commodity sector and away from manufacturing; for the losers, Chi-
nese competition made exporting manufactured goods less profitable and
again led to resources moving out of the manufacturing sector. Taken to-
gether with the increased competition from Chinese imports which affected
both groups of countries, the overall effect was to accentuate the regressive
structural changes that had begun in LAC in the 1980s with the adoption of
neoliberal economic policies. Despite claims that China’s relations with LAC
involve South-South cooperation and are mutually beneficial, the reality is
that they are reproducing the kind of centre-periphery relations which have
had negative impacts on LAC growth in the past.
Analysis that discusses the impacts of China on LAC in terms of countries
that are winners or losers also diverts attention from the distributional con-
sequences within countries. In fact it is sectors and groups within countries
that are the winners and losers. Extractive companies (both transnational
and state-owned) and agribusiness have been winners, while local manufac-
turers and unskilled workers are often the losers from China’s changing role
in the global economy.
The economic outcomes are not predetermined by a country’s position in
the global economy and its pattern of specialization: they also depend on the
local political economy of different countries and the capacity of the state.
302
Some states have been better able than others are to capture some of the
gains from increased Chinese demand for resources and changing patterns
of global accumulation, and to avoid the problems of Dutch Disease. The
state also has a role to play in terms of distributional outcomes through its
tax and expenditure policies.
303
11
Social, Political, and Environmental Impacts

in Latin America
11.1 Introduction
Chapter 10 showed that the rise of China has had varied economic impacts
on the countries of Latin America and the Caribbean (LAC). There has been
a tendency for attention to be focussed mainly on the economic aspects of
the relationship. Rather less has been written on the social, political, and en-
vironmental consequences of China’s growing involvement with the region.
Nevertheless, these are also potentially very significant and, thus, form the
subject of this chapter.
In terms of the social impact, one of the reasons why deindustrialization
is such a cause of concern is that it can lead to the loss of well-paid manufac-
turing jobs and undermine hard-won labour rights and working conditions.
The primarization of LAC exports has also created problems in the region
because the growth of extractive industries often brings them into conflict
with local communities.
The debate concerning the political implications of growing Sino-LAC
economic relations has mainly been about whether it poses a threat to US
interests in the region. Headlines claim that ‘Rising China threatens US
clout in Latin America’ (Grudgings and Gardner, 2011) and that China is
‘Undermining America while Washington sleeps’ (Coyner, 2016). On the
other hand, there are those who claim that Chinese interests in LAC are
solely economic, and that the Chinese government has sought to ensure that
growing economic relations are not seen as a challenge to the USA. From a
Latin American perspective, the growth of relations with China is seen as
providing the countries of the region with more policy space (Kaplan, 2016).
A third area of concern is the environmental impact of growing eco-
nomic relations with China. This is often linked to the primarization of LAC
exports because extractive industries are often major drivers of environmen-
Social, Political, and Environmental Impacts in Latin America
tal degradation (Cooney, 2016; Ray, 2017). Mining and oil and gas extraction
often give rise to high levels of pollution, while soybean and timber ex-
ports contribute to deforestation. Major infrastructure projects such as dams,
roads, and railways also have a significant environmental impact.
11.2 Social Impacts
11.2.1 Labour Market Effects

Chapter 10 showed how increased competition from China in both domestic
and export markets has had a negative effect on Latin American manufac-
turing. This has led to protests and demonstrations against Chinese imports
across LAC. In Brazil, trade unions have joined forces with industrialists to
lobby the government over the issue, and, in April 2012, a demonstration
against deindustrialization and job losses was held in Sao Paulo with support
from both employers’ organizations and trade unions. In 2013, thousands of
workers from the shoe industry took to the streets in six Colombian cities to
protest against Chinese imports (El Universo, 2013). In 2017 workers from
an Adidas factory in Argentina blocked roads to protest against dismissals as
a result of the firm deciding to import from China (Diario Popular, 2017),
and, in Mexico, 10,000 steel workers marched in the city of Monclova to
protest against the ‘dumping’ of steel from China and the loss of 4,500 jobs
(Reforma, 2015).
There are a number of reasons why Chinese competition might be
expected to have a negative impact on labour. Reduced output and plant
closures as a result of increased imports or loss of export markets lead to job
losses and put downward pressure on wages. The fact that Chinese competi-
tion has been particularly intense in a number of labour-intensive industries
such as clothing, footwear, furniture, and toys in several Latin American
countries suggests that the impact on employment is likely to be even
greater than on production. This may be reinforced within industries when
the firms that are worst hit are the smaller, most labour-intensive firms, as is
often the case. Responses at firm level to Chinese competition can also dis-
proportionately affect workers, particularly unskilled workers, when firms
invest in more capital-intensive technologies or move out of more labour-
intensive products or processes and concentrate on those which rely less on
low wages.
Studies of several Latin American countries have shown that Chinese
competition has led to job losses in manufacturing.1 Table 11.1 provides
1
See Dussel-Peters and Armony (2017) on Argentina, Brazil, Chile, and Mexico;
Salazar-Xirinachs (2018) on Brazil, Chile, Mexico, and Peru; Artuc et al. (2015) on Argentina,
305
Table 11.1. Estimated reduction in manufacturing employment

in Latin America from trade with China
ILO 1995–2011 IDB 2000–2013
Argentina 5.3%
Brazil 0.4% 0.3%
Chile 4.3%
Colombia 3.6%
Mexico 7.1% 3.5%
Peru 5.5%
El Salvador 14.3%
Total 4 countries 3.1% N/A
Source: Col (1): own elaboration from Dussel-Peters and Armony (2017), Tables 1A,
2A, 3A, 4A, and 5A; Col. (2): Moreira and Stein (2019, p. 116).
quantitative estimates of the impacts on employment from two studies that

covered several Latin American countries. The first carried out for ILO uses
sectoral decomposition data to calculate the effects of trade with China
on manufacturing employment between 1995 and 2011 (Dussel-Peters and
Armony, 2017), while the second is based on a set of studies for the IDB,
using firm and household data to estimate employment effects between 2000
and 2013 (Moreira and Stein, 2019, p. 116).2
El Salvador is the country that has been most affected, with around one in
seven jobs in manufacturing being lost to Chinese competition. Both studies
show that Brazil has been the country where employment has been least
affected, partly because it adopted more protectionist policies from 2004. The
other countries saw employment losses of between 3 per cent and 8 per cent
over a decade or more. (Table 11.1).3 Studies that distinguish between skilled
and unskilled workers agree that it is the latter who have been most affected
by Chinese competition.
Although there is considerable evidence that manufacturing employment
has been negatively affected, evidence of the impact on wages is less clear-
cut. Some studies have found a negative impact of Chinese competition on
Brazil, and Mexico; Mendez (2015); Caamal-Olivera and Rangel-González (2015); Blyde et al.
(2017); Chiquiar et al. (2017); Blyde and Fentanes (2019) and Blyde et al. (2019) on Mexico;
Saslavsky and Rozemberg (2009); Paz (2016); Moreira et al. (2020) and Paz (2019) on Brazil;
López and Ramos (2009) and Castro et al. (2009) on Argentina; Molina (2020) on Colombia;
Li and Moreira (2019a and 2019b) on El Salvador; Mercado et al. (2019) and Pierola and
Sánchez-Navarro (2020) on Peru; and Alvarez and Claro (2009) and Pellandra (2017) on Chile.
2
Although the studies cover different time periods, Chinese import penetration was relatively
low in the 1990s so that most of the effects measured in the ILO study occurred after 2000 which
make it quite comparable to the IDB studies.
3
Other estimates for Mexico include Blyde et al. (2017) who give a figure of 4.2 per cent,
Blyde et al. (2019) who estimate that manufacturing employment would have been 8 per cent
higher in 2013 if import penetration had remained at 1998 levels, and Artuc et al. (2015), whose
simulations show a reduction of 6 per cent in formal and 2.6 per cent in informal manufacturing
employment.
306
wages in Latin America,4 while others have found no impact.5 Even those
studies which do find that Chinese competition has reduced wages conclude
that the effect is relatively small and some workers, particularly the more
skilled, have seen their wages increase.6
Another concern over the impact of Chinese competition on the labour
market is that it may lead to the increasing casualization of labour and the
growth of informal employment. The outcome will depend on how firms
respond to increased competition. If smaller, less efficient firms, which tend
to be more informal, are most affected, or if large firms contract by laying
off temporary workers, it is possible that informality declines as competition
intensifies. On the other hand, if firms respond by trying to reduce labour
costs by replacing formal workers with cheaper ones, informality is likely to
increase. In Mexico, Blyde et al. (2017) found that increased import penetra-
tion was associated with a reduction in the number of permanent workers
and an increase in casual labour.7 Informal employment also increased in
Peru (Pierola and Sánchez-Navarro, 2020) and in El Salvador where some
displaced workers from the manufacturing sector ended up in informal agri-
cultural jobs (Li and Moreira, 2019b). In Brazil, on the other hand, there
was either no impact of import competition on informality (Costa et al.,
2016) or even a decline in informality (Paz, 2016).8 It is difficult, therefore,
to generalize about the impact of China on the nature of employment.
However, the concern about the impact of Chinese competition on labour
is not really about the impact on the economy as a whole but rather the
way that it plays out for particular groups of workers in specific industries
and localities. As seen in Chapter 10, the level of Chinese import penetra-
tion varies considerably across industries. This means that although at the
4
See Blyde et al. (2017); Blyde et al. (2019); Chiquiar et al. (2017); Artuc et al., (2015); and
Caamal-Olvera and Rangel-González, (2015) on Mexico, Molina (2020) on Colombia, Pierola
and Sánchez-Navarro (2020) on Peru and Costa et al. (2016) on Brazil.
5
See, for example, Mendez (2015) on Mexico, Paz (2016) on Brazil and Li and Moreira (2019b)
on El Salvador.
6
There are a number of possible reasons why, despite a negative impact on employment in
manufacturing, this is not reflected in a substantial fall in wages. First, reductions in manufac-
turing employment can be offset by increases in employment in other sectors, which affects
the overall level of wages. Second, where it is the lower-paid, less-skilled workers who are most
affected by job losses and where firms respond to Chinese competition by upgrading to more skill-
intensive products, the average wage within firms may increase as employment shrinks. Third,
where the level of wages is institutionally determined by trade-union bargaining or minimum-
wage legislation, or where there is a surplus of labour which keeps down wages, changes in
labour-market conditions affect employment rather than wages.
7
Simulations for Mexico in Artuc et al. (2015, Figure 15) also show a reduction in formal
employment.
8
The simulations for Brazil in Artuc et al. (2015, Figure 12) show little change in the ratio
between formal and informal employment as a result of China’s impact.
307
macroeconomic level the impacts on employment and wages may be rel-

atively modest, it hides substantial impacts within certain industries and
regions.
The main manufacturing industries where jobs have been displaced as a
result of competition from Chinese imports are computers, electronic and
optical equipment, and textiles, clothing, leather, and footwear in Brazil
and Chile; computers, electronic and optical equipment, and chemicals in
Argentina; and computers, electronic and optical equipment, and electrical
machinery in Mexico (Dussel-Peters and Armony, 2017, Table 6).
Some sectors are much more affected by Chinese competition than others
are; therefore, workers in the regions in which these industries are concen-
trated are most severely affected. In the case of Mexico, these are the areas
nearest the US border such as Tijuana, Juarez, and Mexicali (Chiquiar et al.,
2017). For example, whereas one estimate suggests that the overall level of
manufacturing employment in Mexico would have been just over 4 per cent
higher had import penetration from China not increased between 1998 and
2013, employment in Mexicali would have been 27 per cent higher in 2013
(Blyde et al., 2017, p. 17). In Brazil there were considerable differences in
wage growth between microregions that faced competition from Chinese
imports and those which specialized in producing goods that Brazil ex-
ported to China (Costa et al., 2016). Similar results were found at the level
of provinces in Chile (Pellandra, 2017).
Although Chinese imports displace local manufacturing jobs, there is an
offsetting effect from increased employment generated by exports to China.
A report for the International Labour Organization (ILO) estimates that when
these are taken into account, trade with China had a positive impact on
employment in Brazil and Chile, a small negative effect in Argentina, and
a substantial negative impact in Mexico (Dussel-Peters and Armony, 2017,
Table 5).9 Taking the four countries together, it is claimed that trade with
China led to a net increase of more than 1.1 million jobs between 1995 and
2011.
It is likely that these estimates exaggerate the positive impact of exports
to China on employment in Latin America. The most important sectors in
terms of generating employment are agriculture, mining, and wholesale and
retail trade. However, these are very broad sectors, and the sectoral employ-
ment coefficients that are used in the study to calculate employment effects
are likely to be quite different from the actual number of jobs created per
dollar exported to China; for instance, in the case of agriculture, the bulk of
9
The differences between the four countries partly reflect the fact that Brazil and Chile’s trade
with China have been in surplus in recent years, whereas Argentina’s has been closer to balance,
and Mexico has had a large trade deficit.
308
LAC exports to China consists of soybeans produced using capital-intensive

techniques on large commercial farms. Indeed, soybean production is the
least labour-intensive crop produced in Argentina (Choumert and Phelinas,
2016). It is also difficult to believe that exports to China created more than
half a million additional jobs in wholesale and retail trade in the four Latin
American countries between 1995 and 2011 (Dussel-Peters and Armony,
2017, Table 6).
The overall effect of growing trade with China on employment in Latin
America has not been very large, but there have been shifts in the com-
position of employment out of manufacturing and into agriculture and
mining. The negative impacts have been felt by particular groups of work-
ers, especially unskilled workers in industries such as clothing and footwear
and electronics, and in regions which specialized in those industries. The
main impact has been on employment levels, and the effects on wages and
working conditions, including casualization, are much less clear.
CHINESE FOREIGN DIRECT INVESTMENT

Although the effects of trade are the most important in terms of the impact
on the labour market, foreign direct investment (FDI) by Chinese firms has
also contributed to employment in the region. Unfortunately, very little data
are available on employment by Chinese firms in Latin America. One esti-
mate of employment associated with Chinese investment in Latin America
between 2003 and 2009 put the total at around 50,000 jobs, more than half
of which were in Brazil (Rosales and Kuwayama, 2012, Table II.12). Chinese
FDI in the region has increased significantly since then, and a more recent
estimate claimed that total employment created by Chinese FDI between
2000 and 2017 came to almost 300,000 (Salazar-Xirinachs et al., 2018,
Table 5).
The estimates of employment by Chinese firms do not necessarily present
an accurate picture of the extent to which local jobs are created. First, the
degree to which the figures on employment by Chinese firms reflect the
extent of job creation as a result of inward investment depends in part
on the mode of entry. Where this involves the acquisition of an existing
firm, there is no necessary new job creation, merely a change in owner-
ship. On the other hand, if it is a greenfield investment, in other words,
it involves the building of a new production facility, new jobs are created.10
Because a significant proportion of the investment by Chinese firms has in-
volved M&As, the number of jobs created by greenfield investment between
10
This oversimplifies matters in that the acquisition of a failing firm by a foreign investor
might avoid job losses that would otherwise have taken place, and could, therefore, be regarded
as job creating relative to the alternative in the absence of FDI.
309
2000 and 2017 was only a little over 110,000 (Salazar-Xirinachs et al., 2018,
Table 5).
CHINESE PROJECTS
A further source of employment by Chinese firms is in construction and
engineering projects which are not classified as FDI. According to the ILO,
based on information on sixty large Chinese infrastructure projects under-
taken between 2005 and 2016, a total of almost 200,000 jobs were directly
created11 , with a further 140,000 indirectly employed (Dussel-Peters and
Armony, 2017, Table 11). However, the bulk of this employment was created
during the construction phase, and the estimate of long-term employment
once construction was complete was only around 10,000. Assuming that the
construction phase lasted around two years for each project, the annual num-
ber employed as a result of these projects, including indirect employment,
would be less than 100,000.
Some of the jobs in Chinese projects in LAC are filled by Chinese nation-
als. According to official Chinese figures, around 20,000 Chinese workers
were employed in projects in the region at the end of 2018 (NBS, 2019,
Table 11.22). The use of Chinese workers has not been as extensive in Latin
America as in Sub-Saharan Africa (SSA). There have been instances, however,
where this has been an issue. In Peru, Shougang brought in a large number
of Chinese workers when it acquired the Marcona mine in 1992, but violent
protests quickly resulted in their being sent back to China (Sanborn and
Chonn, 2015, p. 35). Today only 20 to 40 of the company’s 2000 employees
in Peru are Chinese (ibid, p. 28).
The larger, more developed LAC countries, such as Brazil, Argentina, and
Mexico, have regulatory frameworks which require foreign companies to use
local workers. In 2015 the Brazilian government refused to allow the Chinese
company State Grid to bring in 11,000 Chinese workers to build the power-
transmission line from the Belo Monte hydroelectric plant (Couto, 2015).
Extensive use of Chinese workers in the Western hemisphere has tended to be
concentrated in the smaller Caribbean countries which have less bargaining
power to require the use of local workers, but even here, the trend has been
towards reducing their number (Shortell, 2014).
These intercountry differences underline the importance of the role of the
state in permitting the entry of large numbers of unskilled Chinese workers
for such projects. The larger Latin American countries also have a more
skilled labour supply than the small Caribbean states.
11
By 2019 this figure had increased to almost 275,000 (Dussel-Peters, 2020a, Table 4)
310
CONCLUSION
The overall impact of China on employment in LAC is relatively small. Since
the total regional labour force in 2015 was around 300 million, even the most
generous estimate of the total employment created by Chinese trade, FDI,
and infrastructure projects comes to far less than 1 per cent of the total.12 It
is not even clear whether, when the effects of exports on employment are
properly accounted for, trade has a positive impact on employment. It also
seems unlikely that the total additional employment created by Chinese out-
ward FDI (OFDI) and infrastructure projects in the region is anywhere near
the 600,000 estimated by Dussel-Peters and Armony (2017) once account is
taken of the fact that a high proportion of Chinese FDI has come through
mergers and acquisitions rather than greenfield investment and that most
of the employment included for projects only lasts during the construction
phase, with relatively few permanent jobs created.
The real concern over the effect of relations with China on employment is
the job losses that tend to be concentrated in certain industries and regions.
Because the aggregate employment effects are relatively small, the impact on
average wages is not very large. Nor is there much evidence on the impact of
China on working conditions and labour rights in the region. This is an area
where more research is required.
11.2.2 Impacts on Local Communities

The social effects of the growing economic relations between China and
LAC go beyond the impact on the labour market. Extractive industries
and major infrastructure projects such as roads and dams not only affect
those employed in these activities but often also have major impacts on
the local communities in the regions where they are located. Some of these
impacts are positive. They may create employment and business opportuni-
ties for those who live locally. The resulting infrastructure may benefit the
communities and the companies involved. They may also bring additional
revenues to local authorities where host-country legislation ensures that not
all the revenue goes to central government. Foreign investors also often
include community development programmes in local communities in their
corporate social responsibility activities in order to retain local support.
On the other hand, large-scale projects can also have negative effects on
local communities, particularly when there is little or no consultation with
those affected and where regulation is weak. Open-cast mining and dams
often require communities to be moved and resettled elsewhere. This may
12
Dussel-Peters and Armony (2017) give a figure of 1.8 million for the total employment
created.
311
also involve the loss of agricultural land or encroachment on traditional

communal lands. Increased pressure on resources, particularly water, may
affect existing economic activities such as agriculture or tourism. There may
also be local environmental impacts such as water or air pollution as a result
of the activities. Finally, there are the sociocultural impacts of resource-based
development on indigenous peoples.
Extractive industries and infrastructure projects can often give rise to
conflict with local communities which sometimes become violent.13 Such
conflicts have a number of underlying causes. Some are directly related to the
negative effects of the project, such as the displacement of people, conflict
over access to land and water, and damage to the local environment and/or
people’s health. Others are caused by disputes over the distribution of rev-
enue generated by the project, including the extent to which communities
are compensated and/or share in such revenue. There can also be tension
where local officials are suspected of corruption, and conflict where commu-
nities’ expectations concerning the benefits that a project will bring are not
met, either because they have been exaggerated or because of a failure by
companies to keep their promises. This is all the more likely to occur when
there is a lack of consultation and dialogue with the affected communities.
China’s involvement in resource extraction in Latin America has had both
positive and negative effects on local communities. One estimate claims that
new investment by Chinese firms in raw materials in Latin America created
over 60,000 jobs between 2001 and 2016 (Dussel and Ortiz-Velasquez, 2017,
Table 2).14 While some of those employed will come from local communities,
others will be employed elsewhere or move to the affected region. This can
create tension, particularly where local expectations regarding employment
are not met. In Ecuador, in 2007, there was widespread violence as a result of
grievances against the Chinese firm Petroriental when it failed to create the
number of jobs for locals that had been expected (Ellis, 2014, p. 156).
Another, positive impact is the opportunities created for local businesses.
Shougang, which has been much criticized in Peru in other respects, was
found to perform better than other mining companies in terms of purchases
of local goods and services in the area where it operated (Irwin and Gallagher,
2013). Chinese firms have also undertaken community development pro-
grammes, building schools and clinics in neighbouring communities. In
Peru, Chinalco created the Fondo Social Toromocho, and MMG set up the Fondo
Social Las Bambas, to support such activities.
13
In Peru, for example, it was reported that 53 people were killed and almost 1,500 injured in
social conflicts, most of which were related to extractive industries, between 2011 and 2016 (The
Economist, 2016).
14
This does not include those employed as a result of mergers and acquisitions by Chinese
firms.
312
All extractive-industry and large-scale infrastructure projects are liable to

have negative impacts which can give rise to conflict with local communities,
and Chinese firms are no exception. In Peru Chinalco’s Toromocho mine
involved the resettlement of 5,000 people from the town of Morococha to
an entirely new settlement. Although this case is often quoted as an example
of a Chinese company which engaged in consultation with the community
and carried out the resettlement in a sensitive manner, other reports indicate
that there were significant problems with the resettlement.
Another area of conflict has been access to resources, particularly water.
In Peru, attempts by a consortium of Chinese firms, led by the Zijin Mining
Group, to develop the Rio Blanco copper and molybdenum mine in Piura
near the border with Ecuador has been blocked by opposition from local
communities supported by the Catholic Church and national and interna-
tional non-governmental organizations (NGOs) (Sanborn and Chonn, 2015,
pp. 43–6). One of the objections raised against the Rio Blanco mine is that it
will reduce the availability of water for agriculture in the region (Ellis, 2014,
p. 150). In Argentina, CMC had to suspend operations at the Sierra Grande
mine because it was unable to reach an agreement with the government to
obtain an adequate supply of water (Ellis, 2014, p. 165).
Other problems have arisen where local communities are affected by
pollution. In Puebla, Mexico protestors opposed the reopening of a gold,
silver, and copper mine by Chinese-owned JDC Minerals because of con-
cern that it would contaminate the groundwater (Ellis, 2014, p. 150), and
Shougang’s iron ore mine in Peru has been criticized for dumping mine
tailings in local rivers (ibid, p. 165).
Some of these conflicts with local communities involve indigenous peo-
ples. In Honduras, members of the Lenca indigenous group resisted displace-
ment by Sinohidro’s Agua Zarca hydroelectric project (Ellis, 2014, p. 151). In
Ecuador the Sápara and Kichwa indigenous groups have protested against
oil exploration by Andes Petroleum, jointly owned by the China National
Petroleum Corporation (CNPC) and Sinopec, in the Tarapoa bloc (Ray and
Chimienti, 2017). Also in Ecuador, the Shuar resisted the development of the
Mirador and San Carlos Panantza mines by the CRCC-Tongguan consortium
(Quilliconi and Vasco, 2021)
There are also conflicts as a result of companies failing to fulfil their
promises or meet the expectations of local communities. In Peru, protests
were triggered at the Las Bambas copper mine following changes to the
design after it was taken over by MMG, a subsidiary of China Minmetals (The
Economist, 2016). Shougang, also in Peru, failed to meet the expectations of
the local community in terms of providing water and electricity, giving rise
to tension (Ellis, 2014, p. 157). As mentioned earlier, there are also examples
of community expectations regarding employment not being met.
313
Although there are numerous examples of conflict between Chinese com-

panies and local communities in Latin America, Chinese extractive and
infrastructure firms are by no means unique in this regard (Valderrey-
Villar and Lemus-Delgado, 2019). There is a considerable body of literature
on conflicts between foreign investors and local communities in Latin
America (Bebbington, ed., 2012; Haslam and Tanimoune, 2016; Hazin,
2013; Viscidi and Fargo, 2015). Are Chinese firms any different from
other foreign investors in Latin America in terms of their effects on local
communities?
A number of arguments have been put forward as to why Chinese firms
may be less concerned about their social impact than other foreign compa-
nies. First, until recently, they have not needed to worry about such issues at
home, and are merely transferring their domestic practices to Latin America.
It comes as a surprise to Chinese companies when, having obtained govern-
ment approval for their operations, they face local opposition and demands.
They are not used to having to consult and enter into dialogue with local
communities.
Second, whereas Western companies’ activities in the region attract the
attention of the media and NGOs in their home countries, this is far less
likely to occur in China, where criticism of Chinese FDI is rare (Shankle-
man, 2009, p. 57). Finally, conflict may arise simply from Chinese com-
panies’ lack of experience in operating abroad, which gives rise to culture
clashes with local communities. As the general manager at Lumina Copper
SAC, a joint venture between Minmetals and Jiangxi Copper commented,
‘The Chinese are used to top-down management, [whereas] Peru func-
tions more along the lines of a bottom-up approach. Learning how to
work in Peru is a cultural quantum leap for China’ (quoted in Kotschwar
et al., 2011).
Although these explanations are plausible, there is a risk of presenting a
homogenous view of Chinese companies which loses sight of the differences
amongst them and the important role of contextual factors in determining
the impacts of investment and the likelihood of conflict, attributing their
impact simply to their nationality (Gonzalez-Vicente, 2013). There is a lack
of systematic evidence to test claims that Chinese firms are more likely to
have a negative impact on local communities in LAC than firms from other
countries.15 In fact most of the examples of social conflict between foreign
investors and local communities cited in the literature involve firms from
15
Two comparative studies of Chinese and other mining companies in Peru focus mainly on
labour issues and environmental impacts and provide little information on impacts on local
communities (Kotschwar et al., 2012; Irwin and Gallagher, 2013).
314
countries other than China.16 This may reflect the fact that other foreign
investors continue to be more significant than the Chinese in the region17
or biases in the reporting of such conflicts, but it certainly shows that such
conflict affects a wide range of foreign firms.
Many of the reasons given for expecting Chinese firms to be particularly
damaging for local communities are changing over time. Concern about
social impacts is increasing both at home and abroad, and Chinese firms
are coming under greater scrutiny. They are also learning as they acquire
more experience of operating in Latin America. The case of Chinalco in Peru
is often cited as an example of such learning, and its experience in develop-
ing the Toromocho mine contrasted with the earlier example of Shougang in
Peru. Despite initial resistance from the community, the majority of residents
agreed to relocate to a new town by 2013, and although problems remain to
be resolved, major conflict has been avoided. As Sanborn and Chonn (2015,
p. 42) comment, Chinalco ‘has raised the bar for community relocations by
prioritizing dialogue and consensus building rather than sheer use of force’.
There are other examples of Chinese companies which have made seri-
ous efforts to avoid negative impacts on local communities. In Bolivia a
joint venture between China’s Jungie Mining and the Alto Canutillos mining
cooperative found during consultation that the local community in
Tacobamba was opposed to the opening of a tin-processing plant near the
mine, and the firm agreed to locate on a site 25 miles away, avoiding
potential conflict (Saravia López and Rua Quiroga, 2017).
There is insufficient evidence to make systematic comparisons between
Chinese and other transnational companies in terms of their impacts on local
communities. In some cases it has been suggested that Chinese companies
enjoy better relationships with local communities than the previous owners
or other foreign companies.18 If it is a factor, the nationality of a firm is
only one of many that explain the impact of FDI on local communities. As
some commentators have observed, the capabilities and interests of the host
government and the degree of mobilization of the local population in the
affected area are likely to be more important in determining the outcomes for
local communities than the national origins of the firms involved (González-
Vicente, 2013).
16
Only 7 out of more than 200 mining conflicts recorded by the Observatory of Mining Con-
flicts in Latin America (OCMAL) involved a Chinese firm as the main investor (Shapiro et al.,
2018, Table 5). Similarly, very few of the cases cited in a study of mining conflicts in Colombia,
Mexico, and Peru involved Chinese firms (Hazin, 2013).
17
Shapiro et al., (2018, Table 5) find that relative to the number of mining projects in LAC,
Chinese firms are more likely to have been involved in a conflict.
18
Ray and Chimienti (2017) claim that in Ecuador two Chinese-owned companies, Andes
Petroleum and PetroOriental, have had a more positive relationship with both government and
civil society than the previous owner, Canadian firm Encana.
315
11.3 Political Impacts
11.3.1 The Debate

As seen in Chapter 8, discussions in the West of the political consequences
of China’s growing economic relations with SSA have focussed mainly on
their impact on the internal politics of these African countries. The de-
bate has been couched in terms of governance issues and whether China’s
involvement in the region is an obstacle to the West’s efforts to promote
‘good governance’. Although there is some discussion of these issues in rela-
tion to LAC, the main political issues that are raised, particularly in the US,
relate to international relations, often couched in terms of the ‘China threat’,
which sees growing Chinese economic involvement in LAC as a challenge
to strategic US interests in the region.19
In a statement at a hearing before the House of Representatives’ Subcom-
mittee on the Western Hemisphere, Congressman Dan Burton highlighted
these concerns:
I am very concerned with the rise of influence China is pursuing in our Hemi-
sphere and I believe it is important that the USA grasps the economic, social and
national security implications of a Latin America under the thumb of China.
Once China is able to move in and expand control, it will be difficult to turn the
tide.
(Burton, 2008)
In 2009 the then US Secretary of State Hillary Clinton expressed concern

about the inroads that China (along with Iran) was making in Latin America,
which she saw as a threat to US interests (Erikson, 2011, p. 119). Under
President Trump the US government adopted an increasingly hostile atti-
tude towards China and this was reflected in pressure on LAC countries to
reject Chinese overtures, and a reassertion of the Monroe Doctrine for the
region (Ominami, Fortin and Heine, 2020). In 2018 then Secretary of State
Rex Tillerson warned that ‘Latin America does not need new imperial powers
that only benefit their own people. China’s state-led model of development is
reminiscent of the past. It doesn’t have to be the hemisphere’s future’ (quoted
in Shixue, 2018).This message was reiterated by Tillerson’s successor Mike
Pompeo and defence secretary James Mattis on their visits to the region.
It is possible to distinguish two versions of the ‘China threat’ thesis. As was
seen in Chapter 9, one version sees China’s growing economic relations with
Latin America as part of a geopolitical strategy to replace the current global
19
For a Chinese review of US views on China’s role in Latin America, see Sun (2012), and for
a US analysis, see Erikson (2011).
316
system by a more multipolar one in which China plays a leading role (Xiang,
2007, 2008). A second version of the ‘China threat’ thesis, while recognizing
that the involvement of China in LAC has been driven by economic con-
siderations, argues that growing economic relations give China considerable
political influence, which it uses to garner international support. Although
this view does not regard China’s economic expansion in the region as strate-
gically motivated, nevertheless it does see growing Sino-LAC relations as a
challenge to US hegemony in the region (Ellis, 2014, p. 207).
An alternative view of China’s growing economic relations with LAC sees
them as a consequence of globalization and China’s deepening integration
with the global economy (Erikson, 2011; Sun, 2012). While this has in-
evitably led to closer political and diplomatic ties with the region, these do
not threaten US interests, and the US retains considerable influence in LAC
(Trinkunas, 2016). During the Obama administration, the US government’s
official position played down concerns about China’s growing relations with
LAC, and even went so far as to welcome them as a good thing under the
right circumstances (Ellis, 2014, p. 207). This changed significantly during
the Trump administration as was illustrated by the warnings against closer
ties to China issued by Tillerson, Pompeo and Mattis.
On the Chinese side, there is recognition that Latin America is a US sphere
of influence, and as a result the Chinese government has tried to avoid
antagonizing the US by developing especially close political relations with
governments in the region that are hostile towards the US. As Jiang Shixue
(2008, p. 40) comments, ‘China is well aware of the fact that the USA consid-
ers Latin America its backyard, and China has no intention of challenging
US hegemony in the region’. For China, its relationship with the US is more
important than its relationship with any Latin American country, and its
relations with LAC have been pragmatic rather than ideological.
While these issues are a cause of concern in the US, from a Latin American
point of view, China’s increased presence in the region is often viewed more
positively. The relationship with China is often framed in terms of South-
South cooperation, in contrast to the unequal North-South relations with
the developed world (Harris and Arias, 2016). Growing relations with China
can provide greater policy space for Latin American governments and reduce
their dependence on the US and international financial institutions (Cesarín,
2007; Le-Fort, 2006).
Since the region’s debt crisis in the 1980s, LAC countries have sought to
avoid fiscal deficits In order to maintain their credit ratings, which put a
limit of government expenditure. The availability of Chinese funds which
are provided without imposing macroeconomic conditions on the recipient,
has enabled some regimes in the region to increase their social expenditure,
317
particularly where loans were granted directly to the government, as in the

case of Venezuela and Ecuador.20
Although China has not attempted to export its own model of devel-
opment, its economic success has shown that there are alternatives to the
neoliberal model. This provided a background against which to challenge
existing policies leading to a revival of more statist approaches including
for example a re-evaluation of the case for industrial policies in the region
(Fernández-Gilberto and Hogenboom, 2010).
11.3.2 Empirical Evidence

The pattern of Chinese trade and investment in Latin America is consis-
tent with China’s emphasis on national sovereignty and non-interference
in the internal affairs of other countries, which means that it is willing to
do business with a range of different regimes (see Chapter 9). The economet-
ric model used in Chapter 9 showed that the only geopolitical factor with
a significant impact on Chinese involvement in Latin America is whether a
country recognizes the People’s Republic of China (PRC) or Taiwan. A coun-
try’s voting record in the UN General Assembly, which is often regarded as an
indication of broad political alignment in international affairs, is not a signif-
icant determinant of economic relations.21 There is, therefore, little evidence
to support the strongest version of the ‘China threat’ thesis, which assumes
that China’s economic expansion to the region is motivated by geostrategic
objectives.
This does not rule out the second version of the ‘China threat’, which
argues that closer economic links with the PRC have an effect on the political
alignment of Latin American countries. This raises several questions. How
much potential political leverage do these economic relations give China,
particularly compared to the US, in the region? What evidence is there that
China is using its economic clout to influence the foreign policies of LAC
countries? Is there a convergence between the positions of China and LAC
in international affairs? If so, does this reflect China’s influence, or does it
20
Kaplan (2016) compares the cases of Venezuela and Brazil. In Venezuela the Chavez and
Maduro governments used Chinese loans to finance their social programmes which would not
have been possible had they needed to raise funds on international capital markets. In Brazil,
Chinese loans were less significant and not provided directly to the government, which continued
to rely on the financial markets and consequently had much less autonomy to run fiscal deficits
than Venezuela.
21
See Table 9.2. The only statistically significant relationship with a country’s votes in the
UN was for Chinese exports to LAC and this was only significant at the 10 per cent level. Given
that trade, particularly exports to LAC, are carried out mainly by commercial actors, it is highly
unlikely that consideration of a country’s political stance internationally would have influenced
decisions.
318
Table 11.2. Shares of Latin American trade with China and the United States, 2019 (%)
Exports to Imports from

China USA China USA
Latin America & Caribbean 12.0 43.7 18.3 31.9

South America 23.2 14.7 20.9 18.3
Mexico, Central America, & Caribbean 1.6 70.7 16.4 41.9
Source: Own elaboration from UNCTADStat.
rather reflect a convergence of interests which can be better explained by

internal forces within the region?22
One indicator of potential leverage is the relative dependence of a coun-
try on China or the US in terms of trade, FDI, or finance. Where trade is
concerned, the US is much more significant for the region as a whole than
China is, both for imports and exports. However, as Table 11.2 shows, this
is because of its close ties with Mexico, Central America, and the Caribbean,
while in South America, China is ahead of the US. However, even at the level
of individual countries, China’s position is not overwhelmingly significant.
Despite the recent increase in Chinese foreign investment, China’s share
of total inward investment in Latin America remains very low (less than
10 per cent) making it a relatively minor player compared to the US which
accounts for 25 per cent of FDI inflows (see Chapter 9). Chinese loans to Latin
America are much greater than official lending by the US government. How-
ever, this is rather misleading, since most US lending to the region comes
from the private sector. The only countries in the region where debt to
China accounted for more than 10 per cent of GDP have been Venezuela
and Ecuador and some of the Caribbean islands (See Table A9.1), Both
South American countries are regarded as high-risk by international finan-
cial markets and have, therefore, relied heavily on Chinese financing. Other
countries in the region receive little funding from China relative to other
sources.
Although Sino-LAC economic relations have grown significantly in
recent years, they are not on such a scale as to give China substantial po-
litical leverage in most countries in the region. Even in cases where the
economic relationship gives China the potential to influence a country’s
policies, this is not necessarily exercised. There is some evidence of trade
being used to gain leverage, for example, when China imposed a ban on
imports of soybeans from Argentina in retaliation for restrictions imposed
on Chinese imports to Argentina, but this was clearly economically rather
22
The view that growing economic relations with China lead to LAC countries’ foreign policies
becoming more pro-Chinese tends to play down LAC governments’ own agency.
319
than politically motivated. There is no evidence of similar measures being

employed for diplomatic ends other than to persuade countries to break off
their diplomatic relations with Taiwan.
Several studies have used voting patterns at the UN General Assembly
as an indicator of the extent to which LAC and Chinese foreign policies
converge, with mixed results. Dominguez (2006) find no tendency for con-
vergence, although the study only covers the period from the early 1990s
to 2002 and, therefore, predates the major surge in economic relations.
Struver (2014) does find evidence of an increased tendency for Latin Ameri-
can countries to vote with China, although this is explained by the behaviour
of South American countries and does not apply in Central America and the
Caribbean.
Figure 11.1 compares the unweighted average of the percentage of
LAC votes with China and with the US at the UN General Assembly for
thirty-three LAC countries. Despite Latin America being regarded as the US’s
backyard, the countries of the region cast their votes at the UN with China far
more frequently than with the US. There is no evidence over the entire period
during which Chinese economic presence in Latin America has expanded so
significantly of a trend for countries to align their voting behaviour more
closely with China and to vote less frequently with the US. There is such
a tendency in the period up to 2007, but since then the trend has been in
the opposite direction, with the percentage of votes cast with China lower
in 2015 than in 2000.
While this raises questions about the view that China’s growing presence
in LAC is having a significant political impact, this needs to be analysed
further. Although, as seen earlier, there is no evidence that a country’s inter-
national political alignment influences the extent of its economic relations
with China, it is relevant to ask whether economic dependence on China
influences voting behaviour at the UN at the country level.
The econometric analysis in the appendix to this chapter shows that none
of the indicators of China’s involvement in LAC had a significant impact
on whether a country voted on the same side as China at the UN. The fac-
tors that did influence voting behaviour were, not surprisingly, whether the
country had diplomatic relations with China or Taiwan, and the country’s
population, with smaller countries more likely to vote with China. This sug-
gests that closer economic relations with China do not necessarily lead to a
convergence in foreign policy.
11.3.3 The Brazilian Case

Brazil is clearly the most important country in Latin America from China’s
point of view. It was the first country in the region with which it established
320
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
LAC with US LAC with China
Figure 11.1 Coincidence of voting between Latin America, China, and the United
States, 2000–15
Source: Voeten, Erik; Strezhnev, Anton; Bailey, Michael, 2009, ‘United Nations General Assembly
Voting Data’, https://hdl.handle.net/1902.1/12379, Harvard Dataverse, V18, UNF:6:xkt0YWto
BCThQeTJWAuLfg==
a strategic partnership in 1993. It is the largest economy in the region and

China’s most significant trade partner. Chinese companies have also made
important investments in Brazil. Brazil and China cooperate as members of
the BRICS grouping of regional powers, which includes Brazil, Russia, India,
China, and South Africa.
Sino-Brazilian relations have gone through several phases since the strate-
gic partnership was established in 1993. During the 1990s, while the coopera-
tion on satellite development which began in the 1980s continued, there was
no qualitative leap in political relations between the two countries, leading
the Brazilian ambassador to China to claim at the end of the decade that the
partnership was merely rhetorical.23 The government of Fernando Henrique
Cardoso (1995–2002) prioritized relations with the USA and the EU. This
23
Ambassador Affonso Celso de Ouro Preto, quoted in Zhou (2012, p. 136).
321
changed after Lula and the Workers’ Party came to power in Brazil in 2003
and adopted a strategy of diversifying the country’s foreign relations and
promoting South-South cooperation. This led to developing relations with
China (and other large emerging powers) becoming a key part of the govern-
ment’s strategy (Cardoso, 2013; Zhou, 2012). Economic relations with China
received a further boost with the global financial crisis in 2008, and the sta-
tus of the political relationship was symbolically raised to a ‘strategic global
partnership’ in 2012 under Lula’s successor, Dilma Rousseff.
Political relations between Brazil and China became more difficult
under President Bolsonaro who aligned himself closely with President
Trump. During his election campaign, he used the slogan that ‘The Chinese
are not buying in Brazil. They are buying Brazil’ (quoted in Stallings, 2020,
p. 68). Although other members of the administration favoured good
relations with China, policy has oscillated between the critical and the
conciliatory approaches (Trinkunas, 2020).
China’s extensive economic relations with Brazil have been driven by
commercial and strategic economic considerations rather than political fac-
tors. Brazil is a major source of iron ore and soybeans for China and, as the
seventh-largest economy in the world, is also a significant market for Chi-
nese exporters and investors. There is no reason to attribute the growth of
Sino-Brazilian economic relations to geostrategic motives (Maciel and Nedal,
2011, p. 252).
On the Brazilian side, commercial interests have been the main factor
leading to closer economic ties with China. The growth of the Chinese mar-
ket created profitable opportunities for Brazilian mining and agribusiness
companies, while the growing competitiveness of Chinese manufacturing
led to increasing imports from China, often by transnational corporations
such as Samsung, Panasonic, and Dell. Although the change of government
from Cardoso to Lula in 2003 led to a greater emphasis on political rela-
tions with China, bilateral trade and investment continued to be seen by
the Brazilian government as the central aspect of the strategic partnership
(Albuquerque, 2014, p. 110).
While the growing economic relations between China and Brazil were not
driven by Chinese geopolitical objectives, have the closer links given China
more leverage which could be used to influence Brazilian foreign policy?
This depends in part on the relative significance of these relations. Although
China became Brazil’s main trade partner in 2009, it still accounts for less
than a quarter of Brazil’s total trade (Table A9.1). In terms of exports, China
is as dependent on Brazil as a source of iron ore and soybeans as Brazil is
dependent on China for a market. As was seen in Chapter 10, China’s contri-
bution in terms of FDI in Brazil is marginal, and the share of Chinese loans
in Brazil’s external debt are also very low Trinkunas (2016, Table 3). Thus
322
although China has become an important trade partner for Brazil, it has not
given it a great deal of leverage over Brazil’s external affairs.
It is in any case a mistake to think that closer economic ties between
China and Brazil will inevitably lead to a convergence in foreign policy (Blan-
chard and Serodio, n.d.). One reason for this is that, as seen in Chapter 10,
the growth of economic relations creates losers as well as winners, and this
can create hostility rather than cooperation. Brazil’s foreign policy cannot be
interpreted as reflecting the dictates of China. Brazil is as unlikely to accept
Chinese hegemony as US hegemony in Latin America. There is no evidence
that China’s increased economic involvement in Brazil has led to significant
change in Brazilian foreign policy.
China and Brazil do share certain common interests, which they have
sought to advance in international fora. They both advocate a move towards
a multipolar world and reforms to the international system to give more
weight to the interests of developing countries, with which both countries
identify. They share common interests, which are articulated through the
BRICS and within the G20 group of countries, which have become more
prominent in global economic discussions since the 2008 global financial
crisis.
On the other hand, there are also some areas of tension between China
and Brazil. In 2005 Brazil had hoped for Chinese support in its bid to
obtain a permanent seat on the UN Security Council, but China voted against
this. Trade relations between the two countries have also given rise to ten-
sion with Brazil applying anti-dumping measures against Chinese goods
and, despite agreeing to grant China market economy status, never imple-
menting it. While China and Brazil cooperate in international fora, they
are also rivals in certain parts of the world. As shown in Chapter 10, Brazil
has lost out to Chinese competition in other parts of Latin America. It also
faces competition from China in some African countries, and on a visit to
Africa in 2010, Lula criticized the employment practices of Chinese firms
in the region (Blanchard and Serodio, n.d.). In these cases the Brazilian
government sees China as a threat rather than a partner (Cardoso, 2013,
pp. 46–8).
Given China’s relatively limited leverage over Brazil in terms of the signifi-
cance of bilateral economic relations, it seems likely that changes in Brazilian
foreign policy owe more to internal domestic factors than to any influence
of growing relations with China. As Maciel and Nedal (2011, p. 252) con-
clude, ‘While China’s economic presence in Brazil is clearly increasing, this
should be interpreted neither as a consequence of close political ties nor as
a development that invariably contributes to this end.’
323
11.3.4 The Venezuelan Case

After Brazil, Venezuela is the Latin American country with which China
has the deepest economic relations. China’s most significant involvement
in Venezuela has been through the loans that it provides. Almost half of all
Chinese lending to the region since 2005 has been to Venezuela (Gallagher
and Myers, 2020). Since these loans tend to be tied to Chinese contractors,
it is hardly surprising that Venezuela is also the top country in terms of the
value of Chinese projects in the region. It is also an important destination
for Chinese OFDI in Latin America, although it lags some way behind Brazil.
Until the sharp drop in oil prices in 2014, it was the third most-important
source of Chinese imports from the region after Brazil and Chile.
Venezuela provides a test case in the debate between those who empha-
size the strategic threat that China’s increased involvement in Latin America
poses to the US and those who believe that China’s expansion is driven by
economic factors. For the former, China’s ties with Venezuela provide sup-
port for a country which, under Presidents Chavez and Maduro, was a focal
point of anti-US rhetoric and activity in the region. In contrast, those who
argue that economic factors are key emphasize China’s interest in diversify-
ing its sources of oil and obtaining access to the Venezuelan market for its
exporters and construction companies.
Chinese involvement in Venezuela began in the mid-1990s before Hugo
Chavez became president in 1999. In 1997 CNPC won a tender to exploit two
existing Venezuelan oil fields with an investment of over $350 million, the
largest investment by any Chinese company in Latin America at the time
(Ríos, 2013, p. 54). When Chavez came to power, he sought to diversify
Venezuela’s relations in order to reduce dependence on the USA and actively
encouraged relations with China, Russia, Iran, and other progressive govern-
ments in Latin America. In 2001 a ‘strategic partnership’ was formed between
China and Venezuela when Chinese President Jiang Zemin visited Caracas.
Economic relations with China grew significantly during the Chavez gov-
ernment. Venezuelan oil exports to China started to increase from 2003.
Initially the growth of such exports was limited by supply constraints in
Venezuela and the nature of the heavy crude oil that it produced, which
China lacked refineries to process (Dominguez, 2006, pp. 42–4). Neverthe-
less between 2001 and 2006, several joint ventures were established between
CNPC and the Venezuelan state oil company PDVSA to extract, refine, and
undertake oil exploration (Xu, 2017, pp. 70–1). Despite this, a study for
the Washington-based think tank Inter-American Dialogue ranked Venezuela
fifth out of six Latin American countries in terms of its significance for China
in 2006, behind Brazil, Mexico, Chile, and Argentina (Dominguez, 2006,
Table 11).
324
In 2007 the Venezuelan government nationalized its oil industry, which

led to US companies Exxon Mobil and ConocoPhillips leaving the coun-
try. From mid-2005, Chavez sought financial support from China, and in
2007, the China Development Bank (CDB) made its first loan of $4 billion
to Venezuela to what was known as the Fondo Pesado (Heavy Fund). This
led to Sino-Venezuelan economic relations really taking off. The fund was
supplemented by further CDB loans in 2009 and 2013; these loans were
all commodity-backed with repayments requiring the supply of 330,000
barrels of oil a day (Rosales, 2016). In 2010 a second fund, the Gran Volumen
(Large Volume) was created with a ten-year loan from CDB, half of which
was denominated in Chinese RMB. The loans were used to fund infrastruc-
ture projects, housing developments, and imports of consumer goods from
China. Subsequent loans from CDB and China Exim Bank meant that by
2016, China had lent Venezuela a total of over $60 billion, although there
have been no new loans since then (Gallagher and Myers, 2020).
Venezuela’s interest in developing its links with China after Chavez came
to power was primarily motivated by his political goals. He sought China’s
support for his anti-imperialist stance against the USA. He spoke of his ad-
miration for Mao and the Chinese Revolution. He also saw closer links with
China as a way of increasing Venezuela’s status and enhancing its claims to a
leadership role in Latin America (Blanchard, 2016, p. 38). In economic terms,
he sought to reduce Venezuela’s dependence on the US market for its oil by
increasing exports to China. This, though, could also be seen as primarily
politically motivated, since the USA is the natural market for Venezuelan
exports in terms of both its geographical proximity and the existence of
refineries able to process heavy Venezuelan crude oil.
In a situation where the hostility of the US government and the financial
markets’ disapproval of Venezuela’s populist economic policies led to very
poor international credit ratings, borrowing from China was an attractive
way for the government to fund its economic programme. As the situa-
tion deteriorated, particularly with the precipitous fall in oil prices in 2014,
Venezuela became increasingly dependent on the Chinese policy banks as
lenders of last resort.
In contrast to Chavez’s ideological emphasis on the political affinity be-
tween his twenty-first century socialism and Chinese socialism, China’s
interest in Venezuela has been largely economic.24 Its economic involvement
has first of all helped to diversify its sources of oil supply and to reduce de-
pendence on the Middle East. Since Venezuela has one of the largest reserves
24
One indication of this is the fact that the Mixed High-Level Commission formed under the
strategic partnership of 2001 was presided over by the two countries’ planning and development
ministers (Struver, 2014, p. 143).
325
of oil in the world, it is important for China to have a foothold there. Sec-
ond, the loan agreements have not only secured oil supplies but also created
a major market for Chinese firms. Six Chinese companies obtained a total of
over $11 billion in government contracts between 2008 and 2011. The State
Grid Corporation is building power-transmission networks in Caracas, and
the ZTE Corporation is building an offshore cable (Sanderson and Forsythe,
2012, p. 136). Other Chinese companies benefitting from the loans included
the China International Trust and Investment Corporation Group and Haier
(see Chapter 9).
While Chavez sought to enlist Chinese support for his anti-USA cam-
paign, the Chinese government tried to avoid being drawn into any conflict
with the USA and kept its distance.25 China not only regarded its rela-
tions with the USA as more strategically important than its relations with
Venezuela and did not wish to directly challenge the USA in its backyard; it
was also aware that any US measures against Venezuela could damage Chi-
nese interests there (Corrales, 2010, p. 118). Thus at a political level, China’s
approach towards Venezuela has been cautious, seeking to avoid confronta-
tion with the USA while expanding its economic interests (Paz, 2011). As the
Chinese Foreign Ministry has emphasized, ‘China and Venezuela maintain
normal State to State relations. These relations are not based on ideology, are
not directed at any third party and will not affect other countries’ (quoted
in Romero, 2013 p. 128).
A second question is how much leverage China’s economic presence gives
it over Venezuela, particularly compared to the USA. Despite attempts to di-
versify its exports away from the US market it still accounts for more than
a third of Venezuela’s total exports, around double the share that goes to
China. As a destination for Venezuelan exports, China is on a par with
India. Similarly, as a source of FDI, China’s share of the total stock, although
growing, remains less than 15 per cent (Table A9.1). Where Venezuela is
highly dependent on China is in terms of loans, where it has been estimated
that loans from China account for almost 60 per cent of the country’s total
external debt (Trinkunas, 2016, Table 3).
While it is clear that loans from China enabled the Venezuelan govern-
ment to continue with its populist economic policies for longer than would
have been possible had the country been dependent on international capi-
tal markets for external funding (Kaplan, 2016), it is not obvious that they
have given China any advantage over Venezuela’s foreign policy and rela-
tions with the USA. In fact the current crisis in Venezuela has shown the
25
While President Chavez visited China on six occasions during his fourteen years in office,
there was only one visit by a Chinese President Jiang Zemin, to Venezuela during that period in
2001. A planned trip by President Hu Jintao in 2010 was called off as a result of a major earthquake
in Qinghai Province.
326
limited degree of influence that China has there. Up to now it has been
largely absent from any discussions of how to resolve the crisis (Ferchen,
2017). China has maintained its policy of respect for national sovereignty
and non-interference in the internal affairs of other countries, while at the
same time its lending to Venezuela has slowed down. The Chinese govern-
ment increasingly regards Venezuela as an unreliable partner, and President
Maduro as more of a liability than an asset (Xu, 2017, p. 75).
The growing hostility of the Trump government and its increased use of
sanctions against Venezuela has highlighted the dilemma faced by China.
The recognition by the USA and its allies of the opposition leader Juan
Guaidó as interim president at a time of increasing tension between China
and the USA, made it inevitable that China would continue to maintain
diplomatic relations with the Maduro government.26 At the same time, the
deepening economic crisis in Venezuela has undermined China’s economic
interests in the country and China has been unwilling to extend further eco-
nomic support and tried to minimize the financial and reputational damage
from its involvement in Venezuela (Ferchen, 2020).
11.3.5 Conclusion
There is no evidence to support the strong view of the ‘China threat’, which
sees the growth of China’s economic involvement as motivated by a desire
to undermine the position of the USA in the region. Both the overall picture
and the history of individual countries where China has established partic-
ularly close relations are consistent with China’s claims that its relations are
essentially economic and that it respects national sovereignty and does not
impose political conditionality on other countries, apart from in relation to
Taiwan.
What is true is that growing economic links with China have created more
options for LAC countries and reduced their dependence on the West and
international financial institutions, providing them with more policy space
to pursue alternative economic strategies. However, changes in economic
policies and in the international relations of LAC are primarily the result of
internal developments within the region and are not due to external influ-
ences from either the USA or China. In the long term, it is clear that the
shifting of economic power to new centres of accumulation will need to be
reflected in changes in the way the global economy is governed. This should
not be interpreted as a plot to undermine US hegemony, but rather as the
inevitable result of a move towards a multipolar international system.
26
The refusal of China to accept Guaidó’s representative on behalf of Venezuela at the annual
meeting of the Inter-American Development Bank that was due to be held in Chengdu in 2019
led to the cancellation of the event.
327
11.4 Environmental Impacts
Another of the concerns that has been raised over LAC’s growing economic
relations with China is the environmental impact. There are frequent claims
in the media that Chinese trade and investment have contributed to environ-
mental degradation in the region.27 How much evidence is there to support
these claims? Are the examples of environmental damage cited to support
them specific to relations with China, or part of a more general problem?
Unfortunately, attention has only quite recently turned to the environ-
mental impacts of Chinese relations with LAC. DialogoChina, an electronic
newsletter focussing on Sino-Latin American environmental concerns, was
set up in 2015. Academic research on the issue is just getting off the ground,
and one of the first collections of academic papers on the subject, by Ray
et al., was only published in 2017. Much of the debate on the environmental
impact of China on the region is based on anecdotal evidence.
In order to summarize the existing state of knowledge about the impact of
China on the environment in LAC, this section looks first at trade and then
at Chinese FDI and loans to the region. The case of soybeans, which has
consistently been amongst the top three products exported to China, is then
examined in more detail, in particular, the extent to which it contributes to
deforestation.
11.4.1 Trade and the Environment

Much of the argument about the environmental impacts of trade with
China derives from the primarization of Latin American exports discussed
in Chapter 10. Extractive industries tend by their very nature to have a sub-
stantial environmental impact. Mining can lead to a loss of large areas of
land to open-cast mines and the pollution of land and water as a result of
the use of toxic chemicals. It also creates a vast amount of waste and often
puts pressure on local water supplies. The extraction and transport of oil can
lead to major spillages with disastrous environmental effects. The expansion
of agricultural exports can contribute to deforestation when it leads to an
extension of the agricultural frontier into forested areas either directly or
indirectly through the displacement of other forms of agriculture.
There is evidence that China’s demand for commodities creates a consid-
erable environmental footprint in LAC. Because of their concentration in
primary commodities, Latin American exports to China create more carbon
emissions and use more water per dollar exported than exports to the rest
of the world (Ray, 2017). The difference is particularly marked in the case of
water.
27
See, for example, Garzón and Salazar-López, 2017 and Watts, 2015.
328
However, one should not exaggerate the overall effects of trade with
China. First, calculation of the net effect on LAC emissions and water us-
age needs to take into account LAC imports from China, as well as exports.
In terms of greenhouse gases (GHGs), the former are more carbon intensive
than exports to China, so that the net effect of trade with China reduces
emissions in Latin America. This is not the case in water, with exports sub-
stantially more water intensive than imports, so that in 2013, LAC exported
almost 120 billion cubic metres of embedded water to China (Ray, 2016,
p. 19).
Second, the estimates of GHG emissions associated with exports to China
represent a very small fraction of the total generated and used in all activities.
The World Resources Institute estimates that in 2012 LAC produced a total of
4.6 gigatonnes of CO2 equivalent, in contrast to the 115 kilotons produced
by its exports to China (Ray et al., 2017, Figure 1.8; Ray, 2016, p. 18). Again,
the contribution of exports to China to the region’s water footprint is more
significant.28
Although these aggregate comparisons show that LAC exports to China
have a greater environmental impact in the region than its exports to the rest
of the world, this is entirely due to the makeup of the basket of goods that are
exported to China. A second question is whether the same products exported
to different markets would be more environmentally damaging when the
destination is China. As discussed in Chapter 8, it is only under rather specific
conditions that the destination is likely to have an impact on environmental
performance. The fact that the main exports from Latin America are undiffer-
entiated commodities such as oil, iron ore, and copper means that consumers
are unlikely to be aware of their environmental impacts, so producers have
no incentive to apply different environmental standards when exporting to
different markets. One exception, discussed in section 11.4.3, is the export
of soybeans from the region.
11.4.2 Chinese Firms and the Environment

While in general the destination of exports does not affect the impact of pro-
duction on the environment, a more plausible case can be made that firm
ownership is a significant factor. As seen in Chapter 8, there are a number
of reasons why Chinese firms abroad may have scant regard for the environ-
mental impacts of their operations. Until recently, in China itself, growth
was regarded as the priority and little attention was given to the damage to
28
The water intensity of exports to China is more than ten-times greater than the water
intensity of the region’s total economic activity (Ray et al., 2017, Figure 1.6).
329
the environment that might result. This was even truer of the overseas op-
eration of Chinese firms under the Go Global strategy. Very little attention
was paid within China to the effects of the operations of Chinese companies
abroad. As a result even Chinese sources recognized that Chinese firms lagged
behind their Western counterparts in terms of adopting an environmen-
tal approach to their foreign investments (CCICED, 2011, p. 112). It is also
claimed that the environmental conditions attached to loans from the Chi-
nese policy banks are less stringent than those of other lenders (Gallagher,
2013).
The concentration of Chinese OFDI in Latin American oil and gas and
mining has given rise to concern, since these are sectors which have a
substantial environmental impact. There are several examples of Chinese
extractive companies contributing to environmental degradation in LAC,
such as Shougang’s Marcona mine in Peru and the Cerro Maimom mine
in the Dominican Republic (Ellis, 2014, p. 165). Some of the conflicts with
local communities discussed earlier in this chapter were triggered by the en-
vironmental impact of Chinese investment. International controversy was
created when the Correa government in Ecuador decided to reverse its de-
cision to protect the environmentally sensitive Yasuni National Park and to
allow Chinese companies to begin oil extraction.
Chinese firms are by no means alone in having negative environmental
impacts in LAC.29 It is often implied, however, that for the reasons men-
tioned earlier, Chinese firms perform worse than their Western counterparts
do. Unfortunately, there is a dearth of detailed research that systematically
compares Chinese and other firms in the region. One exception is Shougang
in Peru, where there have been several studies comparing its environmen-
tal performance with that of other mining companies (Irwin and Gallagher,
2013; Kotschwar et al., 2012; Sanborn and Chonn, 2017). Although the
Chinese mining company has been fined by the Peruvian environmental
authorities on a number of occasions, and has a poor record in terms of
complying with environmental standards and implementing the recommen-
dations of environmental audits, it is not the worst performer in the sector. It
has also been suggested that a later Chinese entrant to the Peruvian mining
industry, Chinalco, has learnt from the mistakes made by Shougang and is
showing signs of better environmental performance (Kotschwar et al., 2012;
Sanborn and Chonn, 2017).
Although these studies are all of one country (Peru) and one sector (min-
ing), they raise questions about the claims that are often made about the
29
For examples of the negative environmental impacts of non-Chinese investors, see The
Democracy Center et al. (2014) on European TNCs, and Gordon and Webber (2016) on Canadian
mining companies.
330
environmental impact of Chinese firms. First, they illustrate the diversity of

performance amongst Chinese companies, which cannot all be tarred with
the same brush.30 They also show that Western and locally owned compa-
nies are often no better than their Chinese counterparts. More comparative
research is needed before any definitive conclusions can be drawn about the
environmental performance of Chinese companies in the region.31
Another key area of concern at present is the likely environmental impacts
of major new or proposed infrastructure projects in LAC. The interoceanic
canal, which the Hong Kong-based HKND Group has been granted the
rights to develop in Nicaragua, has led to major criticism on environmental
grounds. It threatens to destroy 400,000 hectares of rainforest and wetlands
and to bring about major ecological changes to Lake Nicaragua as a result
of the dredging required to create a deep-water channel (Meyer and Huete-
Pérez, 2014). Another major project which is in the offing is a rail link
between Brazil’s Atlantic coast and the Pacific in Peru. While it remains to
be seen whether these will eventually be built, if they are they will have
major environmental impacts. There is concern that the environmental im-
pact assessments carried out for such projects are not adequate. In the case
of the Nicaraguan canal, the project was approved before the environmental
and social impact assessment was publicly available (Amnesty International,
2017).
China is also increasing its involvement in dam building in LAC. The
country where it has been most active is Ecuador, where as many as eight
dams were under construction or at various stages of planning in 2014
(Ellis, 2014, pp. 115–16). Chinese companies are also involved in hydro-
electric projects in Argentina, Brazil, Costa Rica, Belize, Bolivia, Honduras,
Surinam, and Venezuela. Many of these have substantial environmental
impacts which have caused major conflicts. In Honduras, opposition by ac-
tivists led to Sinohydro withdrawing from the Agua Zarca Dam project in
2013. In Argentina, in 2016, the Supreme Court ordered suspension of the
construction of the Nestor Kirchner and Jorge Cepernic Dams on the Santa
Cruz River that were being built by a consortium which included the China
Gezhouba Group, at the request of NGOs that claimed that environmental
impact assessments had not been properly carried out.32
30
A study of Chinese firms in Mexico also concludes that their environmental behaviour is
quite heterogeneous (Schatan and Piloyan, 2017, p. 336).
31
It has also been suggested that because of a weak environment ministry and overlapping
responsibilities, weak enforcement, and an emphasis on attracting inward investment, lower
environmental standards have been applied by Chinese firms in Peru than in Brazil or Chile,
which have stronger institutions (Blackmore et al., 2013, p. 24). It would be useful to have studies
which compare the environmental performance of Chinese companies in the different countries
where they operate.
32
After further studies and consultation, the project was given the go-ahead in 2017.
331
Many of these infrastructure projects are largely funded by the Chinese

policy banks, so their lending policies are an important determinant of
the extent to which environmental impacts are considered. As discussed
in Chapter 8, the China Exim Bank has published its ‘Guidelines on En-
vironmental and Social Impact Assessment of Loan Projects’, and the CDB
has its ‘Guidelines on Environmental Protection Project Development Re-
view’. These require recipients of loans to adhere to the environmental
laws and regulations of the countries in which they operate. They are
less comprehensive than those of multilateral lenders such as the World
Bank, the Inter-American Development Bank, and Western national devel-
opment banks and export credit agencies, which apply an international set
of standards and procedures (Yuan and Gallagher, 2015, pp. 32–3).
Some commentators regard the environmental safeguards required by the
multilateral development banks as overly stringent, making it very difficult
to fund major infrastructure projects in developing countries, while the Chi-
nese approach is more pragmatic (Dollar, 2016, pp. 65–71). Environmental
activists, on the other hand, are concerned that less demanding environmen-
tal safeguards for Chinese-financed projects will contribute to a race to the
bottom in environmental standards.
11.4.3 The Case of Soybeans

Some of the most significant environmental concerns in South America are
associated with the expansion of soybean production. The region accounts
for half of global soy production, and the area under cultivation has more
than tripled since the mid-1990s (FAOStat). Argentina and Brazil account for
the bulk of production, but soybeans are also grown in Paraguay, Uruguay,
and Bolivia.
The expansion of soybean cultivation has been driven by growing global
demand as a result of population growth and increasing incomes, which
have led to changing diets with higher levels of meat consumption, which in
turn increases demand for feedstuffs. Between 1995 and 2018, soybean pro-
duction increased more than four-fold in Brazil and three-fold in Argentina,
with most of the increase coming from an expansion of the area cultivated
(FAOStat).
Much of this growth involved planting genetically modified (GM) soy-
beans. In Argentina the commercial use of Monsanto’s Roundup Ready
soybeans was approved in 1996, and the use of genetically modified organ-
isms (GMOs) spread rapidly so that within seven years, over 90 per cent of
Argentinean soybeans were GM (Leguizamón, 2014). In Brazil GM crops were
not legalized until 2005, although from 1997, imported GM soybeans from
Argentina were planted illegally in southern Brazil (Garrett et al., 2013, p. 3).
332
Now all of Argentina’s and almost 90 per cent of Brazil’s soybean areas are
planted with GM varieties (European Commission, 2016, Table 14).
THE ENVIRONMENTAL IMPACT OF SOYBEANS

The most controversial aspect of the growth of soy production has been de-
forestation. In Brazil it has been a major cause of forest loss in both the
Amazon rainforest and the Cerrado. The state of Mato Grosso accounts for
about 30 per cent of Brazilian soybean output (Fearnside and Figueiredo,
2017, p. 230), and it has been estimated that almost two-thirds of the de-
forestation there has been caused by the expansion of soybean cultivation
(Lathullière et al., 2014, p. 7).
In 2006, following pressure from NGOs led by Greenpeace, the Soy
Moratorium was agreed, under which the member firms and exporters of
the Brazilian Vegetable Oil Industries Association (ABIOVE) and National
Grain Exporters Association (ANEC) made a commitment not to buy soy-
beans from areas deforested after 24 July 2006. This has led to a substantial
reduction in deforestation rates in the Amazon (Union of Concerned Scien-
tists, 2016). However, although the expansion of soybean production into
forested areas has been reduced, soybeans have expanded into areas which
had already been deforested and converted to pasture, which has contributed
to deforestation elsewhere because ranching activity gets displaced to other
states such as Para, causing deforestation there (Fearnside and Figueiredo,
2017, p. 238). It has also led to the growth of soybean cultivation in the
Cerrado, which is not covered by the Moratorium and where the level of
deforestation has overtaken that in the Amazon since 2010 (Union of Con-
cerned Scientists, 2016, Figure 2), and to the growth of soybean production
in Bolivia and Paraguay, which have fewer restrictions than Brazil.
Discussion of the link between soybean production and deforestation in
Latin America has concentrated on Brazil, but there is also evidence that it
has contributed to deforestation in Argentina. Although over 80 per cent of
soybean cultivation in Argentina takes place in the pampas, where expansion
is not directly linked to deforestation, the growth of soybean production
in the Dry Chaco of Northern Argentina has directly contributed to de-
forestation, particularly since 2002 (Gasparri et al., 2013). As in Brazil,
there is evidence that conversion of pasture for soybean production in the
pampas and elsewhere has an indirect effect on deforestation through the
displacement of ranching to the Gran Chaco regions in Argentina, Paraguay,
and Bolivia (Fehlenberg et al., 2017).
Deforestation has been the most significant environmental impact of the
growth of soybean production, but it is not the only one. Wetlands have
been degraded as a result of the growth of soy and the displacement of cattle
in the Argentinean province of Cordoba and the Parana Delta (OSAS, 2015).
333
Soy monocropping can lead to nutrient depletion and damage soil structure.
Although, at first, the introduction of GM crops led to a reduction in the need
for herbicides and pesticides their use has increased over time, and as land
becomes more concentrated and farms larger, fumigation is often carried out
by plane so that the spread of toxins becomes more widespread (Leguizamón,
2014, p. 6).
In addition to the direct and indirect effects of the growth of soybean
production on the environment, there are impacts associated with the ex-
pansion of transport infrastructure to deal with increased export volumes
(Branford, 2017; Fearnside and Figueiredo, 2017). In Brazil, for instance, the
extension of soy cultivation has led to the development of new transport
routes. One of the major infrastructure projects announced in 2003 was the
paving of the BR-163 highway north from Mato Grosso to the Tapajos River,
and the new port of Miritituba, from where soybeans can be shipped by barge
to the Atlantic. The opening up of this route led to deforestation on either
side of the road. Several major new road, rail, and waterway projects in the
region are also planned to create new routes for soy exports. These include
the proposed railway from Brazil to the Pacific coast in Peru, the Ferrogrão
(Grain Railway) from Mato Grosso to the port of Miritituba, and a proposal
to transform the Juruena, Teles Pires, and Tapajos Rivers into an industrial
waterway, and these are likely to cause further environmental degradation
in the region (Branford and Torres, 2017).
CHINA AND THE LATIN AMERICAN SOY VALUE CHAIN

A large part of the increased global demand for soybeans has come from
China. As seen in Chapter 3, China accounted for almost 30 per cent of
world consumption and almost 60 per cent of world imports of soybeans
in 2019 (Table 3.1). This has been reflected in the growth of soybean exports
from Brazil and Argentina. Between 2001 and 2019, total soybean exports
from Brazil increased almost five-fold in volume, and this was virtually en-
tirely accounted for by increased exports to China. In the case of Argentina,
soybean exports peaked in 2010 at double their 2001 level, and again the
increase in exports was entirely due to sales to China (ITC data). In 2018 and
2019 Latin American exporters benefitted from the US-China trade war that
led the Chinese government to switch its imports of soybeans away from
the USA.
China’s role in the LAC soybean value chain is primarily as a market.
Despite much talk of Chinese ‘land grabs’, there is relatively little direct
involvement in production (Oliveira, 2018). There are a few examples of
Chinese companies buying or leasing land to produce soybeans in the re-
gion, the most notable being those made by the Zhejiang Fudi Agriculture
Group with the Agricultural Bureau of Heilongjiang Province in Tocantins,
334
Brazil, and the Pengxin Agricultural Group Co. in Santa Cruz, Bolivia. Other
planned acquisitions by Heilongjiang Beidahuang in Rio Negro, Argentina;,
the Chongqing Grain Group in the Chaco and Cordoba in Argentina and
Bahia in Brazil; and by the Shanghai Pengxin International Group in Brazil,
all either fell through or were stalled (Jie and Myers, 2017, Tables 5.1 and 5.2).
The ability of Chinese firms to purchase land was restricted by a reinterpreta-
tion of the Brazilian land legislation in 2010 and new legislation in Argentina
in 2011. These have both been seen as a response to fear of acquisitions by
Chinese firms (Jie and Myers, 2017, pp. 107–9).
In the past, exports of soybeans from Brazil and Argentina were largely
controlled by the major transnational grain traders, ADM, Bunge, Cargill,
and Dreyfus (known as ABCD). China’s involvement has increased recently
as a result of the purchase by the China National Cereals, Oils and Foodstuffs
Corporation (COFCO) of the Dutch company Nidera and the agribusiness
arm of the Hong-Kong-based trading group Noble (Haro-Sly, 2017, p. 7;
Oliveira and Schneider, 2016, p. 7). Both of these firms have significant op-
erations in Argentina and Brazil. In Argentina they rank seventh and eighth
in terms of crushing capacity, and their combined capacity would put them
in fifth place (Oviedo, 2015, pp. 124–5). In Brazil, COFCO and other Asian
traders from Japan, South Korea, and Singapore have overtaken the ABCD in
terms of their share of grain exports (Bonato, 2016).
Chinese firms are also involved in the soy value chain as suppliers of
key inputs. Chinese companies supply 40 per cent of the world’s output
and 35 per cent of exports of glyphosate, the main herbicide applied to
soybeans. Glyphosate is one of the top products exported from China to
Argentina (Haro-Sly, 2017, p. 6). Chinese firms are also becoming involved
in the agricultural machinery sector in Argentina (Xinhua, 2016).
As noted earlier, the growth of soybean exports has also increased the need
for new transport infrastructure. Chinese involvement in transport projects
in Brazil is likely to increase in future with the creation of the $20 billion
China-Brazil Infrastructure Fund in 2017. There is interest by Chinese firms
in both the planned railway from Brazil to Peru and the Ferrogrão from Mato
Grosso to Miritituba Port. In Argentina, China financed the refurbishment
of the Belgrano-Cargas Railway, which links the soybean-producing areas of
the country to the port of Buenos Aires.
ENVIRONMENTAL IMPACTS OF CHINESE TRADE AND INVESTMENT

While there is little doubt that the growth of soybean production in Latin
America has contributed to deforestation and other forms of environmen-
tal degradation, does the fact that much of the production goes to China
335
lead to greater environmental damage than exporting to other markets? Has

the fact that, whereas in the mid-1990s three-quarters of Brazilian and Argen-
tinean exports went to the European Union, two decades later three-quarters
of Brazilian and over 80 per cent of Argentinean soybean exports were to
China, had any impact?
In fact soy is an exception to the point made at the start of this section:
that it does not make any difference whether a product is going to be sold to
Chinese or to other buyers, since consumers are not sensitive to the way
in which primary commodities are produced. There are two major issues
which differentiate national markets for soy. One is the attitude towards
GMOs. European and Japanese consumers are reluctant to consume prod-
ucts which contain GMOs, with surveys showing that more than 70 per cent
prefer foods that do not contain genetically modified materials. As a result
food that comes directly from GM crops has to be labelled, and although
imports are not banned, they are subject to strict approval processes.33 The
European Commission has estimated that around 10 per cent of total imports
of soybeans and soybean meal to the EU in 2012 were non-GM (European
Commission, 2016, Table 15).
In contrast, although domestic production of soy in China is GMO-free,34
imports of GMO soybeans are allowed. Until recently Chinese consumers
were not overly concerned about the use of GMOs in food, but this has
started to change with reports that demand is switching from soy oil to
GM-free sunflower, peanut, or sesame oil, and a recent survey reporting that
more than half of Chinese consumers regarded GMOs as undesirable (Patton,
2017).
The second difference arises from concerns over deforestation and the sus-
tainability of soy production, which has led to environmental certification
for soybeans. There are two main standards for environmentally responsi-
ble production: ProTerra, and the Round Table on Responsible Soy (RTRS).
Both were set up in 2006, with ProTerra certification requiring soybeans to be
GM-free, while RTRS does not. They both require that producers do not con-
vert native forests or other high-conservation-value areas for the production
of soybeans. In 2018 ProTerra and RTRS together certified almost eight mil-
lion tonnes of soybeans but this accounted for less than 2.5 per cent of global
production (ITC,2020, Table 10). The demand for environmentally respon-
sible soya is concentrated in Europe, but even if all of the certified beans
33
Labelling requirements only apply to products that include GM ingredients. Meat products
from animals which have been fed GM soy do not have to be labelled.
34
Some GMO crops are planted illegally, but there are no data on the extent of this (Kruppa,
2015, Table 1).
336
produced worldwide were sold in Europe, this would only account for about
a sixth of total EU imports of soybeans and soybean meal.35
Whereas many food producers in Europe have committed to using sus-
tainably produced soy, those in China have not. Again, there are some
signs that this may be changing. In 2016 more than ten large compa-
nies which account for a quarter of China’s imports of soybeans indicated
their support for greening their supply chains, but without committing
themselves to verifiable action (Vartparonian, 2016). If the same propor-
tion of China’s imports of soybeans were certified as in the EU, this would
have represented additional sales of 14 million tonnes of certified soybeans
in 2016.
CONCLUSION
There is now considerable evidence that the growth of soybean production
has caused environmental damage in Latin America, particularly through
deforestation, as both a direct and an indirect consequence of more land be-
ing devoted to soybeans. It is clear that this growth has been prompted by
demand from China, although up to now, the direct involvement of Chi-
nese companies has been relatively limited. There is also some evidence that
the switch of the market to China has had an impact on the nature of de-
mand, with less emphasis on non-GM or certified soybeans than is the case
for traditional export markets in Europe, although this may be beginning to
change.
However, the extent to which expanded soybean production causes en-
vironmental damage in Latin America is not simply a result of demand-side
factors. It also depends on the degree to which laws and regulations to pre-
vent deforestation and other negative environmental effects are established
and enforced. In Brazil the deforestation caused by soybean production in
Mato Grosso was significantly lower in 2006–10 than in 2001–5, despite the
rapid growth of exports to China. This was partly the result of better policies
to control deforestation and enforcement that is more effective (Lathullière
et al., 2014).36
The role of domestic politics in the relationship between soybean cul-
tivation and deforestation is underlined by recent developments in Brazil,
35
In 2014 the EU imported over 36 million tons of soybeans either as beans or embodied in
soybean meal (European Commission, 2016, Annex Table 1).
36
These included the Action Plan for the Prevention and Control of Deforestation in the Legal
Amazon launched in 2004, and further novel measures adopted in 2008. One policy which was
regarded as highly effective was a decision by the Central Bank in 2008 to prevent those with
pending fines for illegal deforestation from receiving any agricultural loans (Fearnside, 2017).
337
where the growth of agribusiness led to an increase in the political influ-

ence of the ruralistas in Brazilian politics even before they played a key
role in the removal of Workers’ Party President Dilma Rousseff in 2016.
Deforestation began to increase again from 2012, when the Forest Code
was revised to make it easier to clear forests legally and illegal clearing be-
fore 2008 was pardoned. Rousseff’s replacement, Michel Temer, appointed
Blairo Maggi, Brazil’s largest soybean producer, as Minister of Agriculture.
These developments led to an acceleration of deforestation in the Brazilian
Amazon (Fearnside, 2017). These trends intensified further under President
Bolsonaro who advocated the economic development of the Amazon and
railed against environmental regulations. Soy farmers lobbied to end the
Soy Moratorium in the Amazon, claiming that they had the President’s
support.
In Argentina, too, agribusiness has significant political influence. Follow-
ing the economic crisis of 2001–2, the government introduced high taxes
(retenciones) on exports of soy in 2002. These taxes became an important
source of revenue which gave the government a direct interest in the con-
tinued expansion of agricultural production. Environmental problems were
not a high priority for the Kirchner governments, and export taxes helped
fund the administration’s social programmes. Although a new forest protec-
tion law was introduced in 2007, it has not succeeded in reducing the level
of deforestation caused by the growth of soybean production in the North-
ern Dry Chaco area (Gasparri et al., 2013). The change of government with
the election of President Macri in 2015 did not improve the situation, since
at least thirty members of the administration were reported to have links to
agribusiness and the agrochemical industry, and Macri reduced the tax on
soybean exports (Haro-Sly, 2017, p. 7).
11.4.4 Conclusion
There are several ways in which its growing economic relationship with
China has affected the environment in LAC, usually for the worse.
The growth of commodity exports and the primarization of the region’s
economies have had negative impacts as extractive industries such as oil,
mining, forestry, and agriculture (particularly soybean production), con-
tribute to pollution, deforestation, and other forms of environmental degra-
dation. Although this shift in the composition of exports is to a significant
extent a result of growing demand from China, exports to China are not nec-
essarily more damaging than exporting the same products to other markets.
There are exceptions, however, as illustrated by the case of soybeans, where
338
differences in consumer demand in different markets may mean that exports

to China are produced to lower standards than those to Northern markets.
A similar situation exists in the case of timber where, as pointed out in
Chapter 8, there are international certification schemes and government leg-
islation in place in the EU and the USA requiring importers to show that
wood has been legally produced. In 2017 the US Trade Representative, un-
der the terms of the US-Peru free trade agreement (FTA), blocked imports
of timber from a Peruvian company that had sourced timber illegally. Un-
like the US-Peru FTA, China’s FTA with Peru does not cover environmental
issues nor mention controlling trade in illegal timber, and exports of tim-
ber to China are subject to fewer restrictions than exports to the USA or the
EU (Putzel, 2009). However, during the renegotiation of the FTA with China
in 2020, Peruvian NGOs called for the incorporation of an environmental
chapter.
There are also some signs that Chinese consumers are becoming more
concerned about environmental issues although China lags behind the world
average in terms of consumption of sustainable products (Daxue Consulting,
2020). In the longer term, it is likely that the gap will narrow so that there will
be less difference between the environmental impact of products exported
to China compared to other markets.
The same considerations apply to Chinese investment and finance in LAC.
Again there is a tendency for FDI to be concentrated in extractive industries,
in particular oil and mining, and for Chinese finance to involve large-scale
infrastructure projects, all of which tend to have significant environmental
impacts. There is also evidence that although Chinese companies and banks
are improving their environmental standards, overall they still lag some way
behind their Western counterparts. Such a conclusion is based mainly on
comparisons of environmental policies and standards rather than on any
detailed comparison of environmental impacts, and this is an area where
more research is required.37
Although growing relations with China may have exacerbated the envi-
ronmental crisis in LAC, they have not been the major cause. The extractivist
model of capital accumulation in the region long predates the appearance of
China on the scene. While external demands contribute to increased en-
vironmental pressures, the way in which these are tackled is an internal
problem. Some countries in the region have, at particular times, been able to
moderate these negative environmental outcomes through regulation and
civil society action.
37
A recent study of a Chinese financed and non-Chinese financed dam in Ecuador found that
in both cases the standards set in the relevant guidelines were not implemented and that the
extent to which they were effective depended on the mobilization of local civil society (Vallejo
et al., 2018).
339
Econometric Analysis of the Impact of Economic Relations with
China on UN Voting
In order to test the impact of economic relations with China on countries’

voting patterns in the UN General Assembly, an econometric model was de-
veloped with the percentage of countries’ votes that coincided with China’s
vote as the dependent variable. To identify what type of relationship with
China, if any, was significant in affecting voting behaviour, the variables
used to indicate the strength of economic relations with China were the
share of China in total trade, the share in the stock of FDI, the value of Chi-
nese economic cooperation projects per head of population, and the ratio
of Chinese loans to GDP for each country. The lack of comparable data on
all projects and all lending to LAC countries meant that China’s share could
not be used to measure the last two variables, so these were normalized by a
country’s population and its GDP respectively.
Several other variables were added as controls, to ensure that differences
between countries other than relations with China were controlled for. These
included the level of per capita income, the size of the population, whether
the country had diplomatic relations with Taiwan, and its control of cor-
ruption and degree of democracy. The last two were measured by the WGI
indicators, Control of Corruption, and Voice and Accountability.
Panel data regressions were used. Since we are interested in the impact of
relations with China on political outcomes, the China variables were lagged
by one year. The control variables were contemporaneous with the depen-
dent variables. Year fixed effects were included, since the subject matter of
UN votes varies from year to year and this might influence the pattern of
voting. The results of the Hausman test indicated that it was appropriate to
use random effects rather than country fixed effects in all cases.
Table A11.1 sets out the results for votes with China. The only variables
which are consistently significant are population size and relations with Tai-
wan. Both are negative, indicating that smaller countries are more likely to
vote with China as, not surprisingly, are countries which have diplomatic re-
lations with the PRC rather than Taiwan. None of the indicators of economic
relations with China has a statistically significant effect.
340
Table A11.1. Determinants of Voting Coincidence with China
Trade (1) FDI (2) Projects (3) Loans (4)
Log LAC GDP p.c. −0.14 −0.52 −0.12 −0.27

Log LAC population −0.96*** −0.63* −0.92*** −0.78**
Recognition of Taiwan −3.1*** −2.7** −3.1*** −2.2*
Control of corruption −0.004 −0.09** −0.003 −0.008
Voice & accountability −0.04 0.10* −0.05 −0.03
China’s trade share 0.002 — — —
China’s FDI share — 0.00004 — —
Chinese projects p.c. — — 0.009 —
China’s loan share — — — 0.06
Random/fixed effects RE RE RE RE
Observations 462 376 462 317
R-squared 0.36 0.39 0.36 0.42
*, **, and *** significant at 10 per cent, 5 per cent, and 1 per cent levels
341
Part IV
Comparisons and Conclusions
12
A Comparative Perspective on China’s

Involvement in Sub-Saharan Africa and Latin
America and the Caribbean
12.1 Introduction
Despite the large and rapidly expanding literature on China’s economic

relations with both Sub-Saharan Africa (SSA) and Latin America and the
Caribbean (LAC), virtually nothing has been written of an explicitly compar-
ative nature.1 Studies of the international implications of China’s rise tend
either to be about the global economic consequences or to focus on the im-
pact on a specific region or country. In the case of the latter, most of the
studies by Western scholars have come from area-studies specialists who have
expertise in a particular region, rather than Sinologists who might be more
likely to take a comparative approach. African and Latin American scholars
are primarily interested in the impact of China on their own countries or
region, and generally have not looked to make comparisons further afield.
Chinese academic studies on China’s impact on Africa and Latin America
also tend to come mainly from area studies research centres such as the In-
stitute of Latin American Studies and the Institute of West Asian and African
Studies at the Chinese Academy of Social Sciences. This has been an obstacle
to in-depth comparative studies of the two regions.
This chapter brings together the findings of the previous two parts of the
book to provide a systematic comparison of China’s economic involvement
in SSA and LAC and its impact. It shows that while Chinese interests in the
two regions are broadly similar as are many of the features of its engagement,
1
Amongst the few studies that attempt a broad comparison of China’s relations with Africa and
Latin America are Brautigam (2017); Leiteritz and Coral (2017); Narins (2016); and Zhang (2016).
Shen (2015) presents an interesting comparison of Chinese views of Africa and Latin America.
the impacts vary because of significant differences between the economic,

political, and institutional structures of SSA and LAC.
12.2 The Development of Relations with China
China established relations with SSA much earlier than with LAC. In the
Maoist period, national liberation movements in SSA were seen as part of
the anti-imperialist struggle, and were supported by the Chinese govern-
ment. Many of these countries, which became independent in the early
1960s, established diplomatic relations with Beijing soon afterwards. Chi-
nese Premier Zhou Enlai made the first trip by a Chinese leader to Africa
in late 1963 and early 1964, visiting six SSA countries. This laid the ba-
sis for cooperation between China and several newly independent African
countries, and led to a number of subsequent Chinese projects in the region
during the 1970s, including the Tanzam Railway, the Jin Kang hydropower
project in Guinea, and the Bouenza hydropower station in the Republic of
Congo (He, 2014, p. 4). A majority of SSA countries supported China’s ad-
mission to the United Nations (UN) in 1971, and the region accounted for
twenty-one of the seventy-six votes in favour.
In contrast, the only country in LAC which recognized China in this
period was Cuba, after its socialist revolution. When the UN General Assem-
bly voted to admit the People’s Republic of China (PRC) in 1971, only seven
LAC countries voted for the motion, and eleven voted against it. More LAC
countries established diplomatic relations in the 1970s following the PRC’s
admission to the UN, but others did not do so until the 1980s after the USA
had recognized Beijing in 1979. Even today, there are eight LAC countries
which recognize Taiwan and do not have diplomatic relations with the PRC.
It was during the 1990s that China began to pursue a more active pol-
icy towards Latin America. Yang Shangkun was the first Chinese president
to visit the region in 1990. His successor, Jiang Zemin, visited the region
twice, in 1993 and 1997. During this period forty LAC Presidents and Prime
Ministers made state visits to China. In 1993, China established its first
strategic partnership in the region with Brazil.
Significant Chinese engagement with Latin America dates from well after
the start of the political and economic changes that began in China in the
late 1970s. This contrasts with the much earlier development of relations
with SSA in the 1960s. As a result, Chinese documents and statements about
the region are much less freighted with the language of anti-imperialism and
common struggle than those about SSA (Strauss, 2012).
Whereas during the Cold War the Chinese government saw SSA and LAC
very differently, with the former being of much greater strategic significance,
346
A Comparative Perspective on China’s Involvement
since the end of the Cold War and the prioritization of economic growth
within China, the official view of the two regions has tended to converge.
They are both seen as part of the developing world and are regarded as less
important for China than relations with its immediate neighbours in Asia or
with the big powers, particularly the USA (Sun, Y., 2014, p. 13; Zhang, 2016,
p. 96). Official Chinese statements stress the principles of non-interference
in internal affairs and respect for national sovereignty in China’s relations
with both regions. Economic relations are discussed in terms of South-South
cooperation and mutual benefit. The complementarity of their economies
with that of China is highlighted.
These similarities were reflected in the Chinese policy papers on Africa
issued in 2006 and on LAC two years later (PRC, 2006, 2008). The two papers
are similar in length and structure, and focus on similar areas of potential
cooperation (Zhang, 2016). Two further policy papers on Africa (PRC, 2015)
and LAC (PRC, 2016) show continuing similarities, although the Africa paper
is rather more fully elaborated. Key economic areas of cooperation identified
in both papers include energy and resources, infrastructure, manufacturing,
finance, and agriculture.
12.3 Key Chinese Actors in Sub-Saharan Africa (SSA) and Latin

America and the Caribbean (LAC)
As was seen in Chapters 6 and 9, the main actors involved in China’s eco-
nomic relations with SSA and LAC are largely the same. At the central
government level, the Ministry of Foreign Commerce (MOFCOM) and the
Ministry of Foreign Affairs are the main actors, with MOFCOM being the
more important in terms of economic relations. State-owned enterprises
(SOEs) play a major role in terms of both Chinese foreign direct investment
(FDI) and engineering and construction contracts in both regions, while
the government policy banks are the main providers of credit. Some large
provincial and municipal SOEs are also involved in FDI and contracts in both
regions, as are large private firms such as Huawei and ZTE.
Two differences in terms of the actors involved in SSA and LAC are worth
noting. First, although the policy banks dominate lending to both regions, it
is the Exim Bank that is the most important Chinese lender to SSA, whereas
the China Development Bank is the main source of Chinese loans to LAC.
Chinese aid is channelled through the Exim Bank, which partly explains why
it is more important in SSA than LAC, since the latter receives much less aid
from China. In recent years there has been an increase in the share of loans to
LAC provided by the Exim Bank and to SSA by CDB, although the difference
in terms of the leading policy bank in the two regions remains.
347
Although exact figures are hard to come by, SSA has seen the involvement
of more private Chinese investors, many of which are fairly small scale. In
contrast to LAC, where studies of Chinese FDI have focussed on SOEs, there
have been several studies of private Chinese investment in SSA (Gu, 2009,
2011; Shen, 2013). In the construction sector, for example, there are a num-
ber of firms in SSA which were set up by former employees of SOEs who
stayed on in the region. There are also numerous Chinese entrepreneurs who
view SSA as an opportunity to set up a new business. Although there are
Chinese businesses involved in LAC, particularly in the retail trade, the scale
of private Chinese firms is not comparable to their involvement in SSA.
12.4 Chinese Interests in Economic Engagement in SSA and LAC
As seen in Chapters 6 and 9, China’s economic involvement in both regions

can be analysed in terms of strategic diplomatic, strategic economic, and
commercial interests. As emphasized in those chapters, a number of different
actors are involved in China’s economic expansion in SSA and LAC, and
China’s activities cannot be seen as the result of a single coherent strategy of
‘China Inc’. Nevertheless, there are certain common characteristics in terms
of the objectives pursued in the two regions.
In both cases, a key diplomatic objective has been to gain recognition of
Beijing as the sole legitimate representative of China under the One China
Policy. This strategy was actively pursued until 2008, when the election of
President Ma in Taiwan led to an informal truce with China until 2016.
After establishing diplomatic relations with Malawi and Costa Rica in 2007,
there were no further changes in diplomatic recognition until 2016, when
the Gambia and Saõ Tome and Principe established relations with the PRC,
followed by Panama in 2017 and Burkina Faso, the Dominican Republic and
El Salvador in 2018. There is now only one SSA country (Eswatini) which still
has diplomatic relations with Taiwan, while eight LAC countries still do so at
the time of writing. This means that the Taiwan factor is now a much more
significant issue in China’s relations with LAC than with SSA.
China has applied the same overall policy of non-interference in the inter-
nal affairs of other countries and respect for national sovereignty in both SSA
and LAC. Despite claims to the contrary, there is little evidence that it is using
its economic presence in the two regions to achieve specific political goals in
terms of supporting either authoritarian regimes in SSA or left-wing govern-
ments in LAC. On the contrary, China has developed economic links with
a range of countries covering a variety of different political regimes. These
economic relations have, however, contributed to the growth of Chinese
348
‘soft power’ in both regions, although they have also led to tension on
occasion.
Although political factors dominated Sino-African relations during the
Maoist period, after 1979, economic factors came to the fore. In Latin
America, since relations had been so limited before 1979, economic fac-
tors have always dominated the relationship. The most important strategic
economic objective for China in both regions is to secure supplies of raw
materials. The most significant of these is oil, and both regions have played
a role in reducing China’s dependence on the Middle East for its supply, al-
though SSA is more important in this respect than LAC. Both regions are also
strategically important as sources of key minerals such as iron ore and copper.
LAC is an important factor in food security in China through the region’s ex-
ports of soybeans, which help feed China’s growing livestock population. In
contrast, SSA has not been an important source of agricultural products for
China; nor, contrary to popular misconceptions, have there been extensive
Chinese ‘land grabs’ in Africa (Brautigam, 2015).
A second strategic economic objective has been to expand the market for
Chinese exports. This has been more important in LAC than in SSA because
of the size of the market there. As seen in Chapter 9, China has expended
considerable effort to get LAC countries to grant it market economy status, as
defined by the World Trade Organization (WTO), although several still have
not done so. In SSA China has faced fewer problems in obtaining access to
local markets, apart from in South Africa.2 In both SSA and LAC, loans have
played an important role in expanding the market for Chinese products.
Both regions have also been a testing ground for China’s Go Global pol-
icy, encouraging the international expansion of Chinese companies. Chinese
construction and engineering firms have been particularly active in SSA.
The commercial interests of Chinese firms have also played a significant
role in the growth of economic relations with the two regions. Chinese
traders have played an important part in the growth of exports to SSA and
LAC. The earliest investments made by Chinese firms in both regions oc-
curred in the 1990s, before resource security became a strategic economic
issue for the Chinese government. Although later investments have been
promoted by the Chinese state, the firms concerned, even when they are
SOEs, are partly motivated by commercial considerations, particularly in the
ways that their subsidiaries operate. The expansion of construction com-
panies overseas is also partly a result of increased competition and excess
2
While LAC is a more important market for China than SSA in terms of its size, Chinese
exporters have met more resistance there than in SSA. LAC countries, particularly Argentina,
Brazil, and Mexico, have been much more active against imports from China than SSA countries.
Between 2005 and 2019 countries from LAC have opened 269 anti-dumping actions against
China, compared to only 21 in SSA, all of which were by South Africa.
349
capacity in China, which limits their growth at home. Smaller companies

are expanding abroad too, particularly in SSA, where there is a perception
that there are more opportunities and less competition than in China.
The similarities between Chinese interests in SSA and LAC are reflected
in the growth and structure of their economic relations with China. First,
both regions have seen a rapid expansion of economic relations with China.
As Chapters 6 and 9 showed, bilateral trade with China, Chinese FDI and
contracts, and loans have grown massively in both regions since the turn of
the century. Second, natural resource extraction plays a central role in the
economic relationship. Primary products and resource-based manufactures
make up the bulk of China’s imports from SSA and LAC. Energy (including
oil and gas) and metals (mainly mining) accounted for around three-quarters
of Chinese FDI in both SSA and LAC between 2005 and 2019, according to
the China Global Investment Tracker database. China has also made numer-
ous loans to countries in both regions, which are repaid through sales of
commodities, particularly oil.
Third, SSA and LAC imports from China are almost entirely manufactured
products, so that although the relationship is often described as South-South
cooperation, in practice, the pattern of trade is the traditional North-South
or centre-periphery type, with SSA and LAC exporting primary products to
China in return for imports of manufactured goods. Finally, exports to China
are dominated by a handful of products. In both regions, the dependence of
countries on exports of oil, copper, and iron ore to China has increased in
recent years.3
12.5 Key Differences between SSA and LAC
Although Chinese interests in economic relations with SSA and LAC and the
actors involved are broadly similar, there are important economic, politi-
cal, and institutional differences between the two regions, which affect the
impacts of these relations. It is also important to bear in mind that, as empha-
sized throughout this book, significant differences exist between countries
within each region, and broad regional comparisons may not reflect their
individual situations.
12.5.1 SSA and LAC’s Insertion in the Global Economy

It is impossible to understand the differences between SSA and LAC without
considering the position they occupy in the global economy. Since colonial
3
See Casanova et al. (2015) on Latin America and Casanova and García-Herrero (2016) on
Africa.
350
times SSA’s role has been as a source of natural resources, initially of minerals,
such as gold, diamonds, copper and iron ore, and later of oil. It has also been a
source of tropical agricultural products such as tea, coffee, and cotton. There
was relatively little migration to the region during the colonial period except
to a few countries in Southern Africa and East Africa.
After gaining their independence, governments did attempt to promote
diversification of the economic structure through import substituting indus-
trialization (ISI), and they tried to gain greater control over their natural
resources, in some cases through the nationalization of foreign companies.
Although there was a spurt of economic growth in the 1960s, these mea-
sures did not succeed in bringing about structural change or sustainable
growth. In the 1980s they were largely abandoned as a result of the Struc-
tural Adjustment Policies imposed by the World Bank and the International
Monetary Fund. These included reversing the protectionist policies adopted
in the 1960s and 1970s to promote local manufacturing and reducing state
intervention in the economy, through privatization of SOEs and other lib-
eralization measures. As a result the process of industrialization was halted
while manufacturing was still only a small part of overall economic activity
and was technologically backward.4
Throughout the period since independence, SSA’s position in the global
economy has been marginal. The region has never accounted for more than
about 1 per cent of global manufacturing (Rodrik, 2016a, Table 1). Flows of
FDI to the region have been largely confined to the extractive industries,
and investors have shown little interest in the manufacturing sector and the
small, fragmented domestic markets. Other types of financial flows have also
been very limited, and, in fact, overall SSA has been a net exporter of capi-
tal, with capital flight following liberalization contributing to the outflow
(Sundaram et al., 2011). The main sources of capital inflows on which
SSA have relied are foreign aid and migrant remittances. With aid increas-
ingly seen as a form of social safety net, there has been very little capital
accumulation in the region.
Most of the Latin American economies gained their independence a cen-
tury and a half earlier than the majority of SSA countries.5 Although they
continued to be primarily exporters of natural resources throughout the
nineteenth century, a number of countries expanded their exports to include
temperate agricultural products, as well as minerals and oil. There were sig-
nificant flows of immigrants, particularly to Brazil and the Southern Cone
countries. Some of the countries of the region began to industrialize in the
4
Tregenna (2015) describes this as ‘pre-industrialization de-industrialization’.
5
But not the Caribbean countries, which, like most SSA countries, did not gain independence
until the 1960s.
351
first half of the twentieth century, a process that intensified with the collapse
of the markets for their traditional primary product exports during the Great
Depression. After the Second World War, governments used ISI strategies
to encourage local manufacturing and attract inward investment. Although
initially manufacturing was for the domestic market, from the 1960s some
countries began to encourage manufacturers to export. The region also be-
came an important destination for international financial capital especially
during the 1970s, when some of the surpluses from the OPEC countries
were recycled there. The accumulation of debt led to a financial crisis when
Mexico defaulted in 1982. This led to the ‘lost decade’ of the 1980s and the
emergence of the Washington Consensus advocating trade liberalization and
privatization.
Two patterns of accumulation emerged in the region. Countries which
had previously been important centres of industrial accumulation, such as
Argentina, Brazil, Chile, and Uruguay, underwent what has been charac-
terized as ‘premature deindustrialization’. This involved a transition from
a trajectory that relied on the growth of manufacturing to one that was
more typical of primary commodity exporters (Palma, 2005) as a result of
the adoption of neo-liberal economic policies.6
A different pattern emerged in Mexico and in a number of Central Amer-
ican and Caribbean countries, which became important export platforms
assembling labour-intensive products, mainly for the US market.7 In contrast
to the first group of economies, these countries saw the share of manufactur-
ing in total employment increase in the 1980s and 1990s. Integration with
the US economy was reinforced by the North American Free Trade Agree-
ment and the Dominican Republic-Central America Free Trade Agreement
(DR-CAFTA), which came into effect in 1994 and 2009, respectively.
The historical and contemporary differences between the positions of SSA
and LAC in the global economy have led to contrasting economic situations.
Income levels are on average significantly higher in LAC than in SSA. LAC
countries also tend to be more industrialized and technologically advanced
than those in SSA.8 Only South Africa has a level of industrial development
comparable to those of the more developed Latin American economies. Some
Latin American business groups took advantage of pro-market policies to
6
Palma (2008) points out that South Africa also displays some of the characteristics of this form
of deindustrialization. He contrasts this with the other SSA countries, where deindustrialization
in the 1980s and 1990s was associated with a fall in per capita income, which he describes as
‘deindustrialization in reverse’.
7
Palma (2005) refers to this as the ‘maquila industrialization process’. He specifically mentions
Mexico, Costa Rica, the Dominican Republic, El Salvador, and Honduras as examples. One could
add Guatemala, Nicaragua, and Haiti as further examples.
8
Manufacturing value added per capita was more than twenty-times higher in LAC than in
SSA in 2010 (Taylor, 2016, Table 1).
352
acquire state-owned companies when they were privatized and to expand

globally, becoming transnational corporations themselves—the so-called
Translatinas. These companies are in a position to compete or collaborate
with Chinese companies, both in Latin America and in some African coun-
tries, as is happening for example in construction. In SSA, again it is only in
South Africa that similar developments have taken place.
12.5.2 Geo-political Differences: The USA and China in SSA and LAC
Geopolitically, the two regions are situated rather differently. From the 1960s
to the 1980s, China competed for influence in SSA with the USA, the USSR,
and the former European colonial powers. In LAC, in contrast, the USA was
the dominant external power, and under the Monroe Doctrine, it sought to
exclude any other foreign countries. Despite the existence of some Maoist
guerrilla groups in LAC, China was not able to establish a presence there.
Indeed it was not until after 1979 that many countries established diplo-
matic relations with the PRC. Even after becoming a significant economic
actor in LAC, the Chinese government has recognized that the region is a US
sphere of influence, and it has been restrained in terms of developing very
close relations with countries that the USA regards as hostile. In SSA, China’s
efforts to secure influence have not been constrained by concern about the
reaction in the USA or in Western Europe in the same way.
The geo-political differences between SSA and LAC are vividly illustrated
by the reactions of the US government to countries in the two regions switch-
ing diplomatic recognition from Taiwan to the PRC. Following the change
in Panama, the Dominican Republic and El Salvador, the USA recalled its
ambassadors from the three countries in 2018 for discussions of their break
with Taiwan, and even considered cutting aid to El Salvador, clearly indi-
cating the seriousness with which it regarded the inroads that China was
making in the region (Shattuck, 2020). This contrasts with the lack of reac-
tion when three African countries, the Gambia, Burkina Faso and Saõ Tome
and Principe established diplomatic relations with the PRC at around the
same time.
12.5.3 Differences in the Local Political Economy and State Capacity

While the way in which LAC and SSA countries were integrated into the
global economy and their geo-political position are major determinants
of the opportunities and challenges that the rise of China presented, the
type of political regime and state capacity affected the way in which coun-
tries responded. This highlights the role of local structures and agency in
determining the impact of China in LAC and SSA.
353
While there are clearly important political differences between countries

within each region, there are also some broad generalizations that can be
made regarding differences between SSA and LAC. First, with the peace pro-
cess in Colombia, there are no longer any major violent political conflicts in
LAC. This contrasts with the situation in SSA, where there is a much higher
level of political instability and violence. Second, most LAC countries have
had democratic governments since the ending of the military dictatorships
in the 1980s. Undemocratic authoritarian regimes are much more prevalent
in SSA. This is also reflected in a more active civil society in LAC than in most
SSA countries.
Although these differences in the local political economy are not a sig-
nificant determinant of the extent of China’s relations with a country, as
was seen earlier in this volume, they can have implications for the way in
which the growth of China affects the economy. This is illustrated by the
contrasting experiences of Venezuela and Angola, two countries whose in-
sertion into the global economy as oil exporters, and relations with China
as the leading oil suppliers, markets for Chinese construction projects, and
recipients of Chinese loans within their respective regions, are very similar.
However the way in which the additional resources generated by the com-
modity boom and Chinese loans were used were very different, reflecting
differences in the nature of the regime in power (Hammond, 2011).
Angola has been characterized as a neo-patrimonial regime in which the
primary beneficiaries have been a narrow elite linked to the President and his
family.9 In Venezuela, on the other hand, the government of Hugo Chavez
was a left populist regime that sought to redistribute income and to provide
improvements in the health and education of the underprivileged sectors.
Jepson (2020) contrasts the development strategies pursued by the two coun-
tries during the commodity boom with Angola following an ‘extractivist-
oligarchic’ trajectory while Venezuela’s was ‘extractivist-redrstributive’. In
Angola, this was reflected in large-scale infrastructure and prestige projects
that provided opportunities for elite enrichment but did little for the bulk of
the population, whereas in Venezuela resources were channelled into health,
education, and low-income housing.10
SSA and LAC countries also differ in terms of state capacity. Although
there are many weaknesses in state capacity in LAC, the regulatory capa-
bility of the state tends to be greater and more effective than that in SSA.
Also despite extensive corruption in LAC, as illustrated by the Lava Jato (car
wash) scandal in Brazil, control of corruption and the rule of law tend to be
9
Isabel dos Santos the daughter of Eduardo dos Santos who was president between 1979 and
2017 is reportedly the richest woman in Africa. Recent reports have highlighted the way in which
this wealth was accumulated illegitimately at the expense of the Angolan people.
10
This involved a high level of mobilization of civil society through the Misiones.
354
stronger in the region than in SSA.11 As a result, LAC states are likely to be
better placed to maximize the benefits and minimize some of the negative
impacts arising from growing relations with China. This includes policies to
obtain a share of the gains from the commodity boom and increased exports
to China, as well as measures to ensure that Chinese companies create jobs
for local workers and do not rely excessively on imported Chinese labour,
and the enforcement of environmental regulations and consultation with
local communities to avoid negative environmental and social outcomes.
Zambia and Chile are both major copper producers whose exports grew
substantially as a result of the boom in demand from China and the surge
in copper prices from 2002. However their ability to benefit from the com-
modity boom differed significantly reflecting substantial differences in state
capacity. As was seen in section 10.5.3, the Chilean government was able to
capture a significant share of the increased resource rents from copper, both
through the role of the state-owned mining company CODELCO and from
tax revenue. In contrast Zambia had privatized the copper industry shortly
before the start of the boom and the private mining companies paid very
little tax between 2002 and 2007 (Meller and Simpasa, 2011). Over the pe-
riod up to 2013, the Chilean government was able to capture a much larger
share of the resource rents from mining than its Zambian counterpart (Lund-
støl, 2018). Chile was also much more successful than Zambia in avoiding
the ‘Dutch Disease’ during the commodity boom (Cali and te Velde, 2007,
pp. 18–19). As Jepson (2020, p. 169) points out, one of the major prob-
lems faced by the Zambian state in trying to harness the potential of the
commodity boom was the lack of state capacity.
Finally, public attitudes towards China also differ substantially between
the two regions. There is evidence that China is seen much more favourably
in SSA than in LAC (Guo, 2017). In the latter, the average proportion
of respondents indicating that they had a ‘very favourable’ or ‘somewhat
favourable’ view of China in the nine countries covered by the Pew Global
Attitudes survey in 2014 was just over 50 per cent, and only in Venezuela
(67 per cent) did this exceed 60 per cent. In contrast, for the nine African
countries covered by the same survey in 2015, the average was just over
70 per cent, with only South Africa (52 per cent) scoring less than 60 per
cent (Pew Research Center, 2017).12
11
These generalizations are supported by the World Bank’s World Governance Indicators for
SSA and LAC. On average, these have consistently been lower in SSA than in LAC since they
were first recorded in 1996. These are, of course, averages, and there are countries in SSA which
perform better than some of those in LAC, as there is considerable variation in both regions.
12
It is possible that these differences reflect a more favourable view of China’s economic impact
on SSA countries than on LAC countries.
355
12.6 Comparing the Impact of China in SSA and in LAC
Although the drivers of the growing economic relations between China and
SSA and China and LAC are broadly similar, the different contexts in which
they play out mean that the economic, social, political, and environmen-
tal impacts vary both between regions and amongst individual countries
(Table 12.1).
Before comparing the impact of relations with China on the two regions,
it should be noted that China is economically more significant for SSA than it
Table 12.1. Summary of China’s major impacts on SSA and LAC
SSA LAC
Economic impacts
Growth of Benefitting fuel and mineral Benefitting fuel, mineral, and
commodity exporters temperate agricultural exporters
exports
Competition in Limited to a few garment exporting Particularly affected are Mex-
export markets countries ico, DR-CAFTA, and more
industrialized South American
countries
Competition from Mainly displacing imports from Significant impacts on some in-
imports from other countries dustries in more industrialized
China countries
Infrastructure Significant boost Limited up to 2020 but may
increase in future
Social impacts
Employment Some job creation by Chinese Job losses in manufacturing as a
companies but concerns exist result of Chinese competition;
over use of Chinese workers limited employment creation
from exports
Wages and working Weak trade unions and en- Stronger trade unions and regula-
conditions forcement of labour rights by tion in the more industrialized
government permitting low countries, providing more
wages and poor conditions protection for workers
Local communities Little effective opposition to effects Conflicts where civil society is
of extractive industries and dams mobilized on extractive issues
Political impacts
‘One China policy’ Accepted by all but one country Eight countries still recognize
Taiwan
Type of regime No evidence that China has No evidence that China has
promoted corruption or promoted anti-US regimes
authoritarianism
Policy space Increased resources not necessarily Increased policy space for pro-
used to promote development gressive governments to pursue
alternative economic strategies
Environmental impact
Environmental Weak environmental regulation al- Mobilization around environmental
degradation lowing firms to cause substantial issues to counter worst aspects
degradation
Wind and solar China playing a significant role Up to now, limited involvement
power apart from in Chile
356
is for LAC. This is not so marked in terms of trade, where China accounted for
one in every six dollars of trade in SSA, compared with one in seven in LAC.13
SSA is significantly more dependent than LAC on China in other respects. In
terms of FDI, although accurate statistics on Chinese outward foreign direct
investment are hard to come by, it is likely that SSA has received at least as
much as LAC. However, LAC is a much more important destination for global
FDI, and the total stock of inward investment in LAC is three and a half times
that in SSA (UNCTAD, 2020, Annex Table 2). SSA is also more dependent on
Chinese infrastructure projects and finance than Latin America is, although,
again, there are considerable differences across individual countries.
12.6.1 Economic Impacts

In the short and medium terms, both SSA and LAC benefitted directly from
the growth of exports to China and indirectly from the impact of Chinese
demand on prices during the commodity boom. These contributed to the
acceleration in economic growth that both regions experienced during the
first decade of the twenty-first century. Within each region, some countries
benefitted much more than others did, with oil and mineral exporters gain-
ing most because these products accounted for a large share of exports to
China and were the products which saw the largest price increases. Exporters
of temperate agricultural products from Latin America also benefitted from
increased meat consumption and demand for feedstuffs in China, whereas
countries that continued to rely on exports of tropical agricultural products
did not gain significantly. The worst-affected countries were those that had
inserted themselves into the global economy as exporters of labour-intensive
manufactures and faced direct competition from Chinese products in their
export markets.
SSA also benefitted from the major increase in infrastructure built by the
Chinese in the region. Since poor infrastructure has been a considerable
barrier to economic development in SSA and the region has found it diffi-
cult to obtain sufficient funds from other sources for a major infrastructure
programme, the role played by China in recent years has—notwithstanding
complaints about the quality of some Chinese projects—made an important
contribution to boosting growth. In LAC, as seen in Chapter 10, Chinese
13
There are considerable differences in dependence on trade with China at the country level
in both regions, and individual SSA countries are more dependent on China than LAC countries.
In LAC the country with the highest share of trade with China is Chile, where China accounts
for a quarter of its total trade. In SSA there are eight countries where trade with China makes up
more than a quarter of the total, and more than a third of Angola, Republic of Congo, Guinea
and South Sudan’s trade is with China.
357
involvement in infrastructure has been limited, although there are now signs
of significant increases in prospect.
Although there have been positive economic impacts of Chinese growth,
other impacts are less beneficial to both SSA and LAC. Because of its higher
level of industrialization, LAC has felt the impacts of Chinese competition
more strongly. In SSA much of the increase in imports of manufactured goods
from China has been at the expense of imports from other countries. Apart
from a few African countries which have developed exports of clothing and
textiles, and South Africa, which already had a substantial manufacturing
sector before Chinese imports began to grow, the impact on industrial devel-
opment has been to make it more difficult to get production started, rather
than displacing existing producers and causing job losses.
In LAC, and particularly in its more industrialized countries including
Argentina, Brazil, Colombia, and Mexico, increased Chinese penetration of
the domestic market has had a significant effect on local manufacturers and
workers, leading to a continuation of the process of deindustrialization that
began with the economic liberalization of the 1980s. In countries which
had seen manufacturing employment rise as a result of the adoption of the
maquila model of industrialization, Chinese competition in export markets
led to a reversal of the trend. In the Andean countries (Bolivia, Ecuador,
Peru, and Venezuela), there has been intensification of the so-called (neo)-
extractivist model of development, in response to increased demand from
China.
The lower level of technological development in SSA has meant that the
region stands to gain more from technology transfer from China than LAC.
Local firms in SSA have also been able to benefit from importing cheaper
Chinese equipment which is more suitable for the conditions in which they
operate. There is less evidence of this happening in LAC. Technology transfer
has tended to be at the more sophisticated end of the spectrum, for example,
through government collaborations to develop and launch satellites.
In neither region have manufacturers been able to link with global value
chains in which Chinese firms are involved and increase exports to China or
to use Chinese inputs to export to third countries. Although the relocation
of manufacturing to SSA as wages rise in China has been predicted by some,
it seems unlikely that this will become significant (see Chapter 7). Similarly,
despite hopes expressed in Latin America, there is little sign of China using
countries in the region as platforms for export.
12.6.2 Social Impacts

One of the most controversial issues regarding the social impacts of China
in SSA has been the large number of Chinese workers in the region, and
358
particularly their extensive use in construction projects. Although the ex-

tent of the problem is often exaggerated, and there is evidence that firms
tend to use more local workers over time, it is more of a problem in SSA
than in LAC. There are examples in LAC where significant numbers of Chi-
nese workers have been brought in, but the numbers involved are far lower
than in SSA. This is partly because, as seen earlier, the inroads made by
Chinese construction companies into LAC are not as great as in SSA, but
it also reflects the stricter work-permit controls applied in the larger LAC
countries. For example, a request by State Grid to bring in 11,000 Chi-
nese workers was rejected by the Brazilian government. Chinese workers
have been more extensively used in LAC in the smaller Caribbean countries
(Ellis, 2014, pp. 148–9).
While in SSA concern over employment has mainly focussed on Chinese
workers taking jobs that could potentially be filled by Africans, in particular,
unskilled jobs in construction, in LAC, the focus is much more on imported
Chinese goods displacing local manufacturing employment. This has led to
workers demonstrating against plant closures as a result of Chinese compe-
tition in several Latin American countries, including Argentina, Brazil, and
Colombia (see Chapter 11). It has also been a factor contributing to the ac-
tions taken by several Latin American countries against Chinese imports at
the WTO.
In both SSA and LAC, concerns have been raised over wages and work-
ing conditions at Chinese firms. While there is some evidence of low wages
and poor working conditions in Chinese firms in both regions, it is not clear
that this is mainly due to Chinese ownership or to contextual factors such
as the concentration of investment in extractive industries which tend to
have a poor health and safety record, or in low-cost labour-intensive manu-
facturing industries. The extent to which the local workforce is organized in
trade unions and the degree to which the host government enforces labour
legislation in different countries are important factors in determining how
firms behave. Generally speaking, trade unions are stronger and govern-
ments better able to enforce legislation in LAC than in SSA, although there
is considerable variation between countries in both regions.
The impacts of Chinese firms on local communities, particularly in the
extractive industries, have received more attention in LAC than in SSA. This
does not necessarily reflect a substantive difference in the ways that firms
operate in the two regions, or in the significance of their impact. It is more
likely to be a reflection of the fact that civil society is more active around
extractive issues in LAC, leading to more intense conflict, which affects all
firms, not just the Chinese.
359
12.6.3 Political Impacts

As pointed out in Chapter 11, discussion of the political impacts of growing
economic links with China has taken rather different forms in SSA and LAC.
Although there is an underlying concern that China is displacing Western
influence in both regions, this is presented in different ways. In SSA the fo-
cus is on governance with claims that China is undermining democracy by
supporting authoritarian rulers, and has promoted corruption, undermined
the rule of law and contributed to political instability and conflict. In LAC,
on the other hand, the concerns are more directly geopolitical, with the
focus more on the implications of China for US hegemony in the region
and whether or not China is using its economic power to support anti-US
regimes in the region. These differences partly reflect the different contexts,
with LAC having much more firmly embedded democratic systems and less
political instability and conflict compared with SSA.
Despite the claims that are often made in the media about the political
impacts of China’s economic power, the evidence is not convincing. In both
SSA and LAC, China has established economic links with regimes of differ-
ent political stripes. It is also by no means clear that these economic relations
give China a great deal of political influence. Some African countries, such as
Angola and Ethiopia, have close links with China, but even these have sub-
stantial agency in terms of how the relationship develops. In Latin America,
the countries which are the most financially dependent on China have still
not been overly influenced by Chinese policy.
On the positive side, the political significance of the rise of China for both
regions is that it gives them a bit more room to manoeuvre with regard to the
developed world. China presents an alternative to the neo-liberal view of the
policies that should be pursued by developing country governments, and this
has created more ‘policy space’ both by showing that more statist approaches
can lead to high rates of growth and by loosening the constraints imposed on
countries by the international financial institutions and international capital
markets (Jepson, 2020).
While the growing role of China has created more policy space for govern-
ments in both regions,14 the use made of this policy space depends on local
political structures and the nature of the government in power. There are ex-
amples in LAC, such as Brazil and Venezuela, where governments have been
able to introduce measures to redistribute income and use state resources to
reduce poverty. In SSA, however, some of the most-often-quoted examples
14
Recently some authors have questioned the extent to which China’s involvement in Africa
has eroded the bargaining power of traditional aid donors and increased policy space in the
region. See Kragelund (2015) and Swedlund (2017).
360
of increased policy space, such as Angola and the Democratic Republic of

the Congo, have led to policies that enrich the political elite rather than
transforming the local economy.
12.6.4 Environmental Impacts

There are rather similar concerns regarding the environmental impacts of
China’s economic links in both SSA and LAC. This is not surprising, given
that Chinese involvement concentrates on extractive industries which in-
evitably tend to have a considerable environmental impact, and that the
Chinese government prioritized growth at home and gave little attention to
environmental impacts. The Chinese market for most of the products ex-
ported from SSA and LAC is driven by price, and it pays scant attention
to the conditions under which products are produced. There is little de-
mand for internationally recognized certified products such as the Forest
Stewardship Council for timber or the Round Table on Responsible Soy As-
sociation (RTRS) for soybeans. It is not surprising then that Chinese firms
lag behind their international competitors in terms of their adoption of
environmental standards or that the Chinese policy banks do not practice
the same level of environmental scrutiny of the projects that they fund as
other lenders such as the World Bank or the Inter-American Development
Bank.
Since Chinese firms abroad tend to follow local environmental standards
rather than the higher international ones, and since they have little incen-
tive to raise their standards above those that they are required to meet, it is
not surprising that the factors which tend to lead to differences in perfor-
mance are mainly to do with local standards and the degree to which they
are enforced. In so far as Chinese firms adopt higher standards in LAC than
in SSA, this is likely to be because of higher capabilities on the part of host
states and a higher level of civil society mobilization around environmental
issues.
On the positive side, Chinese firms have played a role in the development
of solar and wind power, where they are now international leaders. Chinese
involvement in the sector has been more significant in SSA than in LAC up
to now.
12.7 Conclusion
Although the objectives of Chinese actors in SSA and LAC are very similar,
the contexts in which they operate give rise to different outcomes in some
361
respects. These reflect the different ways in which the two regions are inserted
in the global economy, specific geopolitical circumstances, and internal po-
litical and institutional structures in SSA and LAC, as well as differences in
their historical relationship with China. In drawing out the similarities and
contrasts between the two regions, it is important not to lose sight of the
heterogeneity that exists between the countries within each region. South
Africa, for example, has more in common with many Latin American coun-
tries in terms of its relations with China and the impact that these have had
than with the pattern described for SSA, whereas some of the smaller, poorer
Central American and Caribbean countries have some features that resemble
the SSA pattern more closely than that found in South America.
362
13
Conclusion
13.1 Introduction
China’s rapid economic growth and increased openness has been one of the
most significant features of globalization in recent years. Because of China’s
sheer size in terms of its population and output, its economic transformation
since the late 1970s has had a major impact both on the world economy
as a whole and on particular regions and countries. This study has focussed
specifically on the implications of Chinese economic growth for two regions,
Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC), where
it has had a significant impact both directly and indirectly.
As was pointed out in the Introduction, the re-emergence of China as a
global economic power over the past four decades was made possible by the
rapid advance of globalization in that period. This gave China increased ac-
cess to world markets, foreign investment and technology, contributing to
a major shift in the location of industrial production. However this would
not have led to rapid economic growth in China without major domestic
changes as well.
Part I of the book focussed on the major economic changes that have
taken place in China since the beginning of its economic reform in 1979,
and China’s growing role in the global economy. These changes involved a
major shift away from a centrally planned economy at home, and a much
greater degree of integration with the global economy (Chapter 1). This led
to the emergence of China as a major centre of global industrial produc-
tion and driver of world commodity markets (Chapters 2 and 3). Although,
initially, Chinese integration with the global economy was largely through
trade and inward investment, since the start of the millennium, it has also
seen the international expansion of Chinese firms as a result of China’s Go
Global policy and its increased significance in international financial markets
(Chapters 4 and 5).
The emergence of China as a global economic powerhouse has given rise

to controversy in both SSA and LAC. A major purpose of this book has been to
set out the scale and nature of China’s impact on the two regions, to provide
a more accurate picture of a rapidly changing reality and to dispel some of
the misleading or exaggerated claims that have been made.
Part II of the book discussed the case of SSA, the developing region where
China’s involvement has attracted most attention in Europe. Chapter 6 doc-
umented the growth of Chinese economic involvement in SSA and the
drivers behind it. This was followed by an analysis of the direct and indirect
economic impacts, focussing particularly on the effects on commodity ex-
ports, China’s role in infrastructure development, and the effects on African
manufacturing (Chapter 7). The discussion was then broadened to consider
some of the claims that have been made regarding the social, political,
and environmental impacts of China’s increased presence in the region
(Chapter 8).
Part III provided a parallel analysis of Chinese involvement in LAC,
which has been a particular focus of attention in the USA. Chapter 9 anal-
ysed China’s growing economic presence in the region and the factors that
lie behind it. Chapter 10 looked at the economic impacts, especially the
debates that have arisen in the region concerning the primarization of ex-
ports and deindustrialization. Chapter 11 turned to the broader impacts of
China’s growing economic involvement in terms of social, political, and
environmental outcomes.
Chapter 12 provided a comparison of the relationship between China
and SSA and China and LAC, which summarized the main findings regard-
ing China’s impact on the two regions. By way of conclusion, this chapter
focusses on their likely future relations with China. This involves analysing
key trends at the global level, within China and in SSA and LAC. The chapter
also identifies the key problems that have arisen in relations between China
and LAC and China and SSA, and ways in which these can be addressed in
the future.
13.2 Global Trends
The focus of this book has been on the implications for SSA and LAC of
China’s growth during the first two decades of the twenty-first century. Eco-
nomic globalization was a key context for the rapid growth of the Chinese
economy and its international expansion during this period. By the middle
of the second decade of the century, the future of globalization was being
called into question, and it cannot be assumed that the trends analysed here
will continue in the future. The global financial crisis raised questions about
364
Conclusion
the benefits of unfettered globalization, and political changes in the USA and
the UK, two countries that had been in the forefront of globalization in the
past, created doubt about their commitment to further globalization in the
future.1 Tensions between China and the West have increased with the US-
China trade war and the actions taken by several Western governments to
restrict the activities of Chinese companies. In 2020 the COVID-19 pandemic
and its economic consequences raised further questions over the future of
globalization with massive falls in output, trade, and financial flows.
13.2.1 The Future of Globalization

At the time of writing, it is unclear what the future trajectory of globalization
will be when the world emerges from the COVID-19 pandemic. There were
already signs in the aftermath of the global financial crisis that globalization
was stalled or in retreat. Some writers have seen this as the start of a period
of deglobalization while others regard it as a temporary phenomenon (van
Bergeijk, 2019).
In contrast to earlier decades, trade has grown much more slowly and
is no longer increasing faster than global output. Protectionism increased,
particularly in the USA under the Trump administration, and the World Trade
Organization (WTO) became increasingly ineffective. Global financial flows
peaked in the period immediately before the financial crisis and have not
recovered since then. A number of countries have introduced restrictions
on FDI inflows on national security grounds in recent years. There is also
some evidence that Global Value Chains whose growth was a major feature
of globalization since the 1970s, have become less significant in recent years
(Dachs and Pahl, 2019).
In 2020 the global economy was shaken by the COVID-19 pandemic.
Global output was severely affected through the disruption of supply and
then by the decline in demand as incomes fell. Trade fell even more sharply
as a result, intensified by restrictions on the movement of goods and people.
The squeeze on profits also led to the contraction of international capital
flows. These short-term impacts implied a reduction in globalization. Will
this just be a temporary shift until the pandemic is brought under control
and the world economy recovers, or will the pandemic lead to long-term
changes to globalization?
The answer will depend on how governments and corporations react in
the longer term. In the case of governments, responses have been primarily
1
Paradoxically, it was President Xi Jinping of China who was the most vocal advocate of
globalization at the World Economic Forum in Davos in 2017.
365
nationally based rather than emphasizing global cooperation. This is high-

lighted by the marginalization of international organizations such as the
World Health Organization (WHO) and the competition between states to
secure supplies of vaccine for their own people. In the context of the sup-
port for populist nationalism that was on the rise before the pandemic, it is
hard to see the pandemic leading to increasing levels of globalization.
Corporate strategies are also likely to be affected in the longer term. When
the pandemic first struck in China in early 2020, many companies found that
their reliance on Chinese supply chains for key parts and components was a
source of vulnerability. These included technology companies such as Apple
and car manufacturers in Europe such as Fiat-Chrysler and Jaguar-Land Rover
whose production was disrupted by shortages of imported components from
China. Such disruptions highlighted the fragility of global supply chains
based on the reduction of inventories to a minimum through just-in-time
production and reliance on a single country (China) for a large proportion of
inputs. The response to this in the future is likely to be an effort to build more
resilience through diversification of sources of supply and bringing some
production back on shore, or to countries in the same region. A more pre-
cautionary approach emphasizing resilience, rather than short-term profit
maximization through squeezing all slack out of the supply chain in the
name of efficiency and cost reduction, is also likely.
A third factor that will influence the development of globalization in the
aftermath of the pandemic is technological change. The most obvious im-
mediate technological impact has been the rapid growth of new means of
communication via the Internet such as Zoom, Microsoft Teams, and the
new apps developed for contact tracing. By replacing the need for face-to-
face communication, these could reduce the extent of business travel, but
this would be a change in the form of globalization, rather than an indicator
of deglobalization. Insofar as the new technologies make it cheaper to coor-
dinate production in different parts of the world, they could provide a basis
for further globalization.
13.2.2 Tensions between China and the West

There have been increasing tensions between China and the West in recent
years. Politically this has been reflected in criticism of China’s treatment of
Uighur people in Xinjiang and the clampdown on democracy protests in
Hong Kong. Economically there has been a shift from seeing China as a part-
ner to the view that it is a ‘strategic competitor’ and a ‘systemic rival’. This
has led to measures being adopted to restrict the activities of Chinese firms
in a number of countries and to the so-called ‘trade war’ between the United
States and China.
366
Conclusion
Although SSA and LAC are not direct participants in the trade war between
the USA and China, a conflict between its two trading partners is bound to
have an impact particularly in LAC, and although the USA is less significant
than Europe in SSA, the region is also likely to be affected. Although referred
to as a trade war, the conflict between the world’s two leading economies is
much broader than just one over trade. It should be seen in the context of
the rapid narrowing of the gap between the two and the challenge that this
poses to the hegemonic position of the USA. When the USA imposed tariffs
on China in 2018, it did so in response to what it saw as China’s violation
of US intellectual property rights and its requirement that US firms investing
in China transfer their technology. The war is as much about maintaining
the USA’s technological lead, as it is about protecting the US market against
‘unfair’ Chinese competition. National security has also been invoked in or-
der to justify US restrictions on Chinese investment and to limit the access
of Chinese firms to US capital markets.
As far as China is concerned, the trade war has tended to intensify the
trends that were already under way. It has underlined the importance of
reducing dependence on exports, particularly to the USA, providing an addi-
tional rationale for rebalancing towards domestic consumption. It also makes
it more important for Chinese manufacturers to develop domestic suppliers
to avoid reliance on US and other producers that might be subject to US
sanctions. Even more significantly it makes it imperative to develop Chinese
technologies and reduce reliance on advanced technology from the West.
13.3 Developments in China
As this book has shown, economic relations between China and SSA and LAC
have been affected to a significant extent by the changes that have taken
place within China since the late 1970s. It is important therefore to consider
the impacts of recent changes within China and likely developments in the
future on relations with the two regions. Three sets of changes are particularly
relevant: the economic changes associated with slower economic growth and
rebalancing of the Chinese economy; the political changes that have taken
place under Xi Jinping; and the impacts of COVID-19.
13.3.1 The ‘New Normal’ in China

The changes in the Chinese economy which characterize the ‘new normal’
have significant implications for SSA and LAC. Three aspects are particularly
important in terms of the impact on developing countries: China’s slowdown
in economic growth; the rebalancing of the economy leading to structural
367
change; and technological upgrading as China moves up the value chain

(Schellekens, 2013).
Economic growth in China slowed from over 10 per cent per annum to
between 6 and 8 per cent between 2012 and 2019 and, even after recovering
from the impacts of COVID-19, the economy is expected to grow more slowly
in future.2 . Despite the slowdown in growth, China continues to be the most
dynamic centre of global accumulation. The Chinese economy now accounts
for a much bigger share of the global economy than it did at the start of the
century, and even at lower levels of growth, it continues to require increased
imports of natural resources and agricultural products. Chinese imports of
commodities such as petroleum, iron ore, copper, and soybeans have con-
tinued to grow in volume, and it is only because of falling prices that the
value of exports from SSA and LAC dropped temporarily in the mid-2010s.
If there were to be a serious economic crisis in China, as some claim is
likely to happen because of growing indebtedness and a property bubble,
this would have major repercussions for both SSA and LAC, which are now
dependent on the health of the Chinese economy, both directly as a result of
the growth of trade and capital flows, and indirectly through China’s impact
on commodity prices.
The adjustments to the ‘new normal’ have involved a greater emphasis on
domestic consumption in China and less reliance on extremely high levels
of investment and exports. This, together with more emphasis on the qual-
ity of economic growth in terms, for example, of the environment, rather
than growth at all costs, is changing the conditions that SSA and LAC face.
The income elasticity of Chinese demand for minerals and metals is likely
to decline as the structure of the economy moves away from heavy industry
towards light consumer goods and services. This will reduce the growth in
demand for some of the key commodities that China imports from SSA and
LAC. A move towards renewable energy could also reduce its demand for oil
and gas, although in the immediate future this is likely to be offset by growth
in the number of vehicles on the road raising petrol consumption.3 On the
other hand, higher consumption levels in China will increase the demand
for meat, which has already increased imports of meat, particularly beef, and
will certainly expand imports of feedstuffs. There are also opportunities for
exports of more sophisticated foods and beverages such as wine and luxury
fruit.
2
The Fourteenth Five Year Plan aims to double China’s GDP by 2035 which implies an average
growth rate of 4.4 per cent per annum between 2020 and 2035 (Chang, 2021).
3
In the longer term, China’s efforts to promote electric vehicles may sever the link between
the number of vehicles in circulation and petroleum imports. The government has set a target
for 40 per cent of cars to be electric by 2030.
368
Conclusion
The third aspect of China’s ‘new normal’ that is likely to affect SSA and
LAC is technological upgrading, as Chinese producers move up the value
chain. This is the result partly of deliberate government policy and partly
of rising wages in coastal areas. This has meant that China is becoming
competitive in an ever-wider range of more technologically sophisticated
products. It is no longer the case that Chinese exports are predominantly
low-technology, labour-intensive products so that manufacturers of high-
technology products elsewhere are unaffected by Chinese competition. As
seen earlier, in recent years China has exported products of an increasingly
sophisticated nature, which, particularly in the more industrialized LAC
countries, has led to increased competition for local producers and exporters,
a trend that is likely to continue in future.
Some optimists believe that this movement up the value chain will cre-
ate new opportunities for SSA and LAC to enter into more labour-intensive
activities which China is vacating. It is true that rising wages in the coastal
areas of China are leading to shifting patterns of accumulation. Up to now
these shifts have mainly been to inland areas and neighbouring countries
such as Vietnam and Cambodia. Despite the claims that have been made
regarding ‘flying geese’ in Africa, as seen in Chapter 7, there is no real ev-
idence that such a shift in global manufacturing capacity is under way. In
LAC, where wages are now similar to or lower than in the East of China,
there may be some reversal of the trend of losing market shares to China in
the North American market. However, rapid productivity growth in China
and its well-established supply networks and efficient logistics are likely to
keep the bulk of production there.
Just as China’s accession to the World Trade Organization and the com-
modity boom affected different countries in the Global South differently,
the effects of the ‘new normal’ are also likely to be heterogeneous. In SSA,
mineral exporters and countries which are more heavily reliant on exports to
China are likely to be most affected by a growth slowdown in China, while
agricultural exporters and those with more diversified exports are likely to
fare better (Igbinoba and Hoaeb, 2016). Similarly, in LAC there are likely to
be considerable differences between groups of countries in terms of the im-
pact of a slowdown in growth and a reduction in China’s rate of investment.
Mineral exporters such as Chile and Peru are the most vulnerable, followed
by fuel exporters. Exporters of manufactures such as Mexico, the Dominican
Republic, and Costa Rica are least affected (OECD, 2016, Ch. 5).
13.3.2 Political Change

It is not only economic changes within China that are likely to affect rela-
tions with SSA and LAC. For three decades or more after the introduction
369
of economic reforms in China in the late 1970s, the Chinese government

prioritized economic development at home and saw international economic
relations primarily in terms of their contribution to that objective. As a re-
sult foreign policy was guided by Deng Xiaoping’s dictum that China should
‘bide time, hide brightness, do not take the lead’, Since the global financial
crisis and particularly since Xi Jinping became President in 2012, there have
been significant changes in Chinese foreign policy. Whereas previous Chi-
nese leaders from Deng Xiaoping onwards followed a low profile strategy
under President Xi China has adopted a more assertive approach of ‘striv-
ing for achievement’ and pursuing the ‘Chinese Dream’ (Shambaugh, 2020,
p. 17). He has given particular attention to China’s international expansion
including through the launching of the Belt and Road Initiative in 2013.
China’s growing economic power and international expansion has cre-
ated the possibility that its economic activities could be used to advance
its political goals globally. As this book has argued, in the past the main
motives for China’s increased involvement in SSA and LAC have been eco-
nomic, both strategic economic objectives and commercial goals. Strategic
political objectives, apart from the ‘One China policy’ have played a sec-
ondary role in China’s economic expansion in the two regions. There are
signs that political goals may be increasing in significance in recent years.
This is certainly the view of those critics who argue that China is practising
‘debt trap diplomacy’ and ‘vaccine diplomacy’ in order to increase its lever-
age and soft power in the Global South. Suspicion of Chinese motives is by
no means new in some quarters, but what has changed in recent years as a re-
sult of the growing economic presence of China is the possibility that it could
potentially exercise pressure on SSA and LAC governments to achieve polit-
ical ends.
The other factor that has constrained the use of economic relations for
political ends in the past has been the variety of actors involved and the de-
gree of independence that they have from the Chinese party-state. Under Xi
Jinping there has been an increased level of political authoritarianism and
centralized control by the Communist Party within China. This has included
efforts to strengthen control over SOEs (Yu, 2019). It is not clear though that
this has led to increased control over the international operations of SOEs
so that these respond to political direction rather than commercial oppor-
tunities (Jones and Zou, 2017). The growth of Chinese OFDI has also been
accompanied by an increase in the share of private firms and provincial and
municipal SOEs that are not under the control of the central state, making
it more difficult to integrate them into an overall strategy.
It is unclear how these changes will play out in future. However politi-
cal changes within China have the potential to affect the development of
economic relations with SSA and LAC.
370
Conclusion
13.3.3 Impacts of COVID-19

Although the initial focus of the COVID-19 outbreak was Wuhan in China,
the economic impacts have been less severe than elsewhere. Drastic measures
were taken to bring the virus under control and after the initial lockdown
that severely disrupted production, the economy recovered rapidly so that
China was the only major economy to grow in 2020, albeit at a rate far below
the rates recorded in the years immediately before the outbreak. Chinese
exports also recovered in the second half of 2020 and again it was the only
major economy to increase its exports that year. Increased exports of health
equipment as a result of the pandemic was a significant contributory factor
as was the demand for IT products stimulated by increased working from
home. As the pandemic spread leading to lockdowns in the USA and Europe,
Chinese producers were able to increase their market share. China also ended
the year with its largest trade surplus since 2015 (Bloomberg, 2021).
China’s economic growth is expected to recover to at least pre-pandemic
levels from 2021. The large drops in output in the USA in 2020 as a result
of COVID-19 has brought the date when forecasters expect China to over-
take the USA as the largest economy in the world forward to 2028 (Elliott,
2020). China’s role in the global economy, and its impact on SSA and LAC,
is undoubtedly set to increase in the immediate future.
13.4 Developments in SSA and LAC
The changes that were discussed in the previous two sections could po-
tentially have significant implications for Sino-SSA and Sino-LAC relations.
Three aspects are considered here: the impact of COVID-19; the effects of the
US-China trade war; and developments as a result of the inclusion of SSA and
LAC countries within the Belt and Road Initiative.
13.4.1 The Impact of COVID-19

COVID-19 has had significant health and economic impacts in SSA and LAC.
The latter is the world region that has been most severely affected by the pan-
demic, accounting for a quarter of global coronavirus deaths (Stott, 2021).
Output also fell by more than in any other region in 2020 and was only
expected to recover slowly in subsequent years (Cottani, 2020, Table 2).
Although the reported health impacts have been less severe in SSA (apart
from South Africa), it is likely that this is largely because of limited testing
leading to substantial underestimation of the prevalence of COVID-19 and
of deaths where COVID has been a factor. The economic disruption caused
371
by the pandemic has been considerable. The region has suffered its first reces-
sion in 35 years and the World Bank predicted that in 2021 GDP per capita
would have fallen to the levels of 2008. As a result, 40 million people could
be pushed into extreme poverty (World Bank, 2020, p. 1).
In both regions, the pandemic has led to increased fiscal deficits and debt
problems. In May 2020, the World Bank and IMF launched the Debt Ser-
vice Suspension Initiative (DSSI) to help low-income countries concentrate
resources on fighting the pandemic. Although most SSA countries and some
Caribbean and Central American countries were eligible to participate, the
majority of Latin American countries were not included because they are not
classified as low income. Nonetheless, debt problems extended well beyond
those covered by the DSSI. In June 2020 China launched its own initiative
announcing that it would cancel all the interest free debts that it was owed
by African countries.
The pandemic has had a direct impact on relations between China and
both SSA and LAC. China has increased its medical support in both regions,
providing masks and other equipment to help cope with the pandemic. Do-
nations have come not only from the central government but also from
provincial authorities, private companies, and charitable organizations such
as the Jack Ma Foundation. The Chinese government has also promised to
make available the vaccines that it develops to both regions and provided
loans to countries to purchase them.4
These initiatives have been described as ‘mask diplomacy’ and ‘vaccine
diplomacy’. They no doubt contribute to a positive image of China and to
an increase in its ‘soft power’. On the other hand, the image of China in SSA
was damaged by the eviction and mistreatment of Africans in Guangzhou
in April 2020 as part of the COVID-19 lockdown in the city (Li, 2020). The
Chinese government made major efforts to defuse such hostility and present
itself as an ally in Africa’s efforts to mitigate the effects of the pandemic.
High profile deliveries of personal protection equipment, other medical
equipment and vaccines from China, even when these are not donations or
not provided by the Chinese government, help project a positive image of
China in both SSA and LAC. The success of China in bringing the virus under
control at home, particularly when compared to the chaotic response of the
Trump administration in the USA, also contributes to a more favourable view
of China.
As SSA and LAC recover from the impacts of the pandemic, relations with
China are likely to continue to grow. As China overtakes the USA as the
world’s largest economy, the importance of the Chinese market for LAC
4
For more details on the role of China in relation to the pandemic in the two regions,
see Sanborn (2020) and Esteve and Van Staden (2020).
372
Conclusion
and SSA exports will grow and it will supply a wider range of goods to
the two regions. The need to attract capital will also increase creating more
opportunities for Chinese investors and banks.
13.4.2 Impacts of the US-China Trade War

The effects of the trade war on LAC and SSA have varied between countries
in the same way as the growth of China had differential effects. Increasing
trade barriers have tended to reduce global growth with negative effects on
both regions. It has also led to a drop in commodity prices which has nega-
tively affected oil and mineral exporters in the short run. However increased
barriers to trade between China and the USA also results in trade diversion
and it is here where countries are affected differently. Countries whose ex-
ports compete with China in the US market or with the USA in the Chinese
market stand to benefit from trade diversion. In the former group, Mexico
was expected to gain significantly through increased exports of agri-foods,
transport equipment and electrical machinery to the USA (Nicita, 2019). In
the latter group, Brazil and Argentina, which compete with the USA as sellers
of soybeans to China, benefitted from Chinese measures against US imports.
Most SSA countries do not compete with Chinese or US exports so that they
benefit very little from the trade diverting effects of the trade war (Nicita,
2019, Figure 3), while African exporters of minerals and oil are negatively
affected by falling commodity prices and slower growth in China (Devre-
mont and Chiang, 2019).
The trade war also highlights the extent to which SSA and LAC are depen-
dent on decisions over which they have no control. This was illustrated by
the agreement between China and the USA in 2020, by which China offered
to increase imports from the USA by at least $200 billion over 2017 levels in
2020 and 2021. As a result, China is expected to import more soybeans from
the USA and reduce its demand for Latin American imports. In other words,
an agreement to grant preferential access to US farmers has major impacts
on Latin American producers. Estimates by the World Bank indicate that a
‘managed trade’ scenario in which China and the USA arrive at a bilateral
agreement of this kind, is even worse for LAC and SSA in terms of its im-
pact on exports and output than a ‘trade war’ scenario (Freund et al., 2020,
Table 2).
13.4.3 The Extension of the Belt and Road Initiative to SSA and LAC
When it was launched in 2013, the BRI did not extend to LAC and only
included Kenya, Ethiopia and Djibouti in SSA as part of the Maritime Silk
373
Road. Indeed, there was concern that the initiative would divert China’s at-
tention away from Africa (Stevens, 2017) and LAC. However this changed
with the expansion of the scope of the BRI. The 2018 FOCAC meeting in
Johannesburg emphasized the need to link the BRI to Africa’s economic in-
tegration and sustainable development agendas and President Xi Jinping’s
visits to Rwanda and Senegal in the same year saw those countries sign BRI
MOUs with China. By the end of 2021, 42 SSA countries were included in
the BRI.
LAC was even more marginal to the BRI, as first conceived, than SSA. No
countries in the region were included in the original list of participants and
China’s second Policy Paper on Latin America issued in 2016 did not refer to
it (PRC, 2016). However in May 2017 in a meeting with Argentina’s President
Macri at the Belt and Road Forum in Beijing, Chinese President Xi Jinping
described Latin America as a ‘natural extension of the 21st Century Mar-
itime Silk Road’. In January 2018 at the China-CELAC Forum in Santiago,
the Chinese Minister of Foreign Affairs invited Latin American countries to
participate in the BRI and the participants signed a ‘Special Declaration on
the Belt and Road Initiative’. At the latest count, 20 LAC countries had signed
BRI MOUs with China.
The extension of the BRI to SSA and LAC raised considerable expectations
regarding the impact that this would have on the two regions in terms of
trade, investment and particularly infrastructure development. So far, how-
ever, the impact has been limited. It is possible that once the pandemic
has passed, there will be significant effects, but in the short period between
the extension of the BRI to SSA and LAC, and the COVID-19 outbreak in
early 2020, it was not possible to observe any major transformations. One
consequence has been to rebrand a number of projects that were already
under way, as part of the BRI. Several commentators have described the
BRI as ‘New wine in old bottles’ (Ferchen, 2021) or ‘Old wine in new bot-
tles’ (Chen, 2020). The fact that the BRI now covers so many countries
suggests that participation will not provide countries with a specific advan-
tage in terms of relations with China.5 It is still too early to tell whether
the BRI will significantly alter the economic relations between China and
SSA and LAC, but there are grounds for caution. The growth of Chinese
trade, investment and lending to the two regions in the future is likely to
depend more on the recovery of the Chinese economy and its increased
significance as a driver of global growth, than on participation in the BRI
per se.
5
In this context it is noteworthy that at the time of writing, three of the largest Latin American
countries—Brazil, Mexico, and Colombia—had not signed BRI MOUs with China.
374
Conclusion
13.5 Problems in Sino-African and Sino-Latin American

Economic Relations
As long as China avoids a major economic crisis and continues to grow and
expand its share of global economic activity, its impact on SSA and LAC will
continue to increase despite the changes in its domestic and international
economic strategies discussed in the previous sections. Does this mean that
the problems facing the two regions that have been identified in this book
will intensify in future or are there indications that they can be resolved?
Some of the economic asymmetries that have been discussed are an in-
evitable consequence of the size of the Chinese economy. It will remain the
case that China is more important economically to SSA and LAC than the
countries of the two regions are to China. This asymmetry is also the case
when taking each region as a whole, so that even if African or Latin Amer-
ican countries were to present a common regional stance vis-a-vis China
they would still be in an unequal position. Despite the existence of regional
fora for discussions with China (the Forum on China–Africa Cooperation
(FOCAC), and the Community of Latin American and Caribbean States
(CELAC)-China Forum), regional cooperation is very limited and China’s
relations with the countries of both regions remain primarily bilateral.
Other economic asymmetries could potentially be changed either by gov-
ernment policies or by market-driven changes in economic relations. These
include the centre-periphery characteristics of trade with China, the con-
centration of exports to China in a very small number of products, and the
negative impacts on industrialization. These problems have gained increas-
ing recognition on the Chinese side as well as amongst critics in SSA, LAC,
and the West. The first part of the section of China’s second policy paper on
Africa that deals with economic and trade cooperation is titled ‘Helping boost
Africa’s industrialization’ (PRC, 2015, Part III.3(1)). Particular reference was
made to Chinese support for the development of special economic zones,
industrial parks, and science and technology parks, and the transfer of in-
dustries and technologies.6 This is in sharp contrast to the first policy paper
on Africa in 2006, which makes no mention of supporting industrialization
in the region (PRC, 2006).
The 2015 policy paper also states that China will encourage the diversifica-
tion of African exports to Chinese markets and continue granting duty-free
entry for most products from the least-developed countries with which it
has diplomatic relations. It also envisages support for African countries to
6
This is also mentioned in the section on infrastructure development, Part III.3 (3) of PRC
(2015).
375
‘increase the added value of their primary products, create more jobs, [and]
generate more foreign-exchange income’ (PRC, 2015).
Although support for industrialization did not receive such prominence in
the 2016 policy paper on LAC, investment in specific industries, including
autos, new energy equipment, motorcycles, and chemicals, and upgrading
the level of industrialization in the region were specifically mentioned (PRC,
2016); the paper also mentioned the downstream expansion of cooperation
in energy and resources to improve the amount of value added locally. Chi-
nese commentators have also emphasized the need to diversify LAC’s exports
to China and to expand Chinese investment in manufacturing to support the
upgrading of the region’s industrial structure (Su, 2017: Zhang, 2017)
Whether or not such statements are reflected in major changes on the
ground remains to be seen. As was argued in Chapter 7, there are grounds for
scepticism concerning the expectation that there will be a significant transfer
of industrial capacity from China to SSA. It is also the case that duty-free
access to the Chinese market has not led to any notable diversification in
SSA exports. In LAC, too, countries which have signed free trade agreements
with China have not realized the increased diversification of exports that
they had hoped for. There may be some increase in raw-material processing
in SSA or LAC, particularly where this involves highly polluting activities
which are subject to increased environmental regulation in China, although
the excess capacity in China in industries such as steel and aluminium will
tend to discourage investment in downstream production in the countries
that supply the raw materials.
Overall, despite the good intentions expressed in official Chinese state-
ments, the nature of economic relations between China and SSA and China
and LAC are unlikely to change radically in the near future. They reflect
the way in which China and the two regions are integrated into the global
economy. They may change at the margins as incomes rise in China and
as demand, particularly for agricultural products, increases, but exports to
China are likely to remain largely of primary products. There are signs that
Chinese foreign direct investment (FDI) is diversifying somewhat away from
a concentration on natural resources, but this is mainly an extension of
China’s export strategy where it becomes profitable to set up local assembly
operations as the market expands.
There may be grounds for more optimism in the case of some of the nega-
tive social and environmental impacts associated with the growing presence
of China: China itself is changing, and environmental concerns particularly
are becoming more prominent. While initially, at least, this is leading to
changes at home, in the future, such concerns may extend to greater aware-
ness of the environmental impacts of production abroad and of the impacts
of FDI by Chinese firms. This could lead to more demand for environmental
376
Conclusion
certification for products sold in China. Also, as Chinese firms become more
globalized, their practices in terms of corporate social and environmen-
tal responsibility will come under more scrutiny, and this could lead to a
narrowing of the gap between them and the standards adopted by compa-
nies from the North. China is also likely to be an important player in the
development of renewable energy in both SSA and LAC in the future, thus
contributing to the reduction of global carbon emissions.
Perhaps the most significant change for SSA and LAC that is likely to come
about in the future is due to China’s rise is in terms of global governance.
China’s presentation of itself as a developing country has meant that it has
articulated demands for greater representation by developing countries in
global institutions such as the International Monetary Fund and the United
Nations. This could lead to changes in the global rules of the game that allow
more policy space for developing countries to pursue alternative economic
strategies which are more developmentally oriented than those of the recent
past.
377
Statistical Databases
AidData. AidData’s Chinese Official Finance to Africa Dataset, 2000–12, Version

1.1.1. Available from: https://www.aiddata.org/data/aiddatas-chinese-official-
finance-to-africa-dataset-version-1-1-1
CARI Loans Database. Johns Hopkins University, School of Advanced

International Studies, China Africa Research Initiative, Chinese Loans to Africa.
Available from: https://chinaafricaloandata.bu.edu/
China Global Investment Tracker. American Enterprise Institute and the Heritage
Foundation, China Global Investment Tracker. Available from: http://www.aei.org/
china-global-investment-tracker/.
China-Latin America Finance Database. Inter-American Dialogue, China-Latin

America Finance Database. Available from: https://www.thedialogue.org/map_list/
FAOStat. Food and Agriculture Organization of the United Nations, Food and
Agriculture Data. Available from: http://www.fao.org/faostat/en/#data
GEM. World Bank, Global Economic Monitor Data Bank. Available from: http://
databank.worldbank.org/data/reports.aspx?source=global-economic-monitor-
(gem)&Type=TABLE&preview=on
International Energy Agency. World Energy Statistics database. Available from:

https://www.iea.org/statistics/
ITC. International Trade Centre. International Trade Statistics 2001–2021. Available

from: https://intracen.org/resources/trade-statistics
NBS. National Bureau of Statistics of China, National Data. Available from: http://
data.stats.gov.cn/english/
OECD STAN. Organization for Economic Cooperation and Development, Database

for Structural Analysis (ISIC Rev.4). Available from: https://stats.oecd.org/Index.
aspx?DataSetCode=STANI4
UNCTADStat. United Nations Conference on Trade and Development Data Center.

Available from: http://unctadstat.unctad.org/wds/ReportFolders/reportFolders.
aspx?sCS_ChosenLang=en
UNIDO. United Nations Industrial Development Organization, Statistics Data

Portal. Available from: https://stat.unido.org/
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WITS. World Bank, World Integrated Trade Solution. Available from https://wits.
worldbank.org/
World Bank International Debt Statistics. Available from: https://databank.

worldbank.org/source/international-debt-statistics
World Development Indicators. World Bank, World Development Indicators Data

Bank. Available from: http://databank.worldbank.org/data/reports.
aspx?source=worlddevelopment-indicators
WTO. World Trade Organization, Statistics Database. Available from: https://stats.

wto.org/.
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Latin America relations: Review and analysis. Milton Keynes: Paths International,
1–21.
Zheng, S., and M. Kahn, 2013. Understanding China’s urban pollution dynamics.
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Zhou, Z., 2012. Analysis on Brazil and China’s rapid development and mutual policy.
In S. He, ed., China-Latin America relations: Review and analysis, Volume 1. Milton
Keynes: Paths International, 130–41.
434
Index
Tables, figures and boxes are indicated by italics.
ADM 56, 68, 224, 289, 335 ‘flying geese’ pattern of relocation 2, 49,
African Growth Opportunities Act (AGOA) 172–3
(2000) 88, 169–70 integration into production network 50
agency in relations with China Asian Financial Crisis (1997) 22, 37
of Latin America and the Caribbean 360 Asian Infrastructure Investment Bank
of Sub-Saharan African 144, 147, 190 (AIIB) 95, 102–3
Agricultural Bank of China 21, 101 asymmetry, economic 375
agricultural commodities Australia 49, 67
China’s demand for 55, 57–8, 60–3 authoritarian regimes 205–7
and strategy for resource security 68–9
supply conditions 55
banking reform 21
Agricultural Development Bank 21
Bank of China 21, 100–1
agriculture, initial reforms in 14
beef, China’s demand for 58
aid
Beijing, air pollution 29
architecture of Chinese 105–6
Beijing Consensus 111, 135, 214
China as a donor of 101–6
Belt and Road Initiative (BRI) 10, 16, 20, 83,
China as recipient of 101–2
166, 246, 277, 370, 373–4
Chinese projects linked to 79–81
bilateral investment treaties 20
as driver of overseas investment 110–12
Bolivia 66, 244, 252, 273, 315, 331–3, 335,
to Latin America 248, 269
358
scale of Chinese 103–4
Brazil
to Sub-Saharan Africa 125–9, 134–5, 147
and Dutch disease 274
AidData 126–8, 152, 182
economic impacts on 288–93
AIIB see Asian Infrastructure Investment Bank
as iron ore exporter 67
(AIIB)
and political impacts of China’s economic
aluminium products, and industrialization
activities 320–3
strategies 70
as soybean exporter 68
American Enterprise Institute/Heritage
British Virgin Islands 77, 240, 242
Foundation 122–4
Bunge 56, 68, 224, 251, 257, 289, 335
Angola
Burkina Faso 136, 158, 348, 353
Angolan Model 66, 129
business, three tiers of 25
economic impacts on 175–9
economic relations with 144–6, 154
exports to China 157 CADFund see China-Africa Development Fund
infrastructure investment in 176–7 (CADFund)
and ‘loans-for-oil deals’ 66 Cameroon 158, 167, 222–3, 225
loans to 127–9, 177–9 capital flows see also aid; loans; portfolio
oil exports 175–6 investment
and oil supply 138–40 maintenance of controls on 22
Apple iPhone 43 relaxation of controls on 23, 95–6
Argentina 67–8, 257, 332, 333–4, 338 capitalist accumulation 1–2
Asia carbon emissions 1, 30, 217, 329, 377
as destination of Chinese overseas Cargill 56, 68, 224, 248, 251, 257,
projects 80 289, 335
Index
CARI see China Africa Research Initiative China National Petroleum Company
(CARI) (CNPC) 65, 76–8, 85, 93, 132, 142,
cassava value chain 70 218–19, 249, 314, 324
Catalogue Guiding Foreign Investment in China Non-Ferrous Metals Mining Group
Industry, The 18–19 (CNMC) 142, 156–7, 187, 198–9, 219
Cayman Islands 77, 240, 242 China Ocean Shipping Company 76
CCPIT see China Council for the Promotion of China Petrochemical Corporation (Sinopec)
International Trade (CCPIT) see Sinopec (China Petrochemical
CDB see China Development Bank (CDB) Corporation)
central planning system 14–15, 27, 30–1 China Power Investment 132
China Railway Construction 132, 163
Chavez, Hugo 262, 269, 324–7
China Railway Engineering Corporation
child labour, in Sub-Saharan Africa 197
(CREC) 130, 173–4, 259
Chile
China Railway Group 78, 181–2
CODELCO 67 China State Construction Engineering
and commodities exports boom 274 Corporation 81
economic impacts on 287–8, 298–301 Chinese Communist Party 14–16, 24, 26, 137,
FTA with China 280–1 258, 370
China-Africa Development Fund Chinese Yuan 103
(CADFund) 97, 134, 140–1 CIC see China Investment Corporation (CIC)
China Africa Research Initiative (CARI) 126–9, Cleaner Production Promotion Law (2002) 32
152 clothing and footwear
China Bank Regulatory Commission 22 and Chinese manufacturing 36, 44, 51–2
China-CELAC (Community of Latin American in Latin America 277, 279, 281–3, 290, 296,
and Caribbean States) Forum 246, 277, 305, 308
285–6, 374 overseas markets 88
China Communications Construction relocation to China 49, 51
Group 80, 163, 181, 250–1 in Sub-Saharan Africa 120–1, 158–9, 169,
China Construction Bank 21, 101, 133, 175 181, 183–4, 186–7, 201–2, 358
China Council for International Cooperation CNOOC see China National Offshore Oil
on Environment and Development Corporation (CNOOC)
(CCICED) 220–1 CNPC see China National Petroleum Company
China Council for the Promotion of (CNPC)
International Trade (CCPIT) 87–91 coal
China Development Bank (CDB) China’s demand for 58
and Belt and Road Initiative 20–1 as energy 30–3
environmental impacts of 62–3
in Sub-Saharan Africa 97, 127, 133, 153,
overseas projects 87
162–3, 220
working conditions 195–6
support for expansion abroad 20–1, 99–100,
Colombia 277–82, 305
108
colonialism
China Export and Credit Insurance
comparisons with 3–4
Corporation (SINOSURE) 20
and processing of products 71
China Fishery Group 68
commercial banks
China Global Investment Tracker 87, 122–6, creation of 21
241–5, 350 as drivers of overseas investment 109
China International Trust and Investment and foreign lending 22–3, 99–101
Corporation 82, 326 greater independence of 21, 109, 113
China Investment Corporation (CIC) 22–3, joint-stock (JSCBs) 21
96, 98, 104, 107–8 and One Belt and Road Initiative 21
Chinalco 67, 312, 315, 330 in Sub-Saharan Africa 133–4
China National Cereals, Oils and Foodstuffs commercial objectives
Corporation (COFCO) 68, 335 of Chinese firms 84–91
China National Machinery Industrial and Chinese interests in Latin
Corporation 81 America 257–61
China National Offshore Oil Corporation and Chinese interests in Sub-Saharan
(CNOOC) 65, 76–8, 85, 132, 249 Africa 135, 141–4
436
Index
comparative perspective on China’s mining 313–14

involvement 349–50 stockpiles 60, 64
and Latin American interests 263 and strategic economic objectives in
and Sub-Saharan African interests 146–7 SSA 139
commodities see also global commodity strategy for resource security 66–7
markets; natural resources wages 173, 193–4
characteristics of the Chinese market 71–2 working conditions 195–6, 198–9, 202
China’s demand for 55, 60–63 corporate social responsibility (CSR) 71–2
exports from Brazil 288–90 corruption, in Sub-Saharan Africa 207–10
exports from Latin America 272–5 Costa Rica 238, 252–3, 262–3, 279–80
exports from Sub-Saharan Africa 156–61 cotton, China’s demand for 57–8, 62
and ‘locking up’ of global supplies 68–72 COVID-19 10, 111, 132, 365, 367–8, 371–4
and non-price impacts of China’s demand Cuba 235, 272, 346
for 64–72 currencies
prices 58–63, 59 China as manipulator 40
soft 70 current account 15, 22
strategies to secure supplies 64–6
supply of 55
debates
commodity-backed loans 128–9, 139–40,
145–6, 261 about state-owned enterprises 26–7
commodity markets around China’s relations with Latin
China’s significance in 56–8 American and the Caribbean 4–5
organization of 55 around China’s relations with Sub-Saharan
Company Law (1993) 15 Africa 3–5
Company Law (1994) 24 “debt trap diplomacy” 204, 212–13, 370
competition deforestation
comparative perspective on China’s in China 31
involvement 358 and illegal logging 217, 222–3
in manufacturing in Latin America 278–85 and soybean production 304–5, 323–4,
and overcapacity 38 326–8
competitiveness, in manufacturing 39–42 and timber 225
conditionality, not imposed by China 4, 111, democracy, in Sub-Saharan Africa 205–7
136–7, 144, 327 Democratic Republic of Congo
conflict economic relations with 154
in Latin America 304, 312–15, 330, 332, loans to 146
353, 360 mineral exports to China 156
in Sub-Saharan Africa 210–11, 360 mining industry 142, 157, 193–4, 197
with the United States 325–7, 366–7 poor environmental record in 218–19
Confucius Institutes 112 protests 215
Congo, Republic of 221–4, 346 resource-backed loans 67, 107
construction Sicomines agreement 130–1
market seeking 88–9 Deng Xiaoping 2, 18, 136, 214, 252, 370
in Sub-Saharan Africa 124 developed countries
and Sub-Saharan African interests 143, 147 as destination for OFDI 77
consumer demand 35–6, 55 and portfolio investment 98
consumer goods 35–6, 44 preferential access to markets in 88
consumption 15–16 developing countries
contracted projects see overseas projects as destination for OFDI 77
contractors 80–1 and exports standards 71
copper loans to 95
from Chile 287, 298–300 and overseas projects 80
China’s significance in 69 possible impacts of China on 6
dependence on imports 56–7 and processing of products 71
imports from Latin America 237–9, 254, Development Assistance Committee
272 (DAC) 103–4
imports from Sub-Saharan Africa 120, 139, diamonds, ‘loans-for-mineral’ deals 67
142, 156–7, 195–6, 218 direct export subsidies 41–2
437
Index
discontent, urban 14–15 Eight Principles for Economic Aid and Tech-
diversification nical Assistance to Other Countries 102,
of energy supplies 65 110–11
of metal supplies 67 embassies, and aid programmes 105–6
strategy for resource security 64 employment see also labour market
domestic financial market, and capital and casualization of workers 196–7
controls 22 and child labour 198
domestic market of locals 172, 192–3, 359
comparative perspective on China’s numbers in Latin America 278, 295, 305–11
involvement 358 numbers in Sub-Saharan Africa 202–3
and economies of scale and scope 40 reduction in 187–8, 305–6
expansion of 15–16 in Sub-Saharan Africa 192–3
in manufacturing in Latin America 278–83 and unemployment 188
opened up to foreign investment 18–19 as worst in Sub-Saharan Africa 198–202
reduction in protection 18 energy commodities
Dominican Republic 253, 330, 348 China’s demand for 55, 58, 60
Dominican Republic-Central America Free and commodity markets 55
Trade Agreement (DR-CAFTA) 240, 283, main recipient of lending 128
352, 357 renewable see renewable energy
Dongguan (Guangdong) 40 and strategy for resource security 65–6
DRC see Democratic Republic of Congo supply of 55
dual exchange rate 22 energy use, and economic
‘dual-track system’ 14–15, 17–18 transformation 30–2
Dutch Disease 159–60, 178, 274 enterprise reform, and state-owned
enterprises 23–6
environmental activism 32
econometric model environmental impacts
Caribbean 263–8, 340–1 and Chinese firms 218–21
China in Latin America and the and commercial objectives in Sub-Saharan
China in Sub-Saharan Africa 148–53, Africa 143–4
228–31 comparative perspective on China’s
economic impacts, comparative perspective involvement 361
on China’s involvement 356–8 domestic concerns 70
economic objectives see strategic economic of economic activities in Latin
objectives America 304–5, 328–38
economic policy, major changes in 14 of economic activities in Sub-Saharan
economic reform Africa 216–28
and the financial sector 21–2 of economic growth 15–16
and global economy 17–21 and economic transformation 29–33
and growth 363–4 lack of concern 71–2
impact of 2 in Sub-Saharan Africa 216–28
and the labour market 27 and trade in Sub-Saharan Africa 217–18
and manufacturing 35–6 environmental policies, and economic
Economic Trade and Development Zones transformation 31–2
(ETDZs) 17–19 Environmental Protection Law (2015) 33
economic transformation 13–16, 33 Environmental Protection Law of the People’s
financial sector 21–3 Republic of China (1979) 31
growing integration with global Eswatini see Swaziland
economy 17–21 Ethiopia
inside out view 1–2 development of manufacturing 182–3
labour, wages and productivity 26–9 economic impacts on 174, 183–4
natural resources, energy and the economic relations with 154
environment 29–33 infrastructure investment 181–2
outside in view 1–2 loans to 181–2
SOEs and enterprise reform 23–6 trade relations with China 180–1
Ecuador 66, 246–8, 251–2, 254, 259, 261–3, Eurozone crisis 95
269, 276, 312–13, 318–19, 330–1 exchange rates 22, 40–1
438
Index
Exim Bank fishmeal 57–8, 61–2, 68

and aid programmes 105 Five Principles of Peaceful Coexistence 101
and Angolan Model 129 Five Year Plan (5th) (1976–80) 101
and Belt and Road Initiative 20–1 Five Year Plan (10th) (2001–5) 20, 66, 83–4
and commercial objectives in Sub-Saharan Five Year Plan (11th) (2006–10) 32
Africa 141–2 Five Year Plan (12th) (2011–15) 32, 38–9, 84
concessional loans 102 Five Year Plan (14th) (2021–25) 368
creation of 21 ‘flying dragon’ 172–3
as driver of overseas investment 108 ‘flying geese’ model 14, 49, 172–3
and environmental standards 220, 332 FOCAC see Forum on China-Africa
and foreign lending 99–100 Cooperation (FOCAC)
as key Chinese actor 347 food consumption 55, 61
and Latin American and the footwear see clothing and footwear
Caribbean 246–7, 297, 325 foreign assets 98
and loan to Angola 144–5 foreign banks in China 21–2
and strategic economic objectives in foreign direct investment (FDI)
Sub-Saharan Africa 140–1 in the 1980s 18, 36
and Sub-Saharan Africa 130, 133, 141–2, in the 1990s 18–19, 36–7
144–6, 153, 162–3, 171, 175–6, 347 in agriculture 68
support for expansion abroad 20 into China 18–20
trade credit 104 and economic relations in Latin American
export credits 99, 112–13 and the Caribbean 240–3
Export-Import Bank of China (Exim Bank) see and economic relations in Sub-Saharan
Exim Bank Africa 121–4, 151
exports efficiency seeking 84–5, 89–90
boom in Chinese 15 liberalization of regulation 17–18
China’s impact on 52 market seeking, as 84–5, 87–9
comparative perspective on China’s natural resource seeking 85–7
direct export subsidies 41–2 share of greenfield 75, 202–3, 310
growth in 13, 19, 36–7 source and destination 1
involvement 349, 357–8 strategic asset seeking 84–5, 90–1
from Latin America 272–5, 283–5 technology targeted 38
of manufactures 34, 34–8, 43–8 foreign exchange reserves
share of global 34–5, 37–8 and creation of SWFs 107
sophistication of 44–7 growth in 20
from South Africa 185–6 massive 22, 95
standards 71 regime unified 15
and strategic economic objectives 83 scarcity 83
to Sub-Saharan Africa 120–1 foreign firms in China 25, 47
from Sub-Saharan Africa 156–61 forestry 71, 221–5
extractive industries Fortune, Global 500 list 25–6
employment in the 201 Forum on China-Africa Cooperation
outward foreign direct investment (FOCAC) 3, 97, 118, 126–7, 131, 137, 180
(OFDI) 86 Four Principles of Economic and Technological
social, political and environmental impacts Cooperation 102, 111
in Latin America 304–5, 311–13, 329, Foxconn 47
338–9, 357, 359–61 Free Trade Agreements (FTAs) 255, 262–6,
and strategic economic objectives in 285, 299–300
Sub-Saharan Africa 138 Fujian 18
target of FDI in Latin America 292 future developments 364–74
target of FDI in Sub-Saharan Africa 124
Galanz 93
feedstuffs, China’s demand for 57–8, 61–2, 68 The Gambia 136, 154
finance see global finance garment industry see also clothing and
financial account 22 footwear
financial sector 15, 21–3, 124 and competition from China 283–4
439
Index
Galanz (Continued) government subsidies, and

costs of in Sub-Saharan Africa 173 competitiveness 41–2
exports from Latin America 34, 283–4 grains, China’s demand for 58, 61
exports from Sub-Saharan Africa 169 Grand Plan of Trade and Economic
and growth in Chinese manufacturing 52, Cooperation (1994) 102
187 ‘grasping the large, letting go the small’
in Hong Kong 49 policy 24
impact on prices 158–9 Great Leap Forward (1958–60) 27
and technology 172 greenhouse gas (GHG) emissions 6, 30, 329
Geely 90 gross domestic product (GDP) 1, 13, 17, 37–9
geography, and economic relations in gross national income per capita 13
Sub-Saharan Africa 152 Guangdong 18, 40
geo-politics, differences in 353 Guangzhou 131, 146
Ghana 142, 147, 154
global commodity markets see also
commodities Haier Group 88, 93, 109, 256, 326
China and 54–6, 72–3 health and safety 198–9, 202 see also working
China’s impact on prices 58–63 conditions
China’s significance in 56–8, 69 poor records of 359–60
and ‘locking up’ of global supplies 68–72 poor standards in Sub-Saharan Africa 195–6,
non-price impacts of China’s demand 64–72 200–2
global economic power, China’s re-emergence heavy industries 25–6, 29–32, 35, 37, 54
as a 1–2 Hebei Group 25
global economy Hebei Province 71
China’s impact on 50–3 hides and skins, China’s demand for 57–8, 62
and economic transformation 17–21 High-Technology Development Zones 48
insertion of Sub-Saharan Africa and Latin Hong Kong 18, 76–7, 81, 97–8
America into 351–3 household registration system (hukou) 27
global finance Huawei 25–6, 76–8, 133
bank loans and trade credits 99–101 Hu Jintao, President 97, 235–6, 255
China as an aid donor 101–6 human capital, and sophistication 47
China’s role in 95–6, 112–14 human rights 71–3, 108, 111, 137, 194, 204
development 113–14 Human Rights Watch (HRW) 194, 198–9
drivers of Chinese financial flows 106–12 hydropower 32–3, 126, 163, 181–2, 220, 226,
increase in importance in 2 246, 276, 314, 332, 346
portfolio investment 96–8
global financial crisis (2008) 15, 25, 53, 90–1,
108 imports
globalization 1–2, 365–6 growth in 19, 70
GNPC 66 from Latin America 238, 270
Go Global strategy share of Chinese in selected countries 168
adoption of 65 to South Africa 186–7
and Chinese firms abroad 15, 74 from Sub-Saharan Africa 119–21, 120, 168
commercial objectives 84–91 incentive system, reform of 24
and outward foreign direct investment ‘Indigenous Innovation’ 37
(OFDI) 74–8 Industrial and Commercial Bank of China
and overseas projects 78–80 (ICBC) 22, 101, 132, 134, 246, 250–1,
start of 20 256, 266
state driven or market driven 91–4 industrial clusters 40
governance industrialization strategies 55, 69–71, 375–7
and China’s rise 37 industrial output 25, 35, 38
of development finance 113–14 industrial policy 37
and policy of non-interference 111, 204, industrial production 13, 35
206–7, 214 inflation 36
in Sub-Saharan Africa 228, 230–1, 316, 360 infrastructure development/investment
government repression, and Tiananmen in Angola 177–8
Square 14–15 in Brazil 282–3
440
Index
in Chile 300–1 Latin America and the Caribbean (LAC) 246,

comparative perspective on China’s 250, 261, 268–9, 276, 292, 325, 332, 347
involvement 358 and China looking forward 364–74
emphasis on 113 Chinese interests in economic engagement
in Ethiopia 181–2 in 250–61, 348–50
in Latin America 275–7 comparative perspective on China’s
in Mexico 297 involvement 345–6, 361–2
revival in 37 comparisons with Sub-Saharan Africa 350–5
in Sub-Saharan Africa 161–7 contracted projects 80, 243–6
and Sub-Saharan African interests 145 debates around relations with 4–5
inside out view, of economic rise 1–2 determinants of economic relations 263–8
institutional context, differences in 353–5 economic expansion in 235–6, 268–9
international expansion see Go Global strategy economic growth 274–5
International Monetary Fund (IMF) 22, 102 economic impacts on 271, 301–3, 356–8
interoceanic canal, environmental impacts in economic relations by country 270
Latin America 331 environmental impacts 328–38
investment 13, 37 see also foreign direct exports to China 237–8, 272–5, 285
investment (FDI); outward foreign direct foreign direct investment (FDI) in 241
investment (OFDI) growth of economic relations 236–48,
investment flows, share of global 74 346–7
iron ore 66–7, 69–70, 138, 289 infrastructure development 275–7
‘iron rice bowl’ 27 insertion into the Global Economy 350–3
interests in expanding economic
relations 261–3
Japan 1–2 key actors in economic relations 248–50,
Jilin Petrochemical Corporation 30 251, 347–8
Jinan (Shandong) 40 loans to 247
Jinchuan Group 67n8, 132 manufacturing 277–87, 280, 281, 306
job losses, in state-owned enterprises 24, 27–8 political impacts 316–27
joint-stock commercial banks (JSCBs) 21 problems in economic relations 375–7
significant increase in influence 3
social impacts 305–15
Kazmunai Gas (KMG) 66 social, political and environmental
Kenya 133, 154, 166–71, 196–200, 204, 209, impacts 304–5
213, 221, 226, 373 summary of China’s major impacts 356
Keynesian policies, abandonment 1–2 technology transfer and local
Kingho Energy 132 linkages 285–6
trade with China 237
trade with China and the USA 319
Labour Law (1994) 27–8 winners and losers 302–3
labour market see also employment; working ‘leading dragon’ phenomenon 172–3
conditions Lenovo 90, 249, 260–1, 287
casualization of workers 196–7 Lesotho 154, 159, 169
cheap labour not a factor 89 linkages
child labour 197 comparative perspective on China’s
and China’s economic activities in Latin involvement 359
America 305–11, 316 and Latin American manufacturing 285–7
and China’s economic activities in and Sub-Saharan African
Sub-Saharan Africa 195–202 manufacturing 170–3
comparative perspective on China’s loans
involvement 358–9 to Angola 66, 127–8, 177–8
and economic transformation 27–9 to Brazil 292
low unit costs 39–40 to Chile 302
and migrant workers 27–9 and Chinese interests in Latin
mobility 27–8, 33 America 255–6
productivity 36 commodity-backed 128–9, 139–40, 145–6,
labour militancy 29 261
441
Index
loans (Continued) integration into global production

to Democratic Republic of Congo 67, 108, networks 48–50
146 investment in Sub-Saharan Africa 124
and determinants of economic relations key features of exports 43–7
with Sub-Saharan Africa 151–2 and local linkages in Latin America 285–7
to developing countries 95 and local linkages in Sub-Saharan
and economic relations in Latin American Africa 170–2
and the Caribbean 267–8 output 1, 52
to Ethiopia 181–4 productivity in 28
as global finance 99–101 share of global 34, 34, 46, 51
and growth of Latin American in Sub-Saharan Africa 160–6
relations 246–8 technology transfer in Latin America 285–7
and growth of Sub-Saharan African technology transfer in Sub-Saharan
relations 126–9 Africa 170–2
and key actors in Sub-Saharan Africa 133–4 Maoist period 17
to Latin America 268–9 Mao Zedong 14, 78, 117
and Latin American interests 263 market driven international expansion 91–4
and ‘loans-for-oil deals’ 66 market economy
to Mexico 297 move to 2, 14–15
resource-backed 66, 108–9, 254 socialist 2, 14–15, 24–5
and strategic economic objectives 84 Mauritania 157
to Sub-Saharan Africa 126–7, 128, 129 Mauritius 141, 158–9, 173
and Sub-Saharan African interests 163 mergers and acquisitions 75, 260
to Zimbabwe 67–8, 79, 129 Mexico 283, 287, 293–8
‘loans-for-mineral’ deals 67, 78–9, 128–9 Middle East 80
Midea Group 78
‘loans-for-oil deals’ 66
migrant workers 27–9
local communities 311–15, 360
minerals and metals
local firms 132
China’s demand for 55–7, 60–1
logging 225 see also timber
commodity markets 55
demand for 225
and industrialization strategies 70
illegal 217, 222–3
and strategic economic objectives in
impact of extensive 31, 221
as strategy for resource security 66–7
London Metal Exchange 55
Sub-Saharan Africa 138–40
long-term supply contracts, as strategy for
supply of 55
resource security 64
mining
Louis Dreyfus 56, 68, 257, 289, 335
and Chinese interests in Latin
Lou Jiwei 96, 107
America 254–5, 259–60
and commercial objectives in Sub-Saharan
Africa 142
Madagascar 158–9, 169–70, 215 exports to China 156–7
‘Made in China’ 38–9, 43 and investment in Sub-Saharan Africa 124
Malawi 136, 154 overseas expansion 67
manufacturing and strategic economic objectives in
and Chinese interests in Latin America 260 Sub-Saharan Africa 138
competition to Sub-Saharan African 167–70 Ministry of Agriculture 105, 134
competitiveness 39–42 Ministry of Commerce (MOFCOM) 20, 75,
development of 35–9 86, 105–6, 122–4, 131–2, 135, 137–8, 219,
development of Ethiopian 182–3 240–1, 347
effect on labour market in Latin Ministry of Education 105, 134
America 305–8, 306 Ministry of Environmental Protection 29, 32,
exports from Latin America 285 219
global impacts of growth of 50–3 Ministry of Finance (MOF) 20, 96, 105–6
growth of 34–5 Ministry of Foreign Affairs (MOFA) 65, 105–6,
impact on Brazilian 290–3 130–1, 135, 137–8, 248–9, 347
impact on Latin American 277–87 Ministry of Foreign Commerce (MOFCOM)
impact on Sub-Saharan African 167–74 see Ministry of Commerce (MOFCOM)
442
Index
Ministry of Foreign Economic Liaison 83 One China Policy 111, 136

Ministry of Foreign Trade 17 Open Port Cities 17
Ministry of Health 105, 134 ‘ordinary trade’ 18
Minmetals 67, 73, 157, 186, 259, 301, 314 Organization for Economic Co-operation and
monobank see People’s Bank of China Development (OECD) 43–4, 77, 103–4,
Mozambique 165, 196, 220, 225 113
multilateral institutions, role in 102–3 projects in Sub-Saharan Africa 163–4, 170,
‘mutual benefit,’ in Chinese discourse on 208
aid 110 outside in view 1–2
outward capital flows 95–6
outward foreign direct investment (OFDI)
Nanjing Automotive 90 annual flows of 76
national champions 15, 25 to Brazil 292
National Development and Reform to Chile 200–1
Commission (NDRC) 67, 89–90 and Chinese interests in Latin
National Social Security Fund (NSSF) 96–7, America 259–61
107 and economic relations in Latin America
Natural Forest Protection Program 31 and the Caribbean 266
natural resources see also commodities in extractive industries 86
and drivers of investment in 108 growth in 20=1, 74–7
and economic transformation 30–1 impact on labour markets in Latin
and strategic economic objectives 83–4 America 309–10
neo-liberalism, adoption of 1–2 in Latin America 241
New Development Bank (NDB) 95, 103 Latin American interests in expanding
newly industrializing countries 51 economic relations with China 263
‘New Normal’ phase 16, 33, 38–9, 62–3, 367–9 liberalization of 22–3
Nicaragua 243, 253, 283, 331 to Mexico 297
Nigeria 138, 147, 154 problems in measuring 74–5
Non-Ferrous Company Africa (NFCA) 157 and strategic economic objectives 82–4
non-interference in Sub-Saharan Africa 122
comparative perspective on China’s overseas projects
involvement 348–50 annual flows of 76
in Latin America and the Caribbean 252, by Chinese companies 78–80
318 geographical distribution of 79
policy of 101, 111, 346–7 in Latin America 247, 310–11
in Sub-Saharan Africa 144, 192, 204–7, in Latin America and the Caribbean 243–6,
214–15 267
North American Free Trade Agreement in Sub-Saharan Africa 124–5, 125–6, 132,
(NAFTA) 288–9, 294, 297, 352 151
North Korea 98
North Vietnam 101
NSSF see National Social Security Fund (NSSF) Panama 253, 277, 353
People’s Bank of China 21–2
Peru 68, 259–60, 272, 277–82, 310, 313–15,
oil 330–2
China’s demand for 58 FTA with China 339
China’s significance in 69 Petrobras 66, 250, 261, 292
and Chinese interests in Latin PetroEcuador 66
America 253–4, 259 ‘pillar industries’ 25–6
exports from Angola 176–7 plywood 70
prices 63 policy banks
and resource seeking 85–6 and Chinese interests in Latin America 261
and strategic economic objectives in creation of 22–3
SSA 138–40 drivers of overseas investment 108–9
as strategy for resource security 65–6 and environmental impacts of China’s
‘One Belt, One Road’ initiative See Belt and economic activities 332
Road Initiative and foreign lending 99
443
Index
policy banks (Continued) levels in Sub-Saharan Africa 173

key Chinese actors 347 protection, reduction in domestic market 18
lending abroad 22–3 provincial governments, and aid
and ‘loans-for-oil deals’ 66 programmes 105
policy space 213–14, 262, 360–1
political context, differences between
Sub-Saharan Africa and Latin Qingjian Group Co. Ltd 81
America 360–5
political impacts
comparative perspective on China’s Rand Corporation 103–4
involvement 360–1, 356 raw materials
determinants of economic relations in and Chinese interests in Latin
Sub-Saharan Africa 228–30 America 251–5
of economic activities in Brazil 320–3 strategic economic objectives 140, 349
of economic activities in Latin America 304, real estate, urban 18–19
316–20 renewable energy 6, 32–3, 368, 376
of economic activities in Sub-Saharan in Latin America 285–6
Africa 202–16, 229–31, 230 in Sub-Saharan Africa 182, 192, 219, 225–7
of economic activities in Venezuela 324–7 Renminbi (RMB) 41, 256
on governance 231 research and development (R&D) 37, 84
and instability in Sub-Saharan resource-backed loans 67, 108–9, 254
Africa 210–11 resource curse 189, 205, 209, 275 see also
political objectives Dutch Disease
African interests in expanding economic resource security 64, 139
relations with China 138 resource seeking 85–7
in going global 78–9 resources for infrastructure 128–9
pollution Rio Tinto 67, 69
air 29, 33 Rosneft 66
and conflicts in Latin America 313 round tripping 18–19, 75, 76–7
domestic concerns 70 rural incomes 14
energy 30–2
water 30
portfolio investment, as global finance 96–8 SAFE Investment Company 22–3
poverty line 13 Sanusi, Lamido 3
poverty reduction 13, 110 Sao Tome and Principe 136, 154, 348, 353
Power Construction Corporation of China 81 sawn wood see timber
Prebisch-Singer thesis 273 self-sufficiency 58
private firms Senegal 154, 168–9, 336, 374
and commercial objectives in Sub-Saharan SEZs see Special Economic Zones (SEZs)
Africa 142–4 Shangdong Iron and Steel 132
as key actors in Sub-Saharan Africa 131–2 Shanghai Automotive Industry
private sector Corporation 25–6
increase in significance in China 38 Shanghai Baosteel 67, 69
and OFDI 77 Shanghai Construction 200
overseas projects 80 Shanghai Pengxin International Group 335
rapid growth in 25 Shanghai stock exchange 15
and SOEs 23–4 Shantou (Guangdong) 17–18, 40
privatization, increase in 15 Shenzhen 17–18, 20
processing trade 18, 46–7 Shenzhen Energy 132
production Shenzhen stock exchange 15
fragmentation of processes 48 Shougang Group 86, 249, 251, 259, 310,
global networks 48–50 312–13, 330–1
moved off-shore to reduce costs 1–2 SIC see State Administration of Foreign
productivity Exchange (SAFE) Investment Company
and competitiveness 39–40 (SIC)
and economic transformation 26–9 Sichuan Hongda 132
growth in 13, 36 Sicomines agreement 67, 129–31, 157
444
Index
Sinochem 75–7, 249 State Administration of Foreign Exchange

Sinohydro 130, 133, 163, 181, 276, 331 (SAFE) 20
Sinomach 133, 163, 234, 234 State Administration of Foreign Exchange
Sinopec (China Petrochemical Corporation) (SAFE) Investment Company (SIC) 96–7,
and Angolan Model 129–30 107
investment in Brazil 241 State Capital Construction Commission,
investment overseas 65, 75–6, 85–6 ‘Report on the Development of Overseas
in Latin America and the Caribbean 241, Construction Contracted Projects’ 83
249, 259, 261, 314 State Council, investment of foreign exchange
in Sub-Saharan Africa 129, 131–2, 176, reserves 81–3, 96, 99–100, 105–6, 162
178–9, 218–21 State Development Planning Commission 65
Sinopec Sonangol International (SSI) 129–30 state driven, international expansion 5, 91–4
Sinosteel 86, 132, 186 State Environmental Protection
social impacts Administration (SEPA) 31–2
and changes in awareness 376–7 State-owned Asset Supervision and
comparative perspective on China’s Administration Commission
involvement 356, 358–9 (SASAC) 25–6
of economic activities in Latin state-owned enterprises (SOEs)
America 305–15 changes in 15
of economic activities in Sub-Saharan and Chinese interests in Latin America 259
Africa 192–203 and commercial objectives in Sub-Saharan
socialist market economy 2, 14–15, 24–5 Africa 143–4
soft power 112, 137 corporatization 24–6
solar power 225–7 debates 26
Sonangol 129–30, 175–6 and ‘dual-track system’ 14
South Africa and economic transformation 23–6
competition in third markets 188 and energy supply security 65
economic impacts on 147, 184–8 fall in numbers 24
economic relations with 154 and industrial production 35
exports to China 185–6 key actors in Sub-Saharan Africa 131–2
exports to third markets 188 and OFDI 77
imports from China 186–7 oil companies 65
most important destination of FDI 124 overseas projects 78–80
overall economic impacts 188 and the private sector 23–4
South-South cooperation 18, 71, 72–3, 228, reform of 15
303, 317, 321, 346–7, 350 and the socialist market economy 24–5
sovereign wealth funds (SWF) 96–8, 107–8 and strategic economic objectives 83
soybeans subsidies 42
China’s demand for 57–8, 61–2 workers 14
and Chinese interests in Latin America 255 State Planning Commission 17
environmental impacts 333–4, 335–7 steel
exports from Brazil 288–9 and industrialization strategies 30–1, 34,
exports from Latin America 257, 272 69–70, 86, 289
and industrialization strategies 70 in Latin America 305
in Latin America 332–3, 337–8 stockpiles 64, 66–7
and the Latin American soy value Straits of Malacca 65–6
chain 334–5 strategic asset acquisition, and Chinese
and supply security 67–8 interests in Latin America 261
Special Economic Zones (SEZs) 14, 17–18, 43, strategic diplomatic objectives
141 of China 81–2
starch 70 and Chinese interests in Latin
state America 251–3
and China’s growing role in global and Chinese interests in Sub-Saharan
finance 113 Africa 135–7, 149
and OFDI 20 comparative perspective on China’s
strategic objectives in going global 81–4 involvement 348
445
Index
strategic diplomatic objectives (Continued) social impacts 192–203

Latin American interests in expanding social, political and environmental
economic relations with China 262 impacts 191–2
strategic economic objectives summary of China’s major impacts 356
African interests in expanding economic textiles 169–70
relations with China 145–6, 153 trade with China 119, 119–21
of China 82–4 Sudan 78, 124, 127, 138, 139, 142, 154,
and Chinese interests in Latin 156–7, 160–1, 205, 211, 215, 219, 272
America 250–1, 254–6 supply routes
and Chinese interests in Sub-Saharan alternative 64
Africa 135, 137–41 and oil supply security 66
comparative perspective on China’s Swaziland (now Eswatini) 136, 169, 348
involvement 349 economic relations with 154
as drivers of overseas investment 106–9
in going global 82–4
Latin American interests in expanding Taiwan
economic relations with China 261–3 diplomatic relations with 81–2, 136
Strategic Petroleum Reserve (SPR) 65–6 FDI into China 18
Sub-Saharan Africa (SSA) and Latin American and the Caribbean 235,
African interests in expanding economic 346
relations with China 144–7 Latin American relations with 235, 240,
aid to 101 264–6, 318, 321, 341
and China looking forward 371–4 less OFDI for countries recognizing 252–3,
and Chinese interests in economic 268–9
engagement 134–44, 348–50 One China Policy 136, 356
Chinese official outflows to 128 political objectives 81–2
comparative perspective on China’s relations with 348, 356
involvement 345–6, 350–4, 362 South African relations with 185
contracted projects 124–5, 125–6 Sub-Saharan African relations with 149,
debates around China’s relations with the 149–53, 169, 229–30
region 3–5 and UN Security Council seat 111
determinants of economic relations with Tanzam Railway 78, 101, 117, 346
China 148–52, 149, 154 Tanzania 101, 133, 154, 164, 168–9, 173–4,
economic expansion in 117–18, 152–3 188, 197, 202–3
economic impacts on 155–6, 189–90 tariffs, reduction in 18–19
economic relations by country 154 tax havens 77, 98
economic relations with 154, 346–7 technological upgrading 37, 45–8, 46, 84, 369
environmental impacts 216–28 technology transfer 170–2, 358
exports to China 156–61, 168, 189 textiles
financial flows to 128 in China 35
foreign direct investment (FDI) in 121–4, exports from Sub-Saharan Africa 169–70
122 in Latin America 277, 281, 281–2
growth of relations with China 118–31 in Sub-Saharan Africa 158–9, 169–70, 187
impacts of China in 5–7, 356–61 Tiananmen Square 14, 111, 117, 136
imports from 120 Tibet 136
infrastructure investment 161–7, 189 timber
insertion in the Global Economy 350–3 China’s demand for 57–8
interests in expanding relations with and environmental impacts 210–13
China 144–7 and environmental impacts in Sub-Saharan
key actors in economic relations 131–4, Africa 221–5
347–8 illegal 71
loans and aid 125–9 risk of illegality 223
manufacturing 167–74, 168, 189–90 township and village enterprises (TVEs) 14,
political impacts 203–16 35
problems in economic relations with trade
China 375–7 and Chinese interests in Latin
significant increase in influence 3 America 258–9
446
Index
costs of in Sub-Saharan Africa 173 urban real estate, opened up to foreign

and economic relations in Latin America investment 18–19
and the Caribbean 265–6 Uruguay 237, 240, 260, 270, 272–3, 279–80,
and economic relations in Sub-Saharan 284, 332, 352
Africa 150
and the environment in Latin
America 329–30 Vale 55–6, 67, 69, 248–9, 251, 289–90, 293
and the environment in Sub-Saharan value added (in China), to exports 34, 43–4,
Africa 217–18 46–7
growth of Latin American relations 236–9 value added tax (VAT) 41–2
growth of Sub-Saharan African Venezuela 66, 242–5, 247–8, 252–4, 261–3,
relations 119–21 276–7, 318–19, 324–7
key actors in Sub-Saharan Africa 131–2 voting coincidence
with Latin America 237 between Latin America and China 265–6,
liberalization of 16–18, 278–9 318, 321, 321, 340–1, 341
relations with Ethiopia 181 between Latin America and USA 321
shares of Latin American with China and between Sub-Saharan Africa and China 150,
the USA 319 150–2, 228–30
with Sub-Saharan Africa 119
trade credits, as global finance 99–101 wages
trade surpluses 19–20, 44 and competitiveness 39–40
trade unions, in Sub-Saharan Africa 197 and economic transformation 27–9
transnational corporations (TNCs) 36, 38, 55, in Sub-Saharan Africa 173, 194–5
75–6 Washington Consensus 111, 156, 162, 207,
Transneft 66 213, 262–3, 278, 352
transport Wenzhou (Zhejiang) 40
in Latin America 246, 334–6 White Paper on foreign aid (2011) 103–4,
main recipient of lending 126, 128 110, 213
in Sub-Saharan Africa 126, 129–30, 163–5, wind power 217, 225–7, 361
181–2 wood see timber
Treaty of Peace and Friendship 102 working conditions
‘trinity development cooperation’ 102 in coal 195–6
tropical products, China’s demand for 58, 61 in copper mines 195–6, 198, 202
Turkmengaz 66 in Sub-Saharan Africa 195–202
‘workshop of the world’ 34–5, 43, 54
World Bank 79, 102
unemployment, increase in 27–8, 188 World Trade Organization
‘unfair’ practices, by government 40 Agreement on Textiles and Clothing 291
United Nations 111, 117, 137, 340–1, 341 China’s accession to 2, 14–15, 19, 21–2
see also voting coincidence Multi-fibre Arrangement 88
United Nations Conference on Trade and negotiation to join 15
Development (UNCTAD) 87 preparation for membership 18
United States and processing trade 43–4
and China Threat 316–20, 327–8 Trade Related Investment Measures
Chinese holdings of US securities 22 Agreement 19
and Chinese interests in Latin Wuhan Iron and Steel 67, 86
America 251–2
destination of Chinese finance 98
and Latin American interests 262 Xiamen 17–18
as soybean exporter 67–8 Xi Jinping, President 10, 16, 235, 365, 370,
“trade war” with China 53, 239, 256, 296, 374
334, 365–7, 371, 373
urban discontent 14–15 Zambia
urbanization child labour 197
and commodities demand 55 copper mines 142, 156–7, 195–6, 198–9,
and metals demand 56–7 202
and minerals demand 56–7 economic relations with China 154, 160
447
Index
Zambia (Continued) working conditions 195–6, 198–9, 202

employment 203 Zhao Ziyang, Premier 102
environmental impacts 219, 226–7 Zhou Enlai, Premier 101, 346
exports to China 150–1
Zhubai 17–18
foreign direct investment (FDI) in 119, 135
Zimbabwe
mining 156–7
policy space 213–15 economic relations with China 154
TanZam railway 78, 101, 117, 346 ‘loans-for-mineral’ deals 68, 129
wages 173, 193–4 ZTE 26, 133, 163, 182, 342, 347
448

How China Is Reshaping The Glob - Rhys Jenkins

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How China is Reshaping the Global Economy

How China is Reshaping

I first became interested in the impact of China’s economic growth on the

de Freitas Barbosa, and Lawrence Edwards. I was also fortunate to receive a

Introduction: China’s Re-emergence as a Global Economic Power 1

Part I. China and the Global Economy

2. The Workshop of the World 34

3. A Voracious Dragon? China and Global Commodity Markets 54

4. Going Global: Chinese Firms Abroad 74

5. The World’s Wallet? China’s Role in Global Finance 95

Part II. China and Sub-Saharan Africa

7. China’s Economic Impacts on Sub-Saharan Africa 155

8. Social, Political, and Environmental Impacts in Sub-Saharan

Part III. China and Latin America and the Caribbean

10. China’s Economic Impacts on Latin America 271

11. Social, Political, and Environmental Impacts in Latin America 304

Part IV. Comparisons and Conclusions

13. Conclusion 363

Statistical Databases 378

0.1 Examples of possible impacts of China on developing countries 7

4.1 Problems in Measuring China’s OFDI 74

ABC Agricultural Bank of China

ETDZ Economic Trade and Development Zone

OFDI Outward direct foreign investment

0.1 China, Sub-Saharan Africa, and Latin America

These critics have been accused by their opponents of ‘China-bashing’ and

China’s commitment to non-intervention in the internal affairs of other

or negatively by the global economic impacts of China.2 While detailing the

0.2 Outline of the Book

Table 0.1. Examples of possible impacts of China on developing countries

Direct Effects Indirect Effects

Positive Negative Positive Negative

Trade Growth of Displacement of Increased world Competition

the region, focussing on trade, FDI, Chinese construction and engineer-

The Transformation of the Chinese Economy

The remarkable performance of the Chinese economy over that period

1989. In the aftermath, conservatives attempted to reverse the reforms but

1.1 Growing Integration with the Global Economy

One of the most striking features of China’s economic transformation has

‘Processing trade’ which applied to exporters was largely free of restrictions

1.2 The Financial Sector

1.3 SOEs and Enterprise Reform

1.4 Labour, Wages, and Productivity

1.5 Natural Resources, Energy, and the Environment

A major downside of China’s remarkable economic growth since the late

growth of GDP and environmental impact narrowed. Since changes in the

The Workshop of the World

One of the most visible signs of China’s re-emergence as a global economic

2.1 The Development of Chinese Manufacturing

twenty-first century? China was already relatively industrialized for a

industrial production was being exported.1 China’s share of world exports

Joining the WTO in 2001 gave a significant boost to China’s exports of

2.2 What Makes Chinese Manufactures So Competitive?

2.2.1 Wages and Productivity

a result of high levels of investment, reforms of SOEs, increased imports

2.2.2 Economies of Scale and Scope

is a ‘currency manipulator’ and unfairly subsidizes exports and dumps its

2.2.3 The Exchange Rate

2.2.4 Government Subsidies

although it remains important to some firms and sectors.9 The exchange

2.3 Key Features of Chinese Manufactured Exports

Figure 2.2. Share of China’s manufactured exports by technology level, 1995–2019

is particularly prevalent in higher-technology products such as computers,