The Small Exchange – Everything That You Need to Know About It
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The trade tensions between China and the US have been discussed ad nauseam in countless articles. Most of them are optimistic about the possibility of reconciliation, since they examine it through a lens of rational economic interests. That perspective doesn’t necessarily take into account either Beijing’s or Washington’s political interest in spreading their influence. Many of these underlying conflicts have a long history that won’t be resolved by a simple tariff deal.
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One of the peripheral areas of this conflict is Africa. While the continent’s weak infrastructure and low economic performance make it difficult for them to be a powerful actor on the world stage, their endless potential for growth could make them critical to tipping the scales of power in global relations. Africa traditionally fell under the USA’s sphere of influence. Mainly due to the millions of dollars of humanitarian aid and other material support.
The balance began to shift when China started focusing its attention on the continent as well. Peking has taken on a different, more assertive role after realizing their own economic and political clout. One of their objectives was to carve out a piece of the USA’s global hegemony. The number and value of Chinese investments to Africa has been sharply rising over the past decade. Foreign Direct Investment (FDI) increased by approximately 40%. That number doesn’t even include the sizable contribution of government aid and subsidies. The end result was that Chinese investments eventually outstripped US investments.
President Xi Jinping enacted an ambitious policy for extending Beijing’s influence over Africa. One of the major hindrances of China’s economic development is a lack of resources. Strengthening their position in Africa could serve as a long term solution for this issue. Their method for doing so included the development of local infrastructure in return for mining rights. The construction of roads, railways and utilities played a key role in this process. Not only did they produce a public good, but at the same time it also cemented Beijing’s influence in the region. Eventually the infrastructure developments extended past simply constructing transport routes between mines and harbors. When local governments didn’t have the required funds to pay for them, China was more than happy to lend them the necessary amount through both government credit and commercial loans to use for infrastructure development.
China’s development model for Africa was difficult for the US to keep up with for a few reasons. For one thing, the US economy has become overwhelmingly service oriented by the turn of the century. Consequently the only companies able to enter the African markets were the ones who could make use of the telecommunications network resulting from China’s infrastructure developments. The fact that a Chinese firm was the final beneficiary of the projects financed by the IMF or the World Bank is a testament to the efficiency of their construction industry. Despite the USA’s clout with those international organizations, their strict rules stipulate that their projects must be chosen by public procurement procedures. China’s ability to present these tenders with companies who were already present on the continent gave them a significant competitive advantage against western companies. In the end China received 42% of all orders.
Another advantage for Beijing is that they didn’t attempt to impose any democratic or other ideological requirements on African governments. They kept the cash and credit flowing even without meeting any human rights criteria. The western model of exporting not just money, but culture as well, just couldn’t compete. China’s brand of economic rationality proved to be popular with countries less inclined towards democratic values. The USA’s chosen method was to directly fund non-governmental organizations to circumvent the local governments and help their populations directly instead. This is the so-called the Government-to-Business model that China eschewed in favor of the Government-to-Government model.
According to OECD estimates, Beijing has lent $140 billion dollars worth of funding to Africa since 2000. In 2018 Beijing approved an additional $60 billion within the framework of the Forum on China-Africa Cooperation for its participants. Said partners previously only had access to a humble budget of $95 billion. These resources play a critical role in the continent’s economy.
Huawei and Transsion have a close to monopolistic hold over in the development, maintenance and operation of the telecommunication networks. For trade it’s Tencent and Alibaba who have the same level of influence. The US has fallen behind in the race so it’s their strategic interest to diminish the resources China has to invest. If the outcome of the ongoing China-US trade conflict is that Beijing is forced to focus more of its resources internally, for the US that would be a favorable outcome that strengthens their position. While there are a number of reasons for the two superpowers to resolve the conflict, this particular area is one of the reasons for why they wouldn’t.
If you enjoyed this topic, you can read more about China’s investments in Africa here.