Does China engage in economic diplomacy ?

Author : Chloé BLANCH.

China’s huge trade surplus is no secret to anyone, and, even though was slowed, China does not stop reinvesting it outside its borders. Where has China not invested? Almost nowhere. In recent years, China has obtained the title of the 2nd largest investor in the world, or more precisely the 2nd largest issuer of foreign direct investment, after the United States. Similarly, China is in 2nd position, still after the United States, in terms of development aid.

We will try in this article to understand which return on investment China hopes to obtain and if there is a hidden cost for countries receiving such flows.

Sectors and regions targeted by this surplus of Chinese finances


Chine 2
Global Foreign Direct Investment Stocks


Contrary to China’s image, as a support and figurehead of emerging countries, it is mainly Western countries that receive Chinese FDI, as shown in the diagram of CSIS China Power Project. Indeed, Europe and the United States have received 48.29% of Outward Chinese FDI in the last decade, which equates to $ 414.34 million. China’s financing figures for developing countries and emerging countries are greatly magnified when development aid is taken into account, since it is estimated at $ 100 million for Latin America and Africa respectively. However, the US debt held by China amounted to a trillion dollars in November 2017, so Westerners remain the main recipients of China’s finances.

While the areas affected by Chinese investment and construction abroad are quite diversified, energy and transport still attract more than half of these flows. Moreover, if we examine more closely the geographical distribution of Chinese investments and loans in Africa and Latin America, the largest beneficiaries are often countries known for the abundance of natural resources, such as Brazil or Nigeria.

An obvious economic strategy

Indeed, China makes such investments to secure its access to the natural resources needed for its growth: oil, but also metals, some of which are widely used in the production of smartphones and other so-called connected objects.

However, it is not only investments in extractive infrastructure and companies that provide this access. China is increasingly using its financing of foreign countries’ development to obtain raw materials, especially oil, through concessional financing. One of the types of concessional financing is commonly known as the « Angola » mode and refers to cases where the loan is conditioned by a transfer of natural resources. It consists in offering very advantageous rates and allowing debtor countries to pay back in oil. This strong tendency to offer concessional loans began precisely with the eponymous case of Angola: the company Sinopec offered Angola a loan of 2 million euros in 2005, which would be partially reimbursed by a transfer of oil, which price would be determined in advance. As a result, according to many Latin American academics who criticize this practice, in the event of oil prices rising between the time the loan is accepted by both parties and the time the resource transfer is made, the debtor country would obtain less oil revenue than if it had sold it at the price corresponding to the time of transfer.

This loan conditioning method also allows China to re-launch its international trade, forcing the debtor countries to import Chinese products in return. Even the many infrastructure investments in emerging and developing countries have commercial motivations. For example, the promised trillion dollars for the New Silk Road project will boost the activity of Chinese steel, cement and construction companies, whose activity stagnates along with Chinese domestic demand.

Is it also a political strategy?

On the exception of the political importance of food and energy security, allowed by investments in natural resources, China denies any political interest in such management of finances. Indeed, whenever it is accused of seeking to increase its political influence by economic means, China insists on the 5 principles of its foreign policy:

1- Mutual respect for the territorial integrity and sovereignty of the other.

2- Mutual non-aggression.

3- No interference in the internal affairs of the other.

4- Equality and cooperation for mutual benefit.

5- Peaceful coexistence

The principle of non-interference is even what allows it a good number of financial transactions. The World Bank or the Western countries often condition their financial assistance to structural, economic or even political changes, that seem almost ideological when we look at how much these changes have served Africa in the 90s. On the contrary, China poses itself as anti-imperialist, recalling that, historically, it has been the first power to support smaller countries and their independence from the bipolar world of the cold war.

However, going against the tide of the Washington Consensus is in itself a political stance, which could give China a good image among developing countries and therefore get their support.

Nevertheless, such a commercial strategy of financial surplus allocation creates a certain dependence of the beneficiary countries towards China. Indeed, there are precedents of a trading partner, which debtor countries are obliged to become, has been strongly pushed to act upon China’s political interests. For example, China has asked many countries to repatriate the Turkish and Muslim minority Uighurs, whose women are banned from fasting during Ramadan and from wearing the veil on Chinese territory. The countries that need Chinese economic support have often accepted, despite some resistance, especially in Thailand, which has tried to repatriate a good part of the Uighurs on its territory to Turkey and not China. Similarly, Egypt, one of the many beneficiary countries of the One Belt One Road project, has also repatriated Uighurs, despite protests from many NGOs. More generally, the countries receiving Chinese funding, particularly for their infrastructure, are more inclined to respond to Chinese political interests, as shown by the recent improvement in relations between China and the Philippines, despite persistent territorial tensions. It is hard to believe that this political influence is unwanted, as, in practice, Chinese diplomacy operates on a system of counter-donations.

However, there are many media outlets, officials and academics who even say that China is actively seeking political influence. The term « economic diplomacy » has in fact become quite frequent in official meetings of the Chinese government on foreign affairs since the 2000s. Moreover, it does not stop at accusations of influence, China having been accused of espionage in New Zealand in 2017, spying that would have been motivated by the presence of many arable land in this country. More recent accusations target China’s presence in the majority of major infrastructure projects in Africa: according to a January 2018 edition of the newspaper Le Monde, China has installed wiretapping systems in the building of the African Union, building it has financed and built, and that these would have been discovered in January 2017, that is to say 5 years after the construction of the building.

The Chinese diaspora present all over the world is also pointed at by critics of the new Chinese power. The election in 2014 of the current president of Namibia, a fervent supporter of Chinese politics, is said to have been allowed, according to local media, thanks to his financial ties with Jack Huang, one of the most influential Chinese migrants in Namibia.

Without necessarily accepting accusations not (yet?) proven, it would seem that China is aware of the geopolitical power obtained by its financial strength and that it is ready to take on the role of a new world order’s leader, order based on sovereignty of each country, at least according to Chinese policy, and not on the political and economic liberalism worn proudly by Western countries.

However, people are expressing increasing reluctance towards Chinese investments, because of what they are imposing on their country, but also because it allows some governments to maintain practices that deny human rights, despite sanctions from developed countries. Development aid and investment by rich countries in poorer countries therefore remain either too interested or simply too ethno-centered to enable the three developmental pillars to be achieved.



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