Africa and the Chinese Question [3]

"We shall [here] define PROGRESS as the increasing CONTROL of the environment by LIFE." - from The Lessons of History by Will & Ariel Durant 

A simple inference from previous parts of this work is that China has made relatively consistent progress over the last couple of decades. Historically high global commodity¹ prices lend credence to this fact. Africa, a rich haven of raw materials, has 'witnessed' her trade volume with China increase by more than 20% from $91billion in 2009 to $110billion in 2010². Turning the searchlight on Australia, a developed country, rich in commodities but running a substantially diversified economy, we see another resource-rich nation with high economic activities similar to that between China and Africa; between 2010 and 2011, Australian exports (with iron-ore constituting a great proportion) to China represented 33.05% of all merchandise exports to east Asia³. The value of exports to east Asia in monetary terms is put at more than A$170billion (around US$166billion) by the Department of Foreign Affairs and Trade of the Australian government. The high economic growth in China continues to demand ever more resources to fuel and encourage her staggering growth rates. I explain this further with the chart⁴ below:

The graph shows the relationship between two sets of data; China's GDP growth rate from 1999 to 2010 and the average yearly Commodity Metals Price Index for the same period. The green line represents the Commodity Metals Prices Index while the red line represents China's GDP growth rate. Immediately apparent is the steady, almost proportional growth of both data sets. A considerable depreciation in the price index (-7.8%) is observed between 2007 and 2008 when correspondingly China's growth momentum lost 4.6 percentage points. This was during the credit crisis. The calculated correlation is 63.85%, which I consider to be relatively high using the growth data of a single country.  

However, it is important to look though the screen of increased trade volumes and GDP to some other "less-news-making" data. The Human Development Index (HDI) serves a useful purpose in this regard. The question of its bias and inadequacy is an argument for another day. Australia has continued to remain in the top five of the HDI trend data while many African societies have continued to remain at the bottom. It is general knowledge that Africa has continued to grapple with the concept of a resource curse; the ability to convert her  favourable demographic status and raw materials to social prosperity has not been exploited (or is absent?). In Africa, we find that it has become commonplace to resist any comparison with the developed world (like Australia), but I ask, against what or who shall we compare ourselves? I see no point in belabouring the problems of Africa; my objective for this work is purely advisory. The thirteenth chapter of Will and Ariel Durant's book, The Lessons of History, bears the title, "Is Progress Real?". That question is blowing in the wind.

As is usual and normal for any entity, China will tend to tread a path of least resistance in her journey to sustained economic glory. More importantly, the necessary back-up structures and frameworks of redundancy will be created to guarantee that China is not stopped in her steps - why should China be stopped? With this in mind, I am constrained to infer that Africa's trade volume with China can only increase, as Africa (discounting all neo-imperialistic reasoning and general paranoia) presents little or no policy resistance to any malign trade conditions between herself and China. The events that have transpired in Zambia recently present a strong case study. China's growth has demanded more copper than ever before. Zambia happens to be a nation with one of the largest, export-grade copper deposits. The Chinese thinking in establishing a copper mining plant in the Zambian Copper-belt region is analogous to a multinational that decides to cut costs by procuring a commodity at the source of extraction, in the process bypassing the vagaries of the international commodities market.  All other (proclaimed) incentives such as GDP growth for the local economy, community development and social elevation are secondary. Of course that is understandable. China must grow. I resist the temptation of deliberating on the issue of the mine workers' demands and the ensuing political issues because I believe that the springboard of any mutual Afro-Chinese economic interplay must transcend the levels of an employee-employer relationship. 

However what is clear from the foregoing is that China's mission in Africa is one that is justified by the simple theory of natural selection. China must survive. Her ideological foundations must thrive and evolve. If Africa must play at a respectable level of international trade and negotiation, then as a matter of unequal priority, she must substantially improve her "Gross Intellectual Product". Africa will have to define a new index for collective progress and relate to China and the rest of the world based on that definition. Africa has survived for too long on instinct. Instinct has its place in human relations but when complex, human systems have been thought through and designed, instinct may become an individual's (or a people's) undoing. 

...to be continued

1 A commodity is a physical product such as grain (like wheat) or metal (like aluminium) which can be exchanged for a similar product and investors can buy and sell as a means of speculation and hedge against future risk through a futures exchange. 

2 Source: Standard Chartered

3 Source: data computed with inputs from the Department of Foreign Affairs and Trade of the Australian Government. 

4 Chart was plotted with China's GDP growth rate inputs from The World Bank Group and historical Commodity Metal Price Index inputs from The International Monetary Fund. 

Africa and the Chinese Question [2]

"The SOCIALIST system will eventually replace the CAPITALIST system; this is an objective law independent of human will. No matter how hard the reactionaries try to prevent the advance of the wheel of history, sooner or later revolution will take place and will surely triumph."

- excerpt from Mao Zedong's speech at the joint meeting of the Supreme Soviet of the USSR in celebration of the 40th anniversary of the Bolshevik Revolution (November 6^th, 1957).

[In order to achieve brevity in this series and focus primarily on the factors that I believe should inspire Africa's policies and handling of economic issues regarding China, I will skip the details of the fundamental ideologies and flash-points in the history of the People's Republic of China (PRC), but will make references to what I consider relevant to the current discourse]

In the first part of this series, I laid a general background describing the 'special' connection between the United States and China. The excerpt above, adapted from Chairman Mao's speech in the former Soviet Union, is very informative for our current economic epoch. It provides a necessary perspective into the unfolding relationship between the US, representing much of the developed world and China and how the dealings between the world's bastion of free markets and the increasingly prosperous socialists will form the framework which Africa might be forced to operate within over the next couple of decades.

As has been echoed from the political standpoint by the former US Secretary of State, Henry Kissinger and the private sector angle by Martin Sorrell, CEO of WPP Group, China is only a ‘returning’ world power. This is a view held by many. My opinion is that China is returning as a more open society compared to her pre-20^th century status as a relatively isolated, self-sufficient economy. I believe that China’s isolation could be attributed to the fact that the characteristically high, internal economic activities could sustain the nation and maintaining little or no contact with the West (mainly the British) assuaged her fears about imperialism which was sweeping across the entire world during the era. The infamous Opium Wars represented the first, concerted steps in the introduction of the Chinese economy to the world (it goes the other way too).  

With economic strength comes higher negotiating power and prestige in the arena of international politics. Needless to say, China currently possesses such capacity and resources in great proportions. However, China had previously assumed a back-seat position as the rest of the moved on, mainly due to the tightly-controlled economy and late catch-up to the digital directions of the world. China has managed her finances well over the decades, growing her economy from single to double digit growth rates by the mid-2000s as the graphical illustration below shows*.

While the rest of the world, especially the capitalist pack, throttled on, inventing ever-more complex financial debt instruments and subjecting their economies to series of booms and bursts, China for a large part of the two decades maintained a relatively silent, closed economy (only joining the World Trade Organization in 2001) and relying heavily on her power of exports. China's fixed exchange rate has helped her maintain competition in the international market for her cheap exports. By this I mean that China's exchange rate (to the US Dollar) is not left to float; with China's large pool of foreign exchange reserves, efforts are continually made to sell the yuan (or officially the Renminbi) while racking up greenbacks. Of course, the higher the supply of yuan in the Chinese economy, the lower the value and the less amount of goods a Chinese can purchase (and managing inflation becomes a challenge as a result). 

I consider it pertinent to state that China has attained her current status without adopting the innovation ideologies of capitalism and will, if she ever had any doubts before the credit crunch of 2007-2008 (till date), stick to her reformed socialism (with Chinese characteristics) principles. One could argue against Chairman Mao's statement, arming himself with the reality of the collapse of the Soviet Union in 1991, highlighting that we are inherently limited in our grasp of what the future holds. On the other hand, the same debater would be defenceless in the face of the current phase of the evolution of the global financial system. Yes, I consider it an evolution because since the Great Depression, the global financial order has witnessed various boom and burst cycles typified by credit expansion, miscalculation of risk, relaxation of lending rules and credit rating agencies, bubble growth, more credit expansion, bubble burst, higher regulation and the cycle repeats itself. 

It is also important to note that China's current position in the global marketplace was engendered to a large degree by the United States' consumer-driven economy. As the US and the rest of the developed world maintained the running of the capitalist engine, China grew and expanded with the free-market ideology as the main catalyst (even though de-localized). The capitalist system (with all its benefits and flaws) has abetted and proven 'successful' the socialist system (with Chinese characteristics). 

to be continued...

* Source: TradingEconomics.com, The World Bank Group.