The EMF delegation, of which is entirely composed of students, attracts a diverse student body from over 60 universities in the UK and around the world. Given the large, dynamic audience at the event, the forum organisers were able to attract industry-leading bankers, consultants, directors, entrepreneurs and CEOs. I was able to gain access to some of the speakers over the two-day forum to learn of their unique insights into the topical developments in the current international political economy.
But what precisely is an ‘emerging market’? International Political Economy (IPE) professor at the LSE, Martin Hearson demonstrated to me before the event that: “Emerging markets are usually distinguished as a set of countries which are not what we call ‘developed countries’ but they’re also not in a group of what we would term ‘developing countries. They are somewhere between the two. The prominent emerging markets that people talk and are interested in are the BRICS. Of that, China, India, and Brazil are the most commonly talked about as being big emerging markets”.
“As part of China’s full transition into a fully-fledged modern economy, China must navigate with multi-billion-dollar schemes such as the BRI in order to go “from being export-oriented in its growth towards being domestic demand-oriented. And that transition will be difficult. There will be political winners and losers, which makes the political economy of the world complex”.
The current Chinese BRI, which is set to cover more than 68 countries, including 65 percent of the world’s population, was often hailed as a great success throughout the forum by many speakers. When I spoke to one of the panelists and one of HSBC’s China Directors, Sue Anne Tay, she told me that “there is no doubt that the BRI has become a very big stimulus for infrastructure financing in a lot of regions. The BRI has stimulated projects not only in Africa, but in central Asia and in the ASEAN nations too. What the BRI has done is to elevate the importance of infrastructure financing across the world”.
Indeed, governments and businesses from all around the world are rushing to strengthen diplomatic, strategic and commercial ties due to the growing significance Africa will have in the years to come. Chinese foreign direct investment in Africa, bolstered by the likes of the AIIB and the state-run Silk Road Fund, will see highways, railroads and even national parliament buildings constructed across a diverse array of African countries. As well as using their economic tools to advance their country’s geostrategic interests, they have also been known to be politically effective in their approach to bilateral deals, especially amongst African nations.
Nonetheless, some commentators do not view Chinese investment in Africa as a win-win, but rather as an opportunity for China to gain valuable leverage over African nations. There have been increasing accounts and critiques in worldwide media that are assessing the extent to which China is acting as a ‘neo-colonial’ power and forcing African emerging markets into ‘debt-traps’. Through ‘debt diplomacy’, China exerts bilateral influence by bankrupting partner nations with unsustainable debt and then demanding steep concessions as part of the debt relief – or so the thinking goes. Current Malaysian Prime Minister, Mahathir Mohamed, said in 2018 that what China is doing is “a new version of colonialism. We need fair trade”. There are growing fears that a country such as Zambia, which has taken on $6.4 billion of Chinese investment, may have to default on high indebtedness to Chinese contractors.
One of the oft-cited examples that critics take on China was the controversy over the Hambantota port. A Chinese state-controlled company signed a 99-year lease for the strategic south Sri Lankan port in exchange for debt relief. Opponents there accused China of intentionally leading and isolating Sri Lanka into a “debt trap” so it could seize the port.
In order to combat the ‘divide and conquer’ style of Chinese foreign policy, the role of the African Union has to be to facilitate greater cohesion and unity as one collective bargaining bloc. A closer African Union (AU) would result in striking more attractive and increased investment on the continent, not just from China, but from around the world. However, given the diversity that still exists between the 55 AU member states, this unity still serves as a long-term obstacle for the nations of Africa – albeit there are the foundations in place for relations to improve in the future.
But in the West, the G7 countries, who do not currently possess the economic abilities to compete with China, have developed their own response. Senior Partner at Control Risks, Christopher Torrens, described to me that the growing anxieties caused by China from Western nations reflects a broader ‘contain China’ policy and has forced a comprehensive rethinking of their policy towards both China and Africa.
Torrens explained that “the discovery of shale gas in the US has meant that the Americans have become more self-sufficient in terms of energy provision. This is just one aspect, but overall, since Trump has come along, he has had a more parochial perspective around what the US should be doing overseas – which isn’t very much. Given the rising populism and self-centred view on domestic affairs and economic growth at home in Europe too, it means that China has almost gone uncontested in Africa so far”.
“At the same time, you’ve got China desperate to keep its economy going, desperate to get the natural resources and minerals that it needs to fuel its economy from Africa. They are also frantic to find new markets in which infrastructure companies can expand, because they can’t keep operating at home, because it’s too big for their local economies. This has been happening over the last ten years and suddenly, the US has just woken up and started thinking that we need an ‘Africa policy’. But, that Africa policy is really just a ‘contain China’ policy. Albeit there is some resentment by locals in the African countries they are investing in and there are growing tensions with Western nations, but on the whole, I think the BRI is pretty positive for the host nations and certainly in sub-Saharan Africa”.
Echoing this view of how Chinese investment in Africa has largely been a positive phenomenon, is David Haigh, the Founder and CEO of Brand Finance, who spoke to me at the end of his keynote speech at the EMF.
He commended the Chinese approach as rational and acceptable, in that “they are building infrastructure which will help strengthen the basis of the Chinese economy. Some of the things they are, supposedly, doing ‘wrong’ is lending out money that can’t be repaid. But for every one accusation that has been made for that, there are other instances where a lot of African countries are just happy to get the money and investment that they need to kickstart their economy. It also helps to expand the Chinese brand in these new countries too. For the Chinese brand, their products are produced cheaply, so they’re allowing very poor people to access goods and services that they wouldn’t have had been able to afford before”.
He went on to say: “If countries are being offered infrastructure investment and loans from China, they don’t have to accept. I don’t want to be a cheerleader for China, but for me, there seems to be a lot of unfair hypocrisy around, when it comes to accusations of what they’re doing. They are prepared to spend billions upon billions to improve infrastructure for very poor countries. That’s fine, what’s wrong with that?”.
Nonetheless, to what extent will there be any real competition from the G7 countries to match high levels of Chinese investment in Africa? This competition is unlikely to come anytime soon. The G7 countries on average have a GDP growth rate of 2% (as opposed to China’s growth at 6.3%), are still weakened in their investment capacity from the 2008 crisis, and they simply do not have the same attitudes to investment as the Chinese do. Democratic leaders look to investments that will offer quick returns before their electoral term ends. But, for the ironic beauties of the Chinese authoritarian regime, Xi Jinping can ensure that investments made over the long-term will reflect and improve his political standing throughout his tenure, reaping in the profits made through the BRI.
The Chinese are also politically looking to capitalise on isolating Taiwan from international (un)recognition. By investing in these African countries, some of the political favours that China receives are the diplomatic assertions to break ties with Taiwan. The only remaining ally that Taiwan has left, as a result, is Eswatini (formerly known as Swaziland).
Overall, relations between China and Africa will still remain a contentious issue for some time, as Western leaders awaken to the growing influence that China has on the continent. As for whether Chinese investment proves to be a win-win for itself, the developing and emerging markets will be a point of judgement later down the line. Many African peoples welcome the investment and see huge grounds for optimistic relations with the Chinese ahead. Perhaps the positive steps made in Africa from China can be a sour lesson for the G7 countries, in how they rethink development policy and old relations with Africa as a whole.
If you are interested in learning more about emerging markets and the biggest global trends in the international economy next year in 2020, visit the LSE EMF Facebook page by clicking here to keep updated.
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