China Investment In Africa And The Risks Of Savage Capitalism

From World Crunch

By Han Wei

China’s investment in Africa has evolved from its original purpose of aid and assistance to a much more market-oriented economic approach. And now, it is changing again: beyond the large state-owned enterprises, an increasing number of private Chinese companiesare also doing business on the continent.

As Chinese firms get involved more deeply and more broadly in Africa’s economic activities, the challenges regarding its market conditions, laws and regulations, and community relations are becoming increasingly evident. Companies with strong adaptability tend to perform better than those that are slow to adjust to the changing business landscape.

At the same time, some Chinese firms‘ approach is to take advantage of African countries’ weak political systems, manipulating the conditions to suit themselves and becoming bad examples of foreign investment to locals.

Zhang Jianping, director of the International Cooperation Office of the National Development and Reform Commission’s Foreign Economic Research Institute, said Chinese firms entering Africa had lots of homework to do, especially in assessing “non-economic risk.”

However, “up to now, whether at the governmental, entrepreneurial or academic level, China still largely lacks studies and guidelines of African countries’ market conditions and risks,” Zhang said.

The Ministry of Commerce said that in 2011 trade between China and Africa reached a record US$ 166.3 billion. Meanwhile, China’s investments in Africa reached US$ 14.7 billion in 2011, up from less than US$ 100 million in 2003. In 2009, China became Africa’s largest trade and investment partner.

“As a critical source of energy and mineral resources, Africa has strategic significance,” Zhang said. “China is an important global manufacturing center. This position will be maintained for a considerable period of time, which means that it requires a sustainable energy source.”

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