Doing business in emerging economics

2. Preferential policies:

On Nov. 4, 2006, , Chinese president Hu Jintao addressed that “to forge a new type of China-Africa strategic partnership and strengthen our cooperation in more areas and at a higher level, the Chinese Government will take the following eight steps:

1. Double its 2006 assistance to Africa by 2009.
2. Provide US$3 billion of preferential loans and US$2 billion of preferential buyer's credits to Africa in the next three years.
3. Set up a China-Africa development fund which will reach US$5 billion to encourage Chinese companies to invest in Africa and provide support to them.
4. Build a conference centre for the African Union to support African countries in their efforts to strengthen themselves through unity and support the process of African integration.
5. Cancel debt in the form of all the interest-free government loans that matured at the end of 2005 owed by the heavily indebted poor countries and the least developed countries in Africa that have diplomatic relations with China.
6. Further open up China's market to Africa by increasing from 190 to over 440 the number of export items to China receiving zero-tariff treatment from the least developed countries in Africa having diplomatic ties with China.
7. Establish three to five trade and economic cooperation zones in Africa in the next three years.
8. Over the next three years, train 15,000 African professionals; “

And as part of the China- Africa policy, Chinese companies are encouraged by the government with a number of preferential measures. The Chinese government will remain committed to a stable and effective policy, legal environment, increase the financial, taxation and financing support, facilitate investment procedures in Africa, regulate and protect the operation of Chinese enterprises overseas. The Chinese government has adopted incentives, including tax rebates, to relax foreign exchange restrictions, to encourage more Chinese enterprises to invest in Africa.

1. The machinery and equipment that Chinese enterprises bring out to Africa can enjoy the tax rebate in the light of the relevant provisions for foreign aid;
2. The foreign currencies Chinese enterprises can be exchanged at the Administration of Foreign Exchange without amount of foreign exchange restrictions
3. The Chinese government encourages Chinese financial institutions to support and give benefit to Chinese enterprises willing to invest in Africa;
4. Chinese government will further simplify the approval process for business investment and personnel going to Africa.

And the primary investment of China-Africa Development Fund, established after the , is the Chinese enterprises investing economic and trade activities in Africa and the projects or businesses run by Chinese enterprises in Africa. The fund aims at promoting the development of Sino-African relations, helping solve the insufficient capital problems and ensuring sustainable development with consideration of investment return.

3. A win-win situation:

China's rapid economic growth strongly demands oil and other resources and a large quantity of energy are badly needed for maintaining this high speed development. While Africa just has resource reserve across the continent. On the other hand, China has strong capital power, which Africa is looking for to improve economic situation and infrastructure. As a result, China invests billions of US dollars into Africa for establishing infrastructure every year. China and Africa are accordingly tied closely to one another with supply and demand. The cooperation between China and Africa is reciprocity and complement each other. The bilateral economic development and trade relations contribute a lot to the economic and social development of both of sides and as well achieving mutual benefit, win-win development and common prosperity.

“The Chinese Government facilitates information sharing and cooperation with Africa in resources areas. It encourages and supports competent Chinese enterprises to cooperate with African nations in various ways on the basis of the principle of mutual benefit and common development, to develop and exploit rationally their resources, with a view to helping African countries to translate their advantages in resources to competitive strength, and realize sustainable development in their own countries and the continent as a whole.” Exploring the African market and strengthening economic and trade ties with Africa make up the resource inefficiency in China. Africa has abundant mineral resources with all 150 kinds of proven underground mineral resources in the world. Platinum, manganese, chromium, ruthenium and iridium account for approximately 80% of the world total reserves. Phosphate, Palladium, gold, diamonds, germanium, cobalt and vanadium mineral make up over half of the world total reserves. To 2020, the scarce mineral for China will be oil, uranium, bauxite, gold, platinum-group metals, chromium, manganese, etc, which overflow in Africa. One of the fields of Sino-Africa Cooperation is oil. China has become the second oil consumer in the world right after United States. Last year, China imported more than 38 million tons of oil from Africa, accounting for 28% of total imports. In order to meet growth in demand, Chinese oil companies have invested billions of US dollars in Sudan, Libya, Nigeria, Chad, Angola and other oil-producing countries. Especially Angola, the second largest oil producer in Africa, one-third of its oil production is exported to China. It has become China's largest crude oil exporter replacing Saudi Arabia.

A large number of domestic enterprises, with competitive advantages and economies of scale, bring equipment and advanced technology into African continent. Investment and setting up factories in African countries enable them to circumvent the tariff and non-tariff barriers, make full use of domestic and international resources, production and processing systems to expand exports and encourage innovation.

In return, African countries also benefit from China’ investment. And that was proved by the fact that the Africa economic growth rate reached 5.3% in 2005. China’s investment and loan have played an important role in Africa's economic development, making up their financial deficiency as well as creating more jobs opportunities. Nowadays, the top priority of African countries is economic development and improving people’s living standards. African countries are actively developing economy as well as reducing poverty. They expect to share the large Chinese market, more investment form Chinese enterprises and the transfer of technology. Chinese enterprises investing in Africa, setting up joint venture and building plant enable African countries to produce value-added products and increase the local employment and tax revenue. Export and transfer of technology enhance the production capacity of African countries. What’s more important, China’s investment usually goes to the industries whose development and improvement are urgent and vital for the overall economic situation of a country:

1. Infrastructure: Many African countries consider building or renovating roads, railways, airports, docks, water supply, electricity and telecommunication to be the priority of economy revival. The Chinese Government vigorously supports the Chinese enterprises to participate in infrastructure in African countries and intensify the cooperation in technology transfer and management.

2. Natural resources development: Africa is abundant of various natural resources. For riding the tide of the currently increasing price of energy products, it is the preference in Africa to exploit natural resources. China, together with Africa will develop and exploit resources for the sustainable development of the African continent.

3. Agriculture and manufacturing: A majority of African countries are agricultural countries. However, due to less developed technology, they still have to spend a huge amount of foreign exchange to import food every year. And underdeveloped manufacturing industry results in the heavy dependence on importation from abroad.

4. Medicine industry. Africa is in danger of a variety of epidemic-prone diseases, thus African countries expect a lot for investment on pharmaceutical industry. China will supply medical assistance helping African countries to establish and improve medical facilities and train medical personnel.

“China and India’s rapidly growing commerce with the African continent presents to its people a major opportunity. In particular, the intense interest by these two Asian economic giants to pursue commercial relations with Africa could lead to greater diversification of Africa’s exports away from excessive reliance on a few commodities and toward increased production of laborintensive light manufactured goods and services. It could also enable Africa to build on the strength of its endowment of natural resources and develop backward and forward linkages to extract more value from processing, and in some cases participate in modern global production-sharing networks. This intense interest could also lead to enhanced efficiency of African businesses through their being more exposed to foreign competition, advances in technology, and modern labor skills; and to greater international integration.”

As economic growth accelerates, demand for Chinese products in African countries increases as well. Africa is on its way to a market for China's enterprises and products. Africa provides valuable opportunities for China's enterprises going into the international market. At the same time, Africa's investment in China vitalizes China’s domestic economic development. As the economic development of African countries together with China's domestic market potential, Africa’s investment in China tend to be a fast increase.

Africa prefers Chinese companies to western multinationals since

1. China’s aid to Africa as well as investment

In 2006 China's foreign direct investment in Africa was 370 millions U.S. dollars on projects over 49 countries, ranging form resource exploration, transportation, trade, production and processing, agriculture and contract projects of housing construction, petrochemical, power and transportation. China's investment on raw materials and energy helps sustainable economic development of African countries. China assists African countries improve the communication facilities and train a great number of telecommunication technical specialists. Meanwhile, China also provides capital and technology directly for African-infrastructure facilities and social-development projects which improve the investment environment. “Some examples:

• In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
• In Uganda, the new State House was built with Chinese money. 
• In the city of Rwanda, Chinese companies built 80% of all new roads.
• And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.”

A World Bank report said that China, India and several Gulf countries are funding Africa in a number of large-scale infrastructure projects, unprecedented in terms of the size and capital.

Dating from 1956, more than 720 projects have been set up over 49 African countries under China’s assistance, coving energy, agriculture, transportation, telecommunications, light and textile industry, food processing, culture and education, health, etc. Meanwhile China built more than 2000 km railways and more than 3000 km highways across the African continent, provided scholarships to more than 18,000 students and 58 preferential loan projects in 26 African countries, reduced due debts in 31 heavily indebted and least developed countries with a total amount of RMB 10.9 billions.

2. No political interference

China always upholds the principles of mutual respect without interference in other country's internal affairs. China’s investment, preferential loans or aid do not impose any political conditions on African countries. “Chinese involvement also has received a slightly warmer welcome than efforts by Western nations. Where western powers have attempted to use aid and investment as bargaining chips to achieve certain political or social reforms, China employs a less-conditional "no-strings-attached" attitude that many African leaders find appealing.” "With the Chinese, we don’t feel any interference in our traditions or politics or beliefs," said Awad al-Jaz, Sudan’s energy minister.

3. Role model for economic development

In recent years, China's rapid economic development, enhanced national strength, and the gradual opening to the outside world have attracted the attention of the world. African countries can learn from China's successful experience from economic and trade exchanges with China, particularly in infrastructure facilities constructions and choosing an economic development model suitable for their domestic situations. For example, in Zambia, government learnt from China to establish export processing free trade zone, took a series of measure of facilitate investment and trade and exempted enterprises from import duties and value-added tax.

To sum up, a long history of friendly political relationship and continuous support of each other paved the way for the economic and trade boom between China and African countries in the recent years. The advantages in resources, capital, products and technology are highly complementary that makes the cooperation possible. China’s preferential policy towards the investment in Africa further encourages Chinese enterprises to enter into the African market. African countries also devoted themselves to reduce the deficit, control inflation, reform state-owned companies, adopt policies to attract foreign investment and actively improve the investment environment. It is estimated that the following 5 to 8 years will be the “Golden age” for the Sino-African relationship. Chinese corporations will continue to increase investment in Africa and the bilateral trade and economic cooperation will have an optimistic prospect.

Reference:

Address by Hu Jintao at the Opening Ceremony of the Beijing Summit of the Forum on China-Africa Cooperation, http://www.focac.org/eng/wjjh/t404125.htm

Africa - Investment. Net,

Africa Needs China, China Needs Africa,

Africa's Silk Road-China and India's New Economic Frontier, Harry G. Broadman with Gozde Isik, Sonia Plaza, Xiao Ye and Yutaka Yoshino, The World Bank Washington DC

China's African Policy, January 2006,

, 

Multinationals' Investment in Africa: An Analysis on the Current Situation, Yao Guimei,

The Development and Future of Chinese direct investment to Africa, Piao Yingji 

, http://www.moneymorning.com/2008/04/18/the-heart-of-darkness-whats-really-behind-asian-investment-in-africa/

The Significance of Development of Sino-African Economic and Trade Relations, 

World Bank to work with China to fight global poverty, 

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