China is a Communist government and the Chinese domestic economy is largely still centrally planned. In the past this included encouraging Chinese companies to expand abroad. However, the decision of where to go is made by the companies alone and almost always guided by a single factor: profits.
The vast, complex Chinese political system is poorly understood by most outsiders. It is a system where power is both highly concentrated, yet simultaneously very diffuse. So it is understandable that many people think that Chinese companies operating in Africa are somehow orchestrated by authorities in Beijing as part of a centrally-planned system. They are not. Instead, Chinese state companies have been urged to "go out" (走出去战略), that is, go overseas in search of new markets and new profits. Journalist and China Africa Project co-founder Eric Olander explains that once these companies go abroad, they are largely on their own.
The popular perception of the Chinese government, particularly among foreigners, is that it functions similarly to old cold war Soviet Union administrations. According to this view, an army of functionaries enacts the policies of small cadre of Communist apparatchiks led by a charismatic figure. Everything from agricultural output to labour to foreign investments is centrally planned.
In today’s China, all of the above is in fact true. China is indeed a Marxist/Maoist state still committed to some aspects of central planning. With the ascension of Xi Jinping to the presidency, it certainly has a powerful, charismatic leader in firm control of the bureaucracy.
The problem with this narrative, like most caricatures, is that it is only partially accurate. Although there are strains of central planning and control, the reality is that like all governments, the policy-making process is often chaotic, fractured and fraught with infighting. This is especially true in China where the Chinese Communist Party (CCP) is a separate, more powerful entity that sits atop the government.
At the domestic level, local and provincial governments are often given wide latitude to implement their own policies that are frequently in direct conflict with those of the administration in Beijing. Internationally, particularly as it relates to foreign commercial policies, the primary actors are State Owned Enterprises (SOEs) who may follow some of the proscribed guidelines set by the central government. However, more often these companies pursue their own profit-driven agendas.
Chinese SOEs in Africa
In the late 1990s the Chinese government recognized that its burgeoning levels of foreign exchange reserves was pushing the value of the yuan upwards. The government also wanted to avoid the high inflation that plagued the country in the early part of the decade. The government realized that it had to put that money to work by investing it abroad. Part of that strategy led to the massive buying of US treasury bonds along with the implementation of a new “Go Out” initiative that encouraged both public and private enterprises to invest abroad.
The “Go Out” strategy in many ways marked the beginning of the current phase of China’s commercial engagement in Africa. Dozens of companies, mostly in the natural resource extraction sector, set out across the continent to look for investments. Armed with preferential loans from state-owned Chinese banks, these firms offered far more competitive deals than anything available from Africa’s traditional lenders in the West.
This led to stampede of sorts in the early 2000s by the major Chinese oil, mining and infrastructure companies as they scoured the continent for investment deals. Few, if any, of these companies were following specific guidance from Beijing as to how where and how they should invest. This led to bitter competition among these SOEs to gain even the smallest advantage over their rivals.
Chinese Embassies in Africa (see Chinese Ministry of Foreign Affairs list of Chinese embassies in Africa)
Many US and European embassies around the world, including in Africa, have commercial sections that are fully integrated into the embassy. In contrast, the Chinese foreign commercial envoys largely operate detached from the political and economic sections. In her research on Chinese embassies in Africa, Johns Hopkins University professor Deborah Brautigam discovered that Chinese commercial attachés were often located in buildings separate from the embassy itself, very likely detached both physically and organisationally from the mission’s diplomatic and political operations.
So at the operational level Chinese commercial policy is implemented without coordination with China’s political envoys and is very likely highly disorganized. This then might explain, in part, why so many Chinese businesses in Africa have long complained about a lack of support from their embassies.
Over the years, China’s diplomatic presence in Africa has grown significantly. There are indications that Chinese embassies in certain countries are now beginning to offer similar levels of commercial support to their national companies that have long been standard in Western and Japanese overseas missions. However, with thousands of Chinese SOEs and Small to Medium Enterprises (SMEs) now spread across Africa, Chinese embassies are also being confronted with new challenges, especially when Chinese firms violate local laws or become involved in scandal.
Over the past few years, Chinese embassies have publicly denounced the poor behaviour of their own nationals for engaging in poor business practices, including for discriminating against restaurant patrons in Kenya, for violating mining and immigration laws in Ghana and over allegations of labour rights abuses in Zambia.
All of this suggests China’s commercial engagement in Africa lacks the central planning and control one would assume characterizes the Communist-led government in Beijing. The reality is that China’s economic and commercial engagement is both chaotic and fiercely competitive, with little to no political oversight from political authorities back home.
Case Study: Chinese extractive companies in the Democratic Republic of the Congo
The rush into Africa by Chinese extractive companies in the early 2000s was most notable in the Democratic Republic of the Congo (DRC) where Chinese mining firms saw massive potential in the country’s vast mineral reserves. The behaviour of these Chinese firms in the DRC showcases just how much autonomy they have from the central government in Beijing and how the driving force behind their engagement has nothing to do with any master plan but rather a frantic search for profits.
In 2009 a team of independent researchers, Johnna Jansson, Christopher Burke and Weran Jiang, closely examined Chinese corporate behaviour in the extractive industries in both the DRC and Gabon. The following is an excerpt of their report published by the Extractive Industries Transparency Initiative and the Centre for Chinese Studies at Stellenbosch University in Cape Town, South Africa:
“Contrary to popular perceptions of Chinese firms active in Africa, very few companies receive support of any kind from the Chinese Government. Only one of the respondents of this study, the owner of a medium sized company with both mining concessions and recently awarded rights to open a comptoir, said that his company gets support in the form of loans from the Chinese state. The respondent did however neither reveal which bank had extended the loans nor if it was a policy banks or a commercial bank. All of the other companies interviewed stated that they receive support neither from the Chinese banks nor from any of the Chinese funds allocated to private sector initiatives in Africa. For most of the Chinese privateers interviewed for this study, this was their first business venture in Africa.
The PRC embassy in Kinshasa is located at a distance, both psychologically and geographically from the Chinese nationals operating businesses in the Katanga province. A majority of the Chinese respondents interviewed for this study claimed that they get no support whatsoever from the Chinese embassy in Kinshasa. Several examples were brought up in which the respondents had been in trouble called the embassy and received no support. This was compared by the Chinese respondents to situations where ethnic Chinese colleagues of Western nationalities call their embassies for help and receive timely assistance. The Chinese ambassador to the DRC [at the time], Wu Zexian, confirmed that the embassy would indeed like to be able to extend more help to Chinese nationals active in southern DRC.
The often touted notion of a China, Inc. – that there is a coherent ‘going global’ strategy for all Chinese actors venturing abroad in the global economy – is not supported by the case studies in this research. Instead, the findings suggest that Chinese engagement with Gabon and the DRC is fragmented and uncoordinated in a policy sense. As such it would be very difficult to implement a uniform strategy designed to reach all Chinese stakeholders in support of transparency. It is important to consider the factors determining behaviour and attitude while considering how to encourage transparency among Chinese stakeholders active in African countries.
Only a small minority of the Chinese company representatives interviewed in the DRC stated that they receive Chinese government support in some form. Instead, the vast majority of Chinese companies interviewed stated that they had chosen to invest in Africa on their own initiative and have no relationship with the Chinese government. In the DRC, all but one of the Chinese respondents active in the south eastern Katanga Province said that they receive no support at all from the Chinese government representatives. This was confirmed by the Embassy where a senior representative explained that they would like to establish a consulate in Katanga, to be able to have more contact with and assist the Chinese companies operating there, if Beijing decided to do so.”