China May Help Promote Industrialization in Africa

Stephen DeAngelis

January 15, 2010

Some economic theorists have posited that the modern global economy roughly advances in sinusoidal waves that correspond with the advance, peak, and eventual decline in importance of various technologies. They propose the following economic waves beginning around 1800:

  • The First Industrial Revolution (circa 1800 – 1850) which involved cotton-based technology; spinning weaving, etc.
  • The Second Industrial Revolution (circa 1850 – 1900) which embraced steam technologies; railways, shipping, heavy industry, iron and steel, etc.
  • The Third Industrial revolution (1908 – 1947) which embraced petrochemicals, the internal combustion engine, and electrification.
  • The Post-war Boom (1947 – 1991) which was characterized by consumer goods, electronics, etc.
  • Finally, the contemporary Era (1991 – present) which saw the rise of the Internet, wireless technology, biotechnology, etc.

The late East European economist Joseph Schumpeter believed these cycles occur as the global economy is thrown out of equilibrium by entrepreneurs who introduce innovations that create entirely new industries that eventually replace older industries in importance. If they survive, displaced industries often find it difficult to raise capital to build new infrastructure and eventually their business is lost to companies in developing countries that have lower labor costs and newer equipment. He called the process creative destruction. This process has spread from Europe, to the U.S., to Japan, to Southeast Asia, to China, to India, and to parts of South America. Africa is the last major continent left to experience the benefits of this pattern. Despite the wealth of natural resources possessed by some African nations, most of the continent remains mired in poverty — industrialization appears a long way off. The World Bank, however, is hoping to partner with China to begin bringing industrialization to new areas on the African continent [“China and World Bank in talks to establish industrial zones in Africa,” by James Lamont and Geoff Dyer, Financial Times, 4 December 2009]. Lamont and Dyer report:

“The World Bank and Beijing are in discussions about setting up low-cost factories in industrial zones in Africa to help the continent develop a manufacturing base and reverse its declining share of global trade. Robert Zoellick, the president of the World Bank, said Beijing had shown ‘strong interest’ in the proposals.”

China is well aware that its balance of payments remains a sore point with some industrialized states and its minister of commerce appears willing to explore the possibility “of moving some of [its] lower-value manufacturing facilities to sub-Saharan Africa.” The factories under consideration include those that manufacture toys and footwear. Manufacturing plants mean jobs and every Sub-Saharan state is desperate for jobs. The problem, of course, is that China also needs jobs for its workforce. As workers in the U.S. are keenly aware, loss of manufacturing plants — even those making low-value products — means loss of jobs and not everyone in China is happy about the prospect of losing those jobs. That is why, Lamont and Dyer report, “any plan to shift production to Africa that goes beyond the symbolic is likely to meet stiff resistance within China.” The reason that Chinese officials are entertaining the proposal is that they are keen to tap Africa’s vast natural resources. They realize, however, that they must help African states develop or risk being seen as a neo-colonial power. Lamont and Dyer continue:

“Chinese officials have been debating proposals to use the country’s vast foreign exchange reserves to stimulate demand in developing countries – ideas sometimes referred to as ‘China’s Marshall Plan’. Last month, Wen Jiabao, China’s premier, pledged $10bn in low-cost loans over the next three years, the elimination of tariffs on 60 per cent of exports from least-developed nations and debt forgiveness for several countries. Beijing’s government-to-government deals have in the past attracted criticism for propping up unpopular regimes. Some African leaders have voiced fears that Chinese competition was undercutting Africa’s weak industrial base.”

Aid and loans from China have received mixed reviews in Africa. Some African leaders have praised China because its assistance comes with many fewer strings than assistance from the West. On the other hand, “some in Africa are starting to find the Chinese embrace too tight” [“Africa Pressures China’s Oil Deals,” by Benoit Faucon and Spencer Swartz, Wall Street Journal, 30 September 2009]. Faucon and Swartz report one thing that particularly riles Africa leaders is the fact that Chinese state-owned companies have kept local hiring to a minimum while establishing large Chinese populations in-country.

Regardless of this mixed record, Zoellick believes that China is a good partner for African companies because “some of these Chinese industries have the benefit of knowing how to do more labour-intensive manufacturing and they have the marketing networks and this is always a challenge when you start an operation.” Lamont and Dyer conclude that supporting any program that creates job losses in China will be problematic for Chinese leaders and businessmen:

“Beijing has opposed growing international pressure to appreciate its currency partly because of fears of job losses in export industries. Moreover, the prime motivation of the Chinese Marshall Plan proposals has been to find ways to create new sources of demand for Chinese factories, not to shift their output elsewhere.”

Whether the World Bank’s agenda can be reconciled with China’s agenda remains questionable. The pressures are as intense in China to preserve jobs as they are in the United States. The World Bank understands, however, that most African states need investment in order to make their economies both stable and sustainable. My prediction is that China will move some of its low-end manufacturing to Africa. They will begin with products that have a low profit margin and high liability — like children’s low-end toys. I suspect that Chinese leaders are getting tired of facing a never ending series of consumer product safety scandals.