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CHAPTER 1
Unnatural Capital: Chinese State Investment and Its Travails in Africa
A specter is haunting the world — the specter of "global China."
An economic powerhouse of vast proportions, China has reached an expansionist moment after more than three decades of sustained growth. Overcapacity, falling profit rates, underconsumption, shrinking demand from traditional export markets, and scarcity of strategic resources are major imbalances that have driven Chinese corporations, workers, and entrepreneurs to go abroad in search of new opportunities. Since the early 2000s, encouraged by Beijing's "going out" policy, Chinese outbound direct investment has grown from virtually nothing to about US$100 billion per year in 2015, making China the world's third-largest source of foreign direct investment (FDI).
The rapid pace and massive volume of this outward flow of capital and labor have cast China's miraculous economic growth in an ominous light. The country's recently announced infrastructure initiative "One Belt One Road," which promises construction of roads, railroads, and ports spanning Southeast and Central Asia, the Middle East, and East Africa, to be financed by a China-led multilateral bank, conjures up in many people's minds Chinese predation and threat on a global scale. Nowhere is the specter of a "Chinese scramble" more salient and controversial than in sub-Saharan Africa. "China in Africa" has become a popular subject of global media reporting and think tank publications, a burgeoning new field of academic studies, and even a focus of dedicated research institutes and programs. Being singled out and problematized, Chinese capital is widely perceived as "unnatural" in a neoliberal world order that otherwise naturalizes the market and upholds the principle of free capital flow as sacrosanct. No other national source of investment has stirred a comparable level of concern and consternation in Africa, where some of the world's fastest-growing economies in the past decade are located andwhich therefore has become a popular destination of FDI from a wide range of countries.
A cursory glance at a few statistics illustrates the curiously disproportionate attention Chinese investment has attracted. Despite being the most visible and discussed, China is emphatically not the leading investor in Africa, whether in terms of stock, flow, or rank order of capital from the global North or the global South. The growth of Chinese FDI in Africa is real: it increased 46 percent per year, on average, from 2000 to 2010. From a stock of $56 million in 1996, Chinese FDI in Africa rocketed to $3.2 billion in 2011, with an accumulated stock total of $16.24 billion by 2012. But China's FDI stock in Africa represents only 3.82 percent of the country's total outward FDI stock. China accounted for only 4 percent of FDI flowing to Africa by the end of 2011, according to a World Bank report. A 2013 report from the United Nations Conference on Trade and Development (UNCTAD) ranked China the sixth-largest source of investment in Africa by accumulated stock (behind France, the United States, the United Kingdom, Malaysia, and South Africa, in that order), and fourth by flow (behind France, the United States, and Malaysia, in that order) at the end of 2011. Analyzing central bank data from forty African countries, African Economic Outlook confirmed that the European Union and the United States were still the dominant sources of investment, contributing about 85 percent of FDI to Africa from 2000 to 2005, and 83 percent from 2006 to 2010. As this book went to press, World Investment Report 2016, published by UNCTAD, found that China's FDI stock in Africa ($32 billion), despite a threefold increase from 2009 to 2014, trails behind that of the United Kingdom ($66 billion), the United States ($64 billion), and France ($52 billion).
In the global public media, these systematic longitudinal statistics are routinely drowned out by more sensationalist, blatantly flawed journalistic reports. Deborah Brautigam wrote two monographs dispelling the many myths about China in Africa growing out of widely circulated but erroneous reports by reputable media outlets. These errors range from overestimating the size of Chinese loans, as when a reporter mistakenly substituted the term US dollar for the Chinese currency yuan, to relying on false rumors as evidence for the existence of Chinese land grabs. In response to the perceived magnitude and success of Chinese investment, a global rhetorical battle has emerged between a largely Western discourse of Chinese neocolonial plundering and blatant disregard for human rights, on the one hand, and Beijing's lofty claim of promoting South–South cooperation, free of hegemonic aspirations or World Bank–style conditionality, on the other. As articulated by politicians, policy makers, and public opinion leaders on both sides, these attention-grabbing discussions of China in Africa often conflate China's ambition and its accomplishments, misconstrue Chinese capital as a quantifiable thing rather than as a set of contested processes, and impute "Chinese-ness" to Chinese investors without comparing them with non-Chinese ones.
This book reinstates these critical but repressed issues: what has Chinese state capital actually done, through what processes and mechanisms, and how does it compare with other types of foreign investment? "Is Chinese capital a different kind of capital?" is a globally significant question that cannot be answered by rhetoric or statistics. I broach this question with a comparative ethnography of Chinese state capital and global private capital in Zambia's copper and construction industries. Specifically, I ask: What are the distinct mechanisms, interests, power, and limits of Chinese state capital in Zambia? For African states and labor, under what conditions will Chinese state investment become an alternative to global private capital?
Understanding the "China Difference"
I should be clear from the outset regarding what I mean by Chinese investment and Chinese state capital in this book. The global discourse about China in Africa has been hampered by most writers' generic use of the term Chinese investment, glossing over its significant internal diversity and the lack of control by the Chinese government over many companies originating from China. In Zambia, for instance, there is no official or institutional representative for Chinese investors individually or as a group. The two top Chinese officials posted in Lusaka by Beijing are the Chinese ambassador, sent by the Ministry of Foreign Affairs, and the economic and commercial counselor, sent by the Ministry of Commerce. These two officials do not have legal authority or organizational command over — or full information about — Chinese citizens and corporations in Zambia. By all accounts, the liaison between these two government organizations and the local Chinese population is voluntary and random, especially among private investors, taking the forms of Chinese New Year banquets, periodic informational sessions, informal counseling about corporate practices, and so forth. In recent years, these two ministries (or xitong in the Chinese state bureaucracy) have been locked in competition in Beijing to be the dominant driver of China–Africa relations, with the Ministry of Commerce reportedly gaining the upper hand over the Ministry of Foreign Affairs. In Lusaka, this growing independence and power of the former was on public display in 2013 when it opened a new and imposing state-of-the-art office and residence complex for the economic and commercial counselor and his staff several kilometers away from the Chinese embassy.
Chinese investment in Zambia and in Africa more generally consists of a hierarchy of capital of varying status, resourcefulness, and connection to the Chinese government. At the top of this pecking order is investment by China's central state-owned enterprises (SOEs) and policy banks. The former are the 117 conglomerates under the direct control of the State Council's State-Owned Asset Supervision and Administration Commission (SASAC), while the latter include the Export-Import Bank of China (China EXIM Bank), which makes vast numbers of concessional loans for infrastructure construction, and the China Development Bank, which, in addition to commercial loans, also makes equity investments through the China–Africa Development Fund. Below these two are provincial SOEs, under the control of provincial SASACs, and private enterprises of varying sizes, and, on the bottom rung, entrepreneurial or family firms. In Africa, about one hundred large-scale state-owned or state-controlled shareholding companies account for 55 percent of the total amount of Chinese investment and these are concentrated in mining and construction.
Ownership categories (that is, state-owned or privately owned) are poor guides to corporate objectives, however. For instance, as we shall see later, in the construction sector in Africa, Chinese provincial SOEs, despite their state-owned origin, are every bit as market- and profit-driven as Chinese private companies. Besides the false homogenization it implies, the label Chinese investment connotes the problematic, racialized presumption that investors' nationality and ethnic origins explain their behavior. Instead of the appearance of ownership and nationality, it is the interest of capital that is of the essence, politically and sociologically. Asking the question, "What and whose interests does a company serve?" leads me to differentiate two broad conceptual varieties of capital among those active in Zambia — state capital and private capital. The former serves interests defined by a sovereign state and the latter serves those of the shareholders. The empirical reality in Zambia is such that China is the only source of state capital, even though around the world, state investments in mining, energy, and strategic sectors hail from a wide variety of countries: France, Italy, Russia, Saudi Arabia, Norway, Chile, India, Brazil, and Malaysia, among others. The Chinese in Chinese state capital in this study therefore refers to Chinese state interests, not to Chinese culture or ethnicity. State capital of other countries likewise serves interests driven by the respective national configuration of state, politics, and economy. A theory of "state capital" will call for comparative analysis of state capital from various countries and is outside the parameter of this study. My goal here is to decipher the specificity of Chinese state capital by comparing it with global private capital, or publicly listed multinational companies serving shareholders' profit-maximization interest. These two ideal types, like all ideal types, are analytical and hypothetical constructs used as methodological devices to guide and structure my comparison. They entail necessary simplifications of the empirical cases and are by no means exhaustive of all varieties of capital anywhere and everywhere. Rather, they are construed from the pool of existing investors in Zambia's copper and construction sectors.
What follows is an analytical framework that draws both on scholarship on contemporary China and Zambia and on classical sociology's conceptual toolkit for analyzing capital. This framework will structure the narrative of my comparative ethnography, and helps to historicize and theorize the global China–Zambia encounter.
FROM "VARIETIES OF CAPITALISM" TO "VARIETIES OF CAPITAL"
A natural point of departure for identifying the peculiarity of Chinese state capital in Africa is to trace its source to the political economic system that dispatches it. Two strands of scholarship — "Chinese state capitalism" and "capitalism in China" — have sought to theorize the distinctive features of China's development, offering some sensitizing ideas for studying "global China," a shorthand I use in this book to refer to China's economic expansion and globalizing strategy in other domains. Inspired by economic institutionalism and Marxian political economic theory, respectively, these two fields highlight two seemingly contradictory dynamics spurring China's economic growth. On the one hand, studies of Chinese state capitalism emphasize centralized control by the party-state over political and economic institutions, and, on the other, capitalism in China scholars point to decentralized, dispersed, bottom-up initiatives, even anarchic competition by local state and corporate actors. While both dynamics — centralized control and decentralized improvisation — are at work among Chinese state companies in Africa, I find both paradigms inadequate for grappling with the emergent phenomenon of global China and the peculiarity of Chinese state capital. Their common problem is that they conceptualize capital as abstract and aggregate, missing its concreteness and contestedness. In seeing China as a bounded and homogeneous "national" entity, they also lack the conceptual flexibility for understanding an increasingly globalized China and its variegated local impacts around the world.
The impression that outbound Chinese state investment is masterminded and calibrated by Beijing to execute a coherent and well-thought-out national grand strategy echoes the emphasis on state control in the scholarly literature on Chinese state capitalism. In style and substance, this literature parallels that of the influential "varieties of capitalism" (VoC) studies and postcommunist transition studies. Adopting the framework of comparative economic institutions, scholars conceive of a national capitalist economy as one founded on "institutional complementarity." That is, institutions in different parts of the economy and government reinforce each other, creating stable clusters or enduring institutional types. With an initial focus on advanced industrialized Europe, the VoC approach has since spawned analyses of the varieties of East Asian capitalism, VoC in Latin America, and dependent market economies in East Central Europe. For China, the sociologist Nan Lin explicitly adopts the VoC rubric to describe Chinese state capitalism as "a centrally managed capitalism." The characteristics he specifies are similar to what Victor Nee and Sonja Opper have described as "politicized capitalism" — the state's direct intervention in transactions at the firm level, taking the form either of state assistance in the firm's external transactions (as in assessing resources in state-controlled markets such as credit, land, or energy) or of state ownership of firms in strategic sectors, installing a politicized governance structure by appointing party officials as senior managers and by setting up party committees inside the firms. Similarly, Kellee Tsai and Barry Naughton use the label state capitalism to denote a national economic order characterized by direct central state control of strategic sectors, Communist Party control over personnel, extensive industrial policy formulation, state control over finance via the banking system and equity markets, fragmentary and weak regulatory agencies, and a dualistic welfare regime privileging government-linked sectors, all operating within a predominantly market-based economy (hence, capitalism). They argue that Chinese state capitalism, in which many coordination problems (from corporate finance to governance, interfirm relations, vocational training, and industrial relations) are resolved through state intervention, is attaining long-term entrenched stability.
The Chinese state capitalism literature is helpful in establishing some basic institutional features of the enterprise system from which many central SOEs active in Africa hail. As within China, outbound central SOEs are organized as "pyramidal business groups," with the Chinese state retaining majority ownership at the apex of the pyramid while lower-tier subsidiaries are turned into publicly listed companies, allowing the state to leverage market capital and competition without losing corporate control. Also, the power to appoint senior state managers rests with the Communist Party secretary of the group company, and top SOEs have access to state resources (especially credits and subsidies), giving the central government control over the state enterprise system at home and abroad. In the following chapters, I will document how these features make Chinese state companies less beholden to the dictates of the market and produce a much more controlled corporate culture among Chinese expatriates than those working for global private corporations, with important consequences for the Zambian state and labor. Yet, the institutional arrangements and power of central SOEs are just the starting point of analysis and local negotiations; they do not determine how these corporations behave in foreign countries. Central Chinese state control over SOEs in Africa is much more sporadic and open-ended than institutionalism assumes. Much depends on local improvisation and bargaining, especially in the developing world, where institutions play second fiddle to politics.
(Continues…)
Excerpted from "The Specter of Global China"
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