China, Angola, and South Africa: An Investigation of Developing Sino-African Relationships

Drew Chapman

Omar Dahi, Division III Co-Chair

Frank Holmquist, Division III Co-Chair

Social Science Department Hampshire College Amherst, MA USA

May 2008

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Table of Contents Acknowledgements………………………………………………………………...ii List of Acronyms…………………………………………………………………..iii Introduction………………………………………………………………………...v Chapter 1: Foreign Policy in the People’s Republic of China.……………………..1 Chapter 2: Economic and Political

Development in Angola and South Africa.……………………………29 Part 1: Angola………………………………………………………….30 Part 2: South Africa……………………………………………………55

Chapter 3: China’s African Relationships:

Perspectives, Data Analysis, and Discussion………………………….67

Appendix I: Chapter 3 Figures and Tables………………………….....81 Chapter 4: Further Discussion: Motivations, Concerns, and

Implications in China’s African Relationships………………………...89 References………………………………………………………………………...99

References: Chapter 1………………………………………………….99 References: Chapter 2………………………………………………...102 References: Chapter 3………………………………………………...105 References: Chapter 4………………………………………………...106

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Acknowledgements This paper is the product not only of my own personal efforts, but also of the support and assistance that I have received from my instructors, my family, and my friends. To my Division III Committee, Omar Dahi and Frank Holmquist, I extend my infinite gratitude for your patience, your guidance, and your support. Your knowledge and assistance in guiding me through this process have been invaluable, and the encouragement you have offered has helped to inspire confidence and determination without which this paper could not have been accomplished. Thank you. I would like to thank my girlfriend, Serena Himmelfarb, my brother Dan, and my good friends Lucy Knipe, David Bell, Sean Parrott-Wolfe, Adrian Carleton, Nicole McClure, Peter Kunhardt, Ian Manley, and Sven Anarki. Your company and encouragement have sustained me throughout this long process, and made these some of the best years of my life. You’re the best. I would also like to extend my thanks to my employers and friends at the Eastside Grill, without whom I would not have been able to sustain even the meager lifestyle of a college student. To my parents, George and Kathy, I also owe an immeasurable debt of gratitude. Never could my academic career have come this far without your unconditional love and support, and you have my unending love and appreciation. This is for you.

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List of Acronyms ADB African Development Bank ANC African National Congress APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations BNC Bi-National Commission CCP Chinese Communist Party CMC Central Military Commission COMTRADE (United Nations) Commodity Trade Statistics Database COSATU Congress of South African Trade Unions CPSA Communist Party of South Africa DPRK Democratic People’s Republic of Korea FALSG Foreign Affairs Leading Small Group FDI Foreign Direct Investment FIE Foreign Invested Enterprise FNLA National Liberation Front of Angola FOCAC Forum on China-Africa Cooperation FTA Free Trade Agreement GEAR Growth, Employment, And Redistribution Strategy GSCP General Secretary of the Communist Party HRS Household Responsibility System IMF International Monetary Fund IPRs Intellectual Property Rights JMSU Joint Marine Seismic Undertaking LSG Leading Small Group MFA Ministry of Foreign Affairs MFN Most Favored Nation MNC Multi-National Corporation MOC Ministry of Commerce MPLA Popular Movement for the Liberation of Angola NIPF National Industrial Policy Framework NSC New Security Concept OECD Organization for Economic Co-operation and Development OPEC Organization of Petroleum Exporting Countries PAC Pan-African Congress PAG Government Action Program PBSC Politburo Standing Committee PLA People’s Liberation Army PRC People’s Republic of China PTA Preferential Trade Agreement RDP Reconstruction and Development Programme SACU Southern African Customs Union SADC Southern African Development Community SADF South African Defense Force SCO Shanghai Cooperation Organization

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SEZ Special Economic Zone SITC Standard International Trade Classification SOM Strait of Malacca TVE Township and Village Enterprise UDF United Democratic Front UNDP United Nations Development Program UNITA National Union for the Total Independence of Angola WTO World Trade Organization

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Introduction

The last decade has seen an exponential increase in Chinese political and economic

engagement with Africa. This paper examines this recent and dramatic growth through a

country-level analysis of economic relations between China and two African case countries,

South Africa and Angola, with a focus on bilateral trade patterns and their economic implications

for these countries. Through these examinations, this study also seeks to interrogate two broad

perspectives that have emerged in recent years regarding the Chinese presence in Africa, one

viewing China as a positive influence and a committed development partner, and the other seeing

China as an economic competitor that is undermining Africa’s prospects for development. The

research is broken into the following sections.

Chapter 1 is devoted to an examination of the Chinese foreign policy, with various

sections detailing the ways in which policy is formulated, the primary actors engaged in the

process, the key goals and issues involved, and recent trends in the conduct of foreign affairs.

The purpose of this chapter is to provide an understanding of the factors, agencies, and

motivations that drive Chinese engagement with the world at large, in the hope that this will

inform our understanding of Chinese engagement with Africa.

Chapter 2 reviews the colonial and post-colonial political and economic history of

Angola and South Africa, as well as some recent economic issues and developments. The

purpose of this chapter is to provide a detailed background on the Angolan and South African

economies, to serve as a context in which to situate our investigation of these countries’ recent

engagement with China.

Chapter 3 begins this study’s analysis of Angolan and South African ties with China, as

well as of the perspectives on China in Africa mentioned above. The chapter begins with an

overview of recent developments in the Sino-Angolan and Sino-South African relationships. A

description is then provided of two general viewpoints that have emerged in recent literature on

China in Africa, followed by a set of four hypothesis which suggest how each of these two

perspectives might be reflected by the trade data for each of the two countries. Data on the

partner concentration and commodity composition of China-Angola and China-South Africa

trade are then presented and discussed.

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Chapter 4 continues the discussion on China’s relationships with the two case countries.

It begins by outlining some of the factors that motivate China, Angola, and South Africa in the

expansion of bilateral relations. The following sections review some of the specific issues and

concerns for Angola and South Africa raised in this study and elsewhere, and question the

validity of the partner/competitor dichotomy. The chapter moves on to discuss two issues related

to the subject of this study, the first being the amount of policy space accorded to developing

nations that sign trade agreements with China, and the second concerning the indirect impact of

Chinese trade on nations at different levels of economic development.

This study concludes that the effects of Angola’s and South Africa’s increased

engagement with China are mixed, and that simplistic characterizations of China as a “partner”

or “competitor” in Africa fail to capture the nuances of this complexity. Relations with China

carry the potential to be both beneficial and detrimental to these countries in the future, and the

extent to which they will positively contribute to continued economic development in Angola

and South Africa will depend on multiple factors.

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Chapter 1: Foreign Policy in the People’s Republic of China The purpose of this chapter is to provide a historical and institutional background on the

composition and objectives of Chinese foreign policy. A broader understanding of the evolution,

formulation, and objectives of foreign policy in the People’s Republic of China (PRC), such as

this chapter seeks to provide, is an essential prerequisite to the more in-depth examinations of

specific Sino-African relationships that will be explored subsequently. This first section of this

chapter reviews historical developments in Chinese economic and foreign policies since 1978.

The second section moves on to assess the ways in which foreign policy is currently formulated

in the PRC. The third section analyzes current objectives and trends in China’s foreign policy.

The final section concludes by summarizing several observations and possible implications for

the future of foreign policy in China. The primary conclusions of the chapter are that Chinese

foreign policy has become more important to maintaining economic growth, and thus has

become more important to the twin goals of ensuring domestic stability and preserving the

authority of the Chinese Communist Party; that while determination of policy is still highly

concentrated in the PRC central leadership, formulation and execution is becoming more

decentralized and institutionalized; and that while political realism and the pursuit of national

interests still constitute the dominant paradigm in Chinese foreign policy thinking, there are signs

that more liberal and internationalist perspectives are gradually making inroads in policy circles.

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Introduction: Deng Xiaoping and the Reform Era (1978 – 1992)

In December 1978 the Chinese Communist Party (CCP) convened the Eleventh Central

Committee’s Third Plenum, an event which marked a major turning point in the history of the

People’s Republic of China (PRC). It was on the occasion of the Third Plenum that Deng

Xiaoping, having recently assumed control of the CCP, formally established ex-Premier Zhou

Enlai’s “Four Modernizations” as the core of a new program of reform that would define his

leadership. The institution of Deng’s reforms marked a fundamental shift in the orientation of the

CCP from the promotion of class warfare and proletarian revolution to the promotion of

economic growth by way of agricultural, industrial, technological, and military modernization.1

The ultimate goal of this change in focus was to close the gap with the industrialized nations by

developing the Chinese economy and opening it up to the world. Reforms were generally

characterized by small-scale experimentation with new policies, followed by the expansion of

those that proved successful. Characteristics of the economic reforms that were gradually

introduced in the 1980s and 1990s included a reduction of the role of state planning in the

economy, a concomitant increase in the acceptance and institution of market forces, a steady

lowering of tariffs and quotas, an opening up to foreign direct investment, increasing emphasis

on export-oriented growth, and the establishment of special economic zones (SEZs) for export

and investment promotion. Deng’s partial integration of capitalist forces into the communist

economy of China was indicative of his pragmatic attitude, epitomized by a 1962 statement on

the subject of agrarian reform, “it does not matter if it is a yellow cat or a black cat, as long as it

catches mice.”2 This resulted in a system under which state control and market forces both

operated within the national economy.

Deng Xiaoping’s institution of economic and political reforms in 1978 came at a critical

point for China and the Communist Party. It had become clear to Deng that economic

development policies and strategies implemented under Mao Zedong (such as the disastrous

agricultural collectivization program known as the “Great Leap Forward,” which resulted in the

largest famine in world history) had abjectly failed to put the PRC on a path to convergence with

the industrialized nations. Most recently, the Cultural Revolution had driven the country to the

brink of economic and social chaos, and severely damaged the political legitimacy of the CCP. 1 Miller and Xiaohong (2001), 129. 2 Deng Xiaoping (1962), <http://english.peopledaily.com.cn/dengxp/vol1/text/a1400.html>.

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For Deng, the key to preventing domestic unrest from becoming critical and to preserving the

Party’s hold on political power lay in fast-tracking the development of the Chinese economy,

with the ultimate goal of restoring China’s status as a wealthy and powerful nation. Since the

Third Plenum of the Eleventh Central Committee in 1978, the twin goals of sustaining economic

growth and maintaining internal stability have been the core political concerns of the CCP.

The economic impacts of these reforms were tremendous. Agricultural output increased

markedly in response to the Household Responsibility System (HRS). This involved the

institution of a “dual track” pricing system, which involved the allocation of both planned and

market prices to certain goods and commodities. Under this system, producers were obliged to

meet sell all output within a fixed production quota at planned prices, after which all output

produced in excess of the specified quota could be sold by the producer at market prices for

profit. This system led to a marked increase in the profitability and productivity of agriculture

and other industries. By gradually introducing market prices into the Chinese economy, dual

track pricing familiarized producers with market forces, allowing them to become gradually

more competitive as the proportion of goods allocated by market prices decreased over time.

Fiscal decentralization allowed local governments to keep some of the shares of revenues earned

by local economies, providing greater incentive for the various local governments to generate

revenue by competing for investment. The boom in agricultural output resulted in a sharp

increase in domestic savings, which provided funds to state financial institutions and in turn

greatly increased availability of capital for investment by local governments in industrial

projects.3 Township and Village Enterprises (TVEs), industries collectively owned and managed

by local Chinese communities, were a major force behind a boom in light industry during the late

1980s and early 1990s.4

Reform under Deng Xiaoping was not purely confined to the economic arena. Deng

understood that the success of reform required a gradual transformation of the character of the

Chinese leadership as well as their subordinate CCP and government bureaucracies. In “The

Foreign Policy Outlook of China’s ‘Third Generation’ Elite,” Miller and Xiaohong discuss the

“stark” differences between Chinese leaders appointed under Jiang Zemin in 1997 and Deng’s

leadership of 1982. Miller and Xiaohong (2001) find that the 1997 leadership was on a decade

3 McNally (2008), 24-25. 4 Ibid, 25.

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younger than in 1982; that the majority of their careers began after the founding of the PRC in

1949; that they had a much more extensive educational, and specifically technical, background;

that their regional origins were more concentrated within the Chinese coastal provinces; and

lastly, that they were almost uniformly lacking in military experience.5 The authors argue that

this change in leadership characteristics is the result of Deng’s conscious attempts to match new

policies with new personnel who would be able to implement them, and of the broad

institutional, political, and policy reforms that Deng promoted which allowed the careers of the

third generation to take off.6 For example, as the focus of the CCP shifted toward promoting

economic development and greater economic autonomy promoted competition between

provincial and local governments, “local economic performance emerged as the principal

yardstick to evaluate local cadre performance…”7 These changing policies and standards of

evaluation helped to ensure that economic and technical expertise became common

characteristics of the future generations of Chinese leaders as they rose through the ranks of

political power.

The sweeping reforms undertaken during the Deng era strongly influenced Chinese

foreign policy. Miller and Xiaohong identify the two foundations of foreign policy during the

Reform Period, as endorsed at the Third Plenum, as follows: First, that China’s accelerated economic modernization is essential to he survival of the PRC in the contemporary world and so is the ‘center’ of all leadership work… the second premise is that China’s economic modernization requires both its integration into the broader international political and economic order and a stable international context over a prolonged period of time.8

Deng recognized that “opening up” China to the rest of the world, as well as the maintenance of

international stability, were prerequisites for the expansion of the Chinese economy. Thus, in

addition to maintaining China’s opposition to the “hegemonic” politics of the Cold War

superpowers, Deng’s foreign policy stressed the need to promote the international stability and

cooperation necessary to successful economic reform. In his own words, China's foreign policy is consistent and can be summed up in three sentences. First, we oppose hegemonism. Second, we safeguard world peace. Third, we are eager to strengthen unity and cooperation, or what might be termed 'union and cooperation', with other Third World countries... Some people have alleged that China is bellicose, but in fact China hopes for peace more than anything else. China hopes that there will be no war for the rest of the century. We need to develop the country and shake off backwardness. The primary task we have set as the initial goal

5 Miller and Xiaohong (2001), 127-128. 6 Ibid, 129. 7 McNally (2008), 25. 8 Miller and Xiaohong (2001), 139.

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for the realization of modernization is to create comparative prosperity by the end of this century. 9

During the reform period Deng took steps to normalize relations with Japan, the United States,

and the Soviet Union, integrate China with the global economic order, and normalize relations

with Taiwan. His emphasis on maintaining China’s economic growth (with an eye toward

preserving domestic stability and Party control) has remained the core of Chinese foreign policy

under Jiang Zemin and Hu Jintao. The following section will explore the process of foreign

policy formation under these post-Deng leaders.

The Formulation of Chinese Foreign Policy in the Post-Deng Era

The political system of the PRC consists of three vertical branches: the Chinese

Communist Party, the government, and the military. Of these, the CCP represents the real source

of political power. Within the central government, members of the Politburo Standing

Committee (PBSC), the Party’s most powerful group of officials, supervise the operation of the

government and military along six horizontal sectors divided into military, legal, administrative,

propaganda, United Front, and mass organization affairs. In this way, control over the entire

political apparatus and its policy-making processes is centralized within the PBSC.10 Party

control is also exercised in other ways. Under the nomenklatura system, the CCP retains the

power of key personnel appointments within the state and military apparatuses. The Secretary

and top members of Party departments (e.g. the CCP Foreign Affairs General Office)

concurrently serve as top ministerial officials in the concomitant state bureaucracy (e.g. The

Ministry of Foreign Affairs).11 In these and other ways, power and supervision of the operations

of government is concentrated within the CCP. This section will provide an overview of the

foreign policy decision-making hierarchy in the PRC, including the roles of the top-level

bureaucratic entities most directly relevant to policy formation, non-state actors, and the PLA.

The Structure of Decision-Making in Chinese Foreign Policy

Although some analysts have identified increasing decentralization as a recent trend in

Chinese politics, decision-making within the Chinese Communist Party leadership has remained,

for the most part, a relatively hierarchical and secretive process, especially with regard to 9 Deng Xiaoping, <http://english.peopledaily.com.cn/dengxp/vol2/text/b1600.html>. 10 Ning (2001), 40. 11 Ibid, 39-56.

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“sensitive” policy areas such as party appointments, military affairs, and foreign policy. As I

argue in the following section, the trend toward decentralization has manifested primarily as an

expansion of bureaucratic, scholarly, and other inputs and influences in the formulation and

discussion of foreign policy, while authority over actual determination of policy remaining

centralized in the political leadership. Liu Ning (2001), to whom this section owes a great deal

for his in-depth analyses of the foreign policy hierarchy12, identifies the central leadership, major

foreign affairs bureaucracies, and sub-ministerial officials as the three primary actors in the

decision-making process of the foreign policy establishment. Figure 1 (below) provides a

simplified illustration of the relationships between these actors in policy-making, distinguishing

between the determinative authority of policy decision-makers (concentrated in the central

leadership) and the formative influence of bureaucratic and other entities in the presentation and

discussion of policy options (decentralized within ministerial and other actors).

The central leadership of the CCP is comprised of the paramount leader, his nuclear

circle, the Politburo Standing Committee (PBSC), and the Politburo as a whole. The paramount

leader is the most powerful political actor in the PRC, holding the highest positions in all three

branches of political power; the paramount leader serves as the General Secretary of the

Communist Party (CCP), the President (government), and Chairman of the Central Military

Commission (CMC; military). Immediately surrounding the paramount leader are the members

of his nuclear circle, an informal cadre of one or two close advisors. Together, “the paramount

leader and the leadership nuclear circle wield the ultimate foreign policy decision-making power

in China because they can, in reality if not in law, veto or ratify decisions made by the

Politburo.”13 The Politburo Standing Committee is usually comprised of between five and nine

members14, several of whom also hold certain key Party and government positions such as the

Chairman of the CCP, the Chairman of the CMC, and the Premier of the State Council. The

Politburo as a whole is larger, consisting of between twenty and twenty-five members.15 Though

foreign policy-making power is most highly concentrated in the smaller PBSC (and within that,

in the paramount leader and his personal cadre), the full Politburo still deliberates together on all

12 Ning (2001), 40. 13 Ibid, 41. 14 Shirk (2007), 41. 15 Ibid.

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major foreign policy decisions.16

The Foreign Affairs Leading Small Group (FALSG) is a CCP organ that serves as

coordinating, consultative, advisory, and supervisory body for the central leadership and the

various ministerial- and bureaucratic-level foreign affairs organs of the government, and is

typically chaired by a member of the PBSC with a strong background in foreign affairs. In 1998

Jiang Zemin became Chairman of the FALSG, marking the first time that a paramount leader had

personally taken charge of the Group. Hu Jintao, after succeeding Jiang as paramount leader in

2002, has followed his lead by also taking personal charge as Chairman of the FALSG. This

direct involvement by the paramount leaders in the discussion and formulation of policy

indicates the central leadership’s increased attention to the conduct of foreign affairs in recent

years. Regular membership in the FALSG, in addition to members of the Politburo and PBSC,

includes top-level officials from foreign policy-related government departments such as the

Ministry of Foreign Affairs (MFA) and the Ministry of Commerce (MOC) as well as relevant

high-ranking military officials. When relevant, FALSG meetings are sometimes attended by

lower-level bureaucrats, academic experts, and others outside of the foreign policy hierarchy.

FALSG meetings between the top leadership and the top bureaucracy serve to convey

information, analyses, perspectives, and proposals upward from the ministerial level to the

decision-makers in the Politburo and PBSC, and to relay the decisions of the top Party

institutions downward to the key institutions in charge of their implementation (see Fig. 1). Such

meetings also serve as a forum in which to discuss issues, ideas, and policy proposals for the

consideration of the top leadership. In the late 1990s, the influence of the head of the State

Council Office of Foreign Affairs (OFA) was highlighted as particularly relevant with regard to

the FALSG, as it was the OFA which prepared the agenda for the FALSG, coordinated the flow

of information and interactions among FALSG components, and provided occasional analyses

and position papers to senior members of the FALSG.17 After the OFA was abolished in a

restructuring and consolidation of the state bureaucracy in 1998, these administrative tasks were

passed on to the Ministry of Foreign Affairs.18

The State Council is the administrative authority of the PRC government, and is headed

by the Premier (who also holds a seat on the PBSC; currently Wen Jiabao), with most of its other

16 Ning (2001), 42. 17 Swaine (1998), 25-26. 18 Harris (2002), 9.

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members consisting of other high-ranking Party officials. The Ministry of Foreign Affairs

(MFA) is the executive agency that operates within the State Council, and is headed by the

Foreign Minister, himself usually a member of the Communist Party’s Central Committee (CC).

As mentioned above, the tasks of staffing and coordinating FALSG meetings, previously under

the purview of the State Council’s OFA, devolved to the MFA in 1998. The MFA transmits

processed information, such as cables from diplomatic missions and internal publications, up the

chain of command to the central leadership via the Foreign Minister and other top members of

the MFA holding membership in the FALSG. As illustrated in Figure 1 and discussed in the

following sections of this chapter, the MFA has also employed the expertise of non-state actors

such as scholars and think-tank analysts in the formulation of policy proposals. In its executive

role, the MFA is some cases accorded a measure of autonomy in the “tactical” implementation of

strategic policy decisions. Such major decisions of the central leadership may often consist of a

broad, generalized approach, policy stance, or strategic goal; in these cases the practical details

of interpreting and implementing the leadership’s mandate, such as the application of a policy

guideline to relations with a minor foreign country, are micro-managed by the Ministry.

During the Reform Era, internal regulations were drawn up to define the duties and

powers of each post within the various PRC bureaucracies. Within the Ministry, the Foreign

Minister and his collection of vice ministers and assistant ministers are the sole holders of

decision-making power in the case of foreign affairs.19 Beneath the ministerial level, director-

generals supervise the routine machinations that fall under the purview of their respective

department (e.g. the Department of Finance, of International Organizations and Conferences, or

of African Affairs) according to internal regulations. Lu Ning illustrates how even at this high

bureaucratic level, however, there is relatively little decision making power. Of the duties of

departmental officials, he writes, “even in the case of those kinds of decisions with clearly

established rules and precedents, the proposed course of action is often referred to the

responsible ministerial leader for ratification.”20 Similarly, decision-making of any sizeable

significance (such as regarding the details of policy implementation with regard to “key”

regional or economic allies) remains the prerogative of the central leadership and requires their

consultation and approval. Such is also the case with regard to issues deemed “sensitive” in the

19 Ning (2001), 56. 20 Ibid (2001).

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conduct of foreign affairs, such as arms control, drug trafficking, or international terrorism.21

The role of the People’s Liberation Army (PLA) and the Central Military Commission

(CMC) in the making of foreign policy also deserves mention. In addition to the CCP and the

People’s Government, the military comprises the third branch of power in the Chinese political

system. Supreme command of the military resides lies in the hands of the Chairman of the

Central Military Commission, one of the three posts held by the paramount leader. The military’s

highest loyalty is to the Chinese Communist Party, and it is subject to the Party’s absolute

control. The PLA remains a significant force in PRC politics, representing almost 10% of the

National People’s Congress22 and 22% of the Central Committee.23 Though the military is

accorded a relatively high level of autonomy with regard to defense policy, and its views and

concerns are represented within the Politburo and relevant Leading Small Groups, discussion of 21 Ning, 50-52. 22 Scobell, Andrew (2005), cited in Shirk (2007), 70. 23 Shirk (2007), 70.

Figure 1. Authority and influence in the Chinese policy-making hierarchy.

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all military matters with a bearing on foreign or economic affairs requires close consultation with

the civilian central leadership. Tai Ming Cheung (2001) effectively summarizes the role of the

PLA in the policy-making process, stating that Professional military interests largely shape the PLA’s involvement in national security and foreign policy decision-making, which focuses on safeguarding sovereignty and territorial integrity. Its role in the mainstream foreign policy arena has diminished. In its domain, the PLA is powerful, but its influence in this sector does not translate to equal influence in other realms of policy.24

Objectives and Developments in Chinese Foreign Policy

Since Deng Xiaoping, several general trends have emerged in the conduct of Chinese

foreign policy. Some of these trends can be seen as extrapolations of those that characterized

foreign policy under Deng, while others are relatively new developments that have come to the

fore more recently. It is worth noting, however, that none of the directions that the PRC has

taken in recent years with regard to foreign affairs can be seen as directly contravening or

subverting the guiding principles laid down during the Reform Era. The major policy themes and

decisions of Jiang Zemin’s and Hu Jintao’s administrations clearly continue to revolve around

the twin goals established at the Third Plenum in 1978: those of sustaining China’s economic

growth while preserving domestic stability (and the power of the CCP). The following section

will assess six major aspects of Chinese foreign policy: economic growth, institutionalization

and decentralization in policy formation, internationalism/multilateralism, realpolitik and

interdependence, diplomacy, and energy security.

Fostering Economic Growth

In “The Impact of China’s Capitalist Transition on Foreign Policy,”25 Yinhong Shi

(2001) states that the primary trend in Chinese foreign policy over the past decade has been its

focus on furthering economic development. The primacy of economic considerations in policy-

making has increased since Deng Xiaoping, becoming one of the paramount considerations of

the Chinese leadership. Shi points out how the ‘primacy of the economy’ has influenced every

aspect of foreign policy, stating that Traditional national security objectives have therefore been permeated by a motivation of a fundamentally economic nature: to forge an enduring “peaceful international environment” that

24 Cheung (2001), 90. 25 Shi (2001), 209.

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supports China’s economic development. In tandem, traditional diplomatic objectives have attained a vital economic motivation, that is, to promote the import of foreign capital and technology, and the export of Chinese goods.26

Shi and other scholars attribute this growing “economization” of foreign policy to China’s

increasing involvement in and interdependence with the world capitalist system. Foreign direct

investment (FDI) inflows to the PRC increased rapidly in the 1990s following Deng Xiaoping’s

reaffirmation of China’s “opening up” strategy, and China became the largest attractor of FDI in

the developing world in 1993. This influx of FDI contributed significantly to China’s boom in

competitive manufacturing exports in the 1990s and 2000s, as the following data well illustrate.

Whereas foreign invested enterprises (FIEs) accounted for only 1.94% of the PRC’s $30.9 billion

in total exports during 1986, by 2003 they accounted for nearly 55% of the country’s $438.4

billion export value.27 Between 1985 and 1999, FIEs were responsible for half of the overall

growth in exports.28 Between January and November of 2007, FIEs were responsible for $629.8

billion (57%) of China’s $1.1 trillion in total exports.29 Similarly, though FIEs purchased only

5.59% of China’s $42.9 billion in imports in 1986, they accounted for 56.18% of the $412.8

billion total in 200330 and 58.7% of the $864.76 billion total in Jan.–Nov. of 2007.31 From these

data, we can see that inflows of foreign direct investment have played a crucial role in

developing China’s rise as a trading power. The increase of FDI flows into China and the role of

FDI in fuelling Chinese exports are both signs of the PRC’s increased integration into regional

production chains in Asia, which has created a pattern of triangular trade as Asian firms have

moved production facilities to China. Shi’s observation on the economization of Chinese

diplomatic objectives reflects that, as this pattern has emerged and China’s integration into the

regional (and global) economy has increased, the importance of foreign policy to preserving an

attractive investment climate, to maintaining and developing trade relations, and to opening new

markets has increased as well. As foreign policy has become more important to maintaining

economic growth, so has it become more important to the maintenance of domestic stability and

the preservation of the Communist Party.

26 Shi (2001), 213. 27 Long (2005), 322-323. 28 “Foreign Direct Investment in China: Some Lessons for Other Countries” Tseng and Zebregs, 83. 29 Ministry of Commerce of the PRC Website, accessed 10/28/2008 at <http://english.mofcom.gov.cn/aarticle/statistic/ie/200801/20080105322225.html>. 30 Long (2005), 323. 31 Ministry of Commerce of the PRC Website, accessed 10/28/2008 at <http://english.mofcom.gov.cn/aarticle/statistic/ie/200801/20080105322232.html>.

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The Jiang Zemin and Hu Jintao administrations have demonstrated some differences in

their approaches to economic policy. Jiang Zemin continued the focus of economic reform and

development primarily on the coastal provinces of the PRC, emphasizing these regions’ central

role in China’s export-oriented boom. Hu Jintao, more so than his predecessor, has devoted more

attention to addressing the more rural interior provinces that have been, in most cases, “left

behind” to one degree or another in China’s development. Both the third and fourth generations

of Chinese leadership however have maintained the focus on “economization” as the central

factor in foreign policy, and have pursued this focus with the same pragmatism characteristic of

the Deng Xiaoping era. According to Robert Sutter (2008), it is for pragmatic reasons, as in order

to avoid mistakes and insure policy support, that these generations have supported another trend:

that of growing institutionalization, professionalization, and regularization of the foreign policy-

making process.32

Institutionalization and Decentralization in Policy Formulation

The increasing institutionalization of the PRC foreign policy elite can be seen in several

forms. Professionalization of the bureaucracy can be seen in the higher levels of education and

economic and technical background of China’s elite policy-makers, and is directly related to the

conscious promotion of such attributes in CCP and government leaders by Deng Xiaoping as

mentioned in the introductory section of this chapter. Just as Jiang’s leadership constituted a

more professional and pragmatic leadership than that of the beginning of the Reform Era, so

Hu’s administration is constituted of an equally pragmatic and professional but also more highly

and technically educated elite than that of the previous administration. Sutter (2007) describes

the current leadership under Hu as Composed of technocrats, economists, managers, and other professionals, the fourth generation was seen as likely to be more capable and innovative than previous leaders when confronted with economic and social problems; their behavior was seen as likely to be more technically competent and pragmatic when dealing with domestic and foreign policies.33

Lampton (2001) highlights this “higher level of specialized knowledge” among foreign

policy decision-makers, as well as the expanded role of “expert-based bureaucracies in the

decision making process,” and the increased degree to which decision-makers rely on such

32 Sutter (2007), 61. 33Ibid, 27.

13

institutions to provide them with information relevant to this process.34 The expanded role of the

expert-based bureaucracies of which Lampton writes is exemplified by the Ministry of Foreign

Affairs. As described in the previous section, the MFA is charged with the key responsibilities of

information provision, analysis, and the coordination and implementation of foreign policies.

Another key element of the foreign policy bureaucracy is the Foreign Affairs Leading Small

Group, in which Party decision-makers, high-level ministerial officials, and other actors and

advisors propose and discuss policies. That the paramount leaders Jiang and Hu have chosen to

personally chair the FALSG since 1998 is a sign that the significance of the FALSG, along with

foreign policy in general, has increased in recent years. The initial articulation of China’s “New

Security Concept” (NSC) by Chinese scholars in the mid-1990s, which is discussed in the

following section, exemplifies how policy formulation has become somewhat decentralized as

inputs from non-state actors such as academic experts and analysts have been introduced into the

policy-making process. Lampton also points out the recently increasing influence of other

external actors on foreign policy, citing the employment under Jiang Zemin’s leadership of “the

expertise of research institutes, staff offices, and personal advisors” in policy formulation. The

increase of such inputs into the foreign policy-making process, as well as its institutionalization

and regularization in bureaucratic structures, has in some respects had a stabilizing effect on

Chinese foreign policy, as it has resulted in less arbitrary decision-making.35

In discussing decentralization in the context of Chinese foreign policy, it is important to

distinguish policy-formulation from policy-determination. Though neither Jiang’s nor Hu’s

administrations have been characterized by the decisive, single-handed styles of Mao or Deng,

ultimate authority to determine policy has remained highly concentrated at the top levels of the

Communist Party, especially with regard to foreign policy. While there has been a clear trend

toward decentralization with respect to the proposal, discussion, analysis, and coordination of

foreign policy, the ultimate power to determine what becomes policy in the PRC rests solely with

the paramount leader, his cadre, the Politburo Standing Committee, and the Politburo. And

though some ‘tactical’ decision-making power, such as proceeds from clearly defined precedents

and guidelines, has been delegated to the top ministers of the MFA in the execution of policy,

these officials are still supervised by and accountable to the central leadership.

34 Lampton (2001), 5. 35 Sutter (2007), 28; Miller and Xiaohong (2001), 132-133.

14

Internationalism and Multilateralism

Another outgrowth of Deng’s “opening up” of economic policy has been the opening up

of China to the international community. Since Mao Zedong, China has moved from being

closed off from the international system to becoming an integral part of it, and this integration

has necessitated a new, “internationalist” approach to foreign affairs. As Deng Xiaoping alluded

to in the passage quoted earlier, China’s shift in focus to national economic development has

necessitated a foreign policy shift toward promoting cooperation and avoiding conflicts which

might detract from that focus. As the era of globalization has largely benefited China

economically, maintaining the international status quo has become one of the cornerstones of

China’s effort to sustain its development through its foreign policy.

Greater participation in multilateral organizations has been an integral part of China’s

joining the world system. Earlier developments of this integration were seen in the 1990s, as

China’s participation in regional multilateral groups such as ASEAN, APEC, and the Shanghai

Cooperation Organization (SCO) began to steadily increase. In 2003, China spearheaded the Six-

Party Talks, convened to defuse the potential conflict between the US and North Korea over the

DPRK’s nuclear weapons program; the hosting of this summit represented an unprecedented role

for the PRC in promoting international diplomacy.

The accession of the PRC to the World Trade Organization (WTO) in 2001 is arguably

the milestone event in China’s international integration. Prior to 2001, Chinese access to foreign

markets was pursued primarily through bilateral Most Favored Nation (MFN) agreements, which

guaranteed that China would enjoy the most favorable trade conditions applied to any nation by

the agreeing party, and vice versa. Edmonds et. al. (2008) argue that the MFN system as an

institutional foundation for China’s long-term trade and investment relations was flawed. They

cite the example of China’s MFN agreement with the United States, signed soon after 1978. This

agreement came under fire from the US Congress in 1989 after the Tiananmen Square

crackdown, as a result of a US law requiring the MFN status of communist countries to be

contingent upon a review of their immigration policy. The PRC-US MFN agreement was

renewed by Congress, but only by a narrow margin, and its annual renewal became subject to

greater Congressional scrutiny in the years that followed. The result in 1989 was the possibility

that favorable Chinese access to US markets would disappear, which “put a break on FDI in

15

[Chinese] manufacturing plants that would have primarily produced goods for export to the

US.”36 Edmonds et. al. go on to explain how, given such vulnerabilities in the MFA system,

access to the WTO’s procedures for trade dispute resolution increased the value of WTO

membership for China. Other motivators for gaining membership included the ability to

influence future rules governing international trade, achieving international recognition of its

status as an economic power, and facilitating the introduction of further market reforms in the

domestic economy.37 After the establishment of the WTO in 1995, the PRC began to implement

a series of policy reforms necessary to admission, and upon accession to the WTO proved

willing to adopt economic institutions and policies required of it, including several unique and

unfavorable concessions that allowed member countries to impose restrictions on Chinese goods.

This willingness to submit to the WTO’s framework governing international trade and

investment is significant for several reasons. It demonstrates an expectation by PRC leaders that

such global integration will bring both short- and long-term economic growth for China.38 It is an

example of the PRC’s desire to influence the direction and conduct of world affairs. It also

represents a major step in China’s attempts to assure the world that it will ‘play by the rules’ as a

responsible member of the international order. Finally, it has raised the costs of withdrawal from

the international system. For the last reason especially, China’s accession to the WTO

symbolizes the country’s near-irreversible integration into the world economy and the

international system.

China’s articulation of a “new security concept” (NSC) in the late 1990s represented

another important attempt to influence the conduct of world (and regional) affairs with an eye

toward stability and peace. The NSC was contrasted with the outdated, militaristic power politics

of the Cold War (and of the United States), and proposed that the new international environment

should be “based on mutual trust, mutual benefit, equality, and cooperation,” sentiments that

have their roots in the Five Principles of Peaceful Co-Existence first articulated by Premier Zhou

Enlai with India’s Prime Minister Nehru in 1954. Susan Shirk (2007) explains how formulation

of the NSC was originally begun by Chinese scholars in 1996, as a result of the encouragement

of the Asia Department of the Foreign Ministry to “provide a normative rationale for China’s

multilateral diplomacy that could help persuade skeptics in the military, government

36 Edmonds et. al. (2008), 172. 37 Barfield (2007), 104-105. 38 Edmonds et. al. (2008), 173.

16

bureaucracy, and university,” and by 1999 appeared in a speech by Jiang Zemin to the United

Nations Committee on Disarmament in Geneva.39 The development of the NSC itself thus serves

as an interesting illustration of the trends toward institutionalization and decentralization in

policy formulation, germinating outside of the traditional circle of policy-makers and traveling to

the top of the PRC central leadership via the bureaucratic channels of the MFA. However, the

original encouragement for the policy’s development by the MFA was to provide a response to

other viewpoints existing within foreign policy circles that remained skeptical of multilateralism;

despite the emphasis on cooperation and internationalism in PRC foreign policy, national self-

interest and realpolitik remain important factors that contribute to policy formulation; this is a

subject to which I will return.

The spirit of the NSC was continued under the administration of Hu Jintao in the form of

the “peaceful rise” and later the “peaceful development” concept. First used publicly in

November 2003, the phrase “peaceful rise” was first articulated by Zheng Bijian, a key advisor

and speech writer of Deng Xiaoping in the 1970s and 1980s. The concept attributed five

characteristics to China’s “rise”: that it must take advantage of and safeguard world peace for the

sake of national economic development, that it must utilize reform, that it must continue to

promote open and mutually beneficial exchange with the rest of the world, that it would require

the long-term dedication of many generations of Chinese people, and that it would not be

threatening to or come at the expense of any other nation.40 A study by Glaser and Medeiros

(2007) points out, however, that after an April 2004 meeting of the Politburo to discuss the

phrase ‘peaceful rise,’ its use was discontinued by all official PRC spokesmen. Several possible

explanations are submitted by the authors, including fears that the phrase might weaken China’s

ability to deter Taiwanese independence, undermine support for military modernization, and

incite domestic nationalism. Regardless of the official reasoning, the term was subsequently

replaced in political statements by the nearly-synonymous phrase “peaceful development,”

which, for all intents and purposes, embodies the same principles articulated by its predecessor.41

Glaser and Medeiros also point out that the discontinuation of ‘peaceful rise’ by the PRC

leadership was not followed by a subsequent ban on use of the term in the media or academic

circles, as would be expected of a rejected phrase; the authors interpret this as further evidence of

39 Shirk (2007), 128-129. 40 Glaser and Medeiros (2007), 298-299. 41 Ibid, 301.

17

the growing importance of think tank analysts and scholars in the policy-making process.42

Realpolitik and Interdependence

Concomitant with the increasing emphasis on pragmatism and economic concerns

since 1978 has been a perceptible downplay of the role of ideological issues in Chinese foreign

policy. Prior to 1978, ideological principles such as proletarian internationalism, anti-

imperialism, and Third Worldism were prominent features of the PRC’s foreign relations.

However, though the PRC often proclaimed itself to be an ally of the developing world under

Mao Zedong, it nevertheless sought to distinguish itself as a, if not the, key leader of the Third

World against the Cold War superpowers. China’s push to exclude the Soviet Union from the

proposed Second Bandung Conference in 1965 (which was eventually cancelled as a result) as

well as its military and material support of anti-Soviet governments and revolutionary

movements in many developing countries serve as examples of how, despite its advocacy of

respect for sovereignty, non-interference, and peaceful co-existence, China was not above

engaging in realist balance-of-power politics to constrain the power of a rival state. The PRC’s

conflict with communist Vietnam in the late 1970s its and continued support of the anti-

Vietnamese Khmer Rouge well after 1978 have been cited as other examples of the primacy of

realism over ideological principle in PRC policy-making.43

Marxist-Leninist ideology was a prominent feature of the pre-reform foreign policy of the

PRC, but its significance in Chinese foreign relations has declined since 1978. Miller and

Xiaohong (2001) illustrate this trend toward focusing on national interests by comparing three

statements of Chinese foreign policy over the last forty years: At the Ninth Congress in 1969 Lin Biao declared that Chinese foreign policy is based on Marxism-Leninism-Mao Zedong Thought and on proletarian internationalism; at the Twelfth Congress in 1982 Hu Yaobang declared that PRC foreign policy is “based on the scientific theories of Marxism-Leninism and Mao Zedong Thought” and “proceeds from the fundamental interests of the Chinese people and the rest of the world”; at the Fifteenth Congress [1997] Jiang Zemin stated that PRC foreign policy is formulated on the basis of “the fundamental interests of the people of China and other countries” and made no reference at all to the Marxist-Leninist principle.44

The two statements made in 1982 and 1997 show that the pursuit of the ‘interests’ of the Chinese

people has become a more central factor in Chinese foreign policy during the Reform Era, while

42 Glaser and Medeiros (2007), 307. 43 For more on this example see the analysis in Womack (2008), 13. 44 Miller and Xiaohong (2001), 148.

18

references to socialist internationalism have virtually disappeared. The increasing emphasis on

national interest is one sign that elements of political realism have continued to play prominently

in Chinese foreign policy thinking since 1978. Assertions by Deng Xiaoping that “first priority

should be given to national sovereignty and security” and that “national sovereignty is far more

important than human rights”45, as well as the distrust of multilateralism and of the intentions of

Western powers (especially the United States) demonstrated by the PRC at least until the mid-

1990s, are congruent with a realist interpretation of international relations on the part of PRC

leaders. The extent to which such perspectives dominate the thinking of policy-makers in China

at the present time has become ambiguous, however, especially in light of the PRC’s increasing

interdependence and involvement with the international system. Though realpolitik remains a

significant force in Chinese policy circles, there is evidence of the emergence of more liberal and

internationalist perspectives in recent years.

In “Assertive Pragmatism: China’s Economic Rise and its Impact on Chinese Foreign

Policy,” Minxin Pei (2006) argues that realism, authoritarianism, and nationalism comprise the

three driving forces in Chinese statecraft, and describes Chinese foreign policy as a strategy of

“assertive pragmatism.” Assertive pragmatism denotes a pragmatic approach that tempers and

incorporates all three assertive political forces, and seeks “to leverage China’s growing influence

to help create a favorable international environment conducive to economic development at

home, exploit the global trading system in maximizing the benefits of free trade, and strengthen

Chinese national security.”46 “Occasional” internationalist behavior, according to Pei, is “only

the exception proving the rules” that China will pursue its national prerogatives whenever

possible. Though Pei’s paper includes many insightful observations and makes a strong case for

the significance of political realism in Chinese foreign policy, it fails to address a key factor in its

overall assessment: the recent emergence of more liberal and internationalist perspectives among

Chinese scholars and analysts. As mentioned above, there are signs that the influence of such

scholars and analysts in formulating foreign policy has increased in recent years, and thus this

emergence may be a significant consideration in assessing current and future foreign policy

trends.

Yong Deng discusses the development of liberal viewpoints in the Chinese conception of

45 Quotes from Deng Xiaoping (1989b) and Deng Xiaoping (1989a), respectively; cited in Deng (1998), 314. 46 Pei (2006), 8.

19

national interest in ‘The Chinese Conception of National Interests in International Relations’

(1998). Chinese writings on international relations have increasingly recognized interdependence

and globalization as realities of the post-Cold War international system. Deng points out that

Chinese analysts are increasingly promoting multilateral collective security in addition to the

traditional concept of individual national security (as evidenced by the development of the New

Security Concept). Views expressed by Chinese scholars and cited in Deng’s work include

statements such as “globalist thinking should be a part of globalization, ‘not just because of the

new threat for security and survival, but also for transforming ourselves and moulding ourselves

as human beings according to the new characteristics of the era’,” by Wang Yizhou47, as well as

a warning to Chinese readers from Wang Jisi that “in order to avoid international conflict

becoming a self-fulfilling prophecy, they must not fall into Huntington’s misleading intellectual

trap of realpolitik.”48 Deng also identifies a rise in liberal rhetoric regarding cooperation and

international standards on the part of the PRC government, which, while it “should always be

taken with a grain of salt… itself demonstrates that liberal views are gaining some legitimacy in

the Chinese conception of the world, facilitating at least ‘tactical’ if not ‘cognitive’ learning,”

which Deng describes as “a change in means but not in ends” versus “a modification of goals as

well as means.”49 Although Deng reminds the reader that realist and neorealist views still

constitute the dominant paradigm of Chinese scholarly debates, he identifies several weaknesses

in the realpolitik school of thought; in his own words, Without attention to domestic politics and hence without a theory about how national interests are formed in the first place, Chinese realists cannot provide a critical analysis of their nation’s foreign policy… nor do they have a theory of change in the conception of national interests. For Chinese analysts, one would expect the issue of change to command their theoretical attention.50

He suggests that China’s increased openness to policies of interdependence, multilateralism, and

collective security indicates that liberal viewpoints are having some effect on policy-making, and

concludes that During the post-Mao era, liberal values have made significant inroads in the broad political discourse in China despite several major setbacks, including one after the Tiananmen crackdown. To be sure, liberal views are not at all well-entrenched. But with time they will be carried by more and more key players in China’s foreign policy-making… as time passes, the younger generation of leaders and scholars with a more liberal world view will likely have a growing influence in

47 Wang Yizhou, Analysis of Contemporary International Politics, 40-41; cited in Deng (1998), 319. 48 Wang Jisi, “The Theoretical Foundations and Practical Implications of the Theory on Civilizational Clashes,” 196-199; cited in Deng (1998), 319. 49 Deng (1998), 317-318. 50 Ibid, 324-325.

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defining Chinese national interests.51 Yong Deng drew these conclusions in 1998. Since then, several relevant developments in

Chinese foreign relations have begun or continued. There has been an increase in multilateral

cooperation and participation, including China’s accession to the WTO in 2001 and hosting of

the Six Party Talks in 2003. Diplomatic relations have been expanded in many parts of the

developing world, especially in Africa and Latin America (see the following sub-section). The

New Security Concept, first articulated by Chinese scholars in 1996, and the peaceful

rise/development concept, both rooted in the Five Principles of Peaceful Co-existence, have been

adopted by the Chinese central leadership as part of China’s foreign policy. Of no less

significance, the trends of institutionalization and decentralization in foreign policy have

expanded the role of non-state actors such as scholars and think-tank analysts in policy

discussion and formulation, as evidenced in the cases of the NSC and the original “peaceful rise”

concept.

Deng (1998) identified the emergence of liberalist and internationalist viewpoints among

Chinese scholars and analysts in the late 1990s. Considering the expanded influence of such

scholarly perspectives in PRC policy-making along with the continuing trend of internationalism

in China’s foreign relations, it is logical to suggest that liberal and internationalist viewpoints,

particularly those that emphasize interdependence in international relations, may be becoming

gradually more influential in Chinese foreign policy circles. The full extent of this influence

must be assessed cautiously; political realism and pragmatic calculations of national interest still

permeate PRC foreign policy, and can be detected even in seemingly internationalist actions.52

Nevertheless, the increasingly cooperative and diplomatic methods by which China is pursuing

its national prerogatives as well as the premium it places on status and international opinion

remain promising. As China’s interdependence with the rest of the world deepens, such

internationalist behavior is, at minimum, a sign of what Deng (1998) refers to as “tactical”

learning.

51 Deng (1998), 327-328. 52 For example, the practical benefit of maintaining the DPRK as a “buffer state” against US regional influence in the example of the Six Party talks; see Womack (2008), 12-13.

21

Diplomacy

In China: Fragile Superpower, Susan Shirk (2007) discusses the role of economic

diplomacy in Chinese foreign relations. As China’s growth has caused many other countries to

become concerned about its attraction of foreign investment, its share of world manufactures

exports, its upward pressure commodity prices, and its growing military power, diplomacy has

become an ever more important tool of the PRC in its attempts to address these concerns. Shirk

points out that Chinese growth and its vast domestic market can be used to positively influence

foreign relations through economic diplomacy; government approvals for large investment

projects and purchases of large and expensive orders (such as airplanes) from important foreign

countries are used to curry favor with such countries and keep them happy.53 Some US

corporations with significant trade and investment concerns in China have formed a “loose

‘China Lobby,’” which has also been used as a foreign policy tool by the PRC in the past.54 After

China’s accession to the WTO in 2001, free trade agreements (FTAs) became another important

diplomatic tool for the PRC. Shirk states that, having already cut tariff rates as a condition of

WTO entry, bilateral trade agreements were pursued with several of China’s neighbors,

especially in Southeast Asia, an idea first proposed by diplomats in the Asia Department of the

MFA. In addition to ASEAN, China is also negotiating preferential trade agreements with Chile,

Hong Kong, Australia, New Zealand, Bangladesh, India, Laos, South Korea, and Sri Lanka.55

Kang Wu and Ian Storey (2008) identify three distinct elements of Chinese foreign

policy: great power diplomacy, good neighbor or peripheral diplomacy, and energy or resource

diplomacy.56 Yinhong Shi (2008) identifies the driving force behind the increased relevance of

great power diplomacy (that is, relations with the major industrialized nations of the United

States, Japan, Russia, etc.) as China’s increasing absorption into the world capitalist system.

Though the traditional doctrine of the Communist Party’s foreign policy emphasized solidarity

with the developing world and opposed the hegemonism of the major world powers, China’s

increasing integration into the world economy and its concomitantly increasing dependence on

the great powers as investors and trading partners, as well as the imperative of preserving a

stable international environment, has forced a gradual realignment of priorities with regard to

53 Shirk (2007), 132. 54 Shi (2001), 219. 55 Ibid, 134. 56 Wu and Storey (2008), 197.

22

diplomacy.57 Wu and Storey explain the second element, peripheral diplomacy, as rooted in a

desire to foster friendly regional ties, and identify “the resolution of border disputes and the

development of transport linkages to bolster increased trade relations” as its primary thrusts.58

The awarding of approval for foreign investment ventures as well as the pursuit of FTAs and

PTAs mentioned above would also fall into this category. The third element, energy and resource

diplomacy, is the newest in Chinese foreign policy, added in the Hu Jintao era.59 This category

includes diplomatic relations established, maintained, and expanded between China and nations

possessing some combination of the many natural resources that are increasingly vital to fuelling

China’s burgeoning industrial economy, as well as the issuance of developmental aid in the form

of loans and grants. Examples of such resources include but are not limited to oil, natural gas,

copper, iron, manganese, cobalt, chrome, lumber, and cotton. The 21st century in particular has

seen a marked increase in the significance of energy and resource diplomacy in the composition

of Chinese foreign relations.

Energy Security

In “Energy Security in China’s Capitalist Transition” (2008),Wu and Storey state that

“oil supply security in particular and energy supply security in general has become one of the top

concerns for the Chinese government since the beginning of the new millennium.”60 They cite

six major vulnerabilities in China’s energy system: structural problems, such as a lack of

coordination in the power sector; the inevitability of increases in per capita energy consumption;

the lack of domestic oil supply; the severe environmental impact of energy use (particularly

coal); the lack of an efficient management and regulatory framework for the energy sector, and

the inefficient supply of energy to rural areas. Though the country is massively rich in coal

deposits, sharply rising domestic demand for coal since 2003 have significantly decreased coal

exports, and the authors suggest that China is likely to become a net coal importer within the

next five to ten years.61 Taken together, these vulnerabilities constitute a tremendous threat to

China’s energy security.

Another important consideration in China’s energy security issue, specifically with

57 Shi (2001), 213. 58 Wu and Storey (2008), 197. 59 Tang (2006), 12. 60 Wu and Storey (2008), 190. 61 Ibid, 191-192.

23

regard to oil, is the national security/geopolitical dimension. At present, the Middle East and

Africa account for half and one quarter62 of the PRC’s oil imports, respectively. Petroleum

shipments from these regions reach China by way of sea routes through the Indian and Pacific

Oceans, all of which converge at one of two choke points: the Strait of Malacca (SOM) between

Malaysia and Sumatra, or the Lombok Strait between Lombok and Bali. China’s paramount

leader Hu Jintao has voiced concern that “certain major powers”63 were trying to exercise control

over the SOM. This concern is clearly focused on the United States. The US Navy has patrolled

the sea lanes of the Indian and Pacific Oceans since World War II, keeping them secure and open

for international trade. The PRC leadership has recognized this as a strategic vulnerability, as it

would allow the United States to blockade the majority of Chinese petroleum imports in the

event of a crisis (over Taiwan, for example), and at present China has no blue-water navy

capable of resisting US control of the SOM or other sections of the relevant shipping lanes.

Though strategies to deal with this vulnerability, including development of PLA Navy

capabilities and the construction of pipelines that bypass the SOM and the Lombok Strait

altogether, are being considered, it will be years before any such strategies can be implemented.

In the meantime, China’s military and economic dependence on US-controlled shipping lanes

will remain an important strategic consideration of Chinese foreign policy.

In “With the Grain or Against the Grain? Energy Security and Chinese Foreign Policy in

the Hu Jintao Era” (2006), James Tang examines the growing energy needs in the PRC, trends in

energy diplomacy and relations with the developing world, and China’s overall strategy for

dealing with energy insecurity. Tang identifies cyclical, structural, and institutional factors in

China’s energy insecurity, touching on several of the problems reviewed by Wu and Storey that

are summarized above. Tang states that energy security “has been widely seen as a hallmark of

Hu Jintao’s foreign policy.”64 The author offers a brief list of recent Chinese diplomatic moves

(such as visits to important energy-rich nations) to back up this statement, and mentions the

recent creation of an LSG, headed by Premier Web Jiabao, to discuss effective energy policy

(again illustrating the trend of institutionalization of policy-making). Tang reviews the

significant increase in Chinese national oil companies’ activity in resource-rich countries in

Africa, Latin America, and the Middle East, and the concomitant, supporting increase in the

62 Wu and Storey (2008), 199, 201 respectively. 63 Ibid, 201. 64 Tang (2006), 8.

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Chinese diplomatic relations with those regions; however, he finds that the link between these

activities and Chinese energy security may be more tenuous than it appears. He states, The overseas activities of Chinese national oil companies, however, are not always part of the national strategy for energy security. Although these companies have invested heavily overseas and purchased equity oil from different parts of the world, their activities are often linked to their own commercial interests, not to grand strategic interests. CNPC [China National Petroleum Corporation], for example, has reported that 90 percent of the total Chinese equity oil production in 2003 was sold in the international market. As a result the resources secured by Chinese companies have so far served the global market more than China’s own needs.65

The author states that increased Chinese engagement with these regions (resource-related and

otherwise) cannot be attributed wholly to the foreign policy goal of ensuring energy security;

rather, such growing relations are consistent with China’s overall pattern of economic expansion

and greater political standing internationally.66 Tang’s overall review of Hu’s energy security

strategy finds that, though it acknowledges the importance of foreign oil, the strategy is largely

domestically focused. Improving energy efficiency and developing renewable energy sources

constitute the most important guiding principles of achieving energy security for the PRC.

Tang also discusses the aforementioned concept of great power diplomacy and poses the

central question of his study, asking whether or not energy diplomacy has become the most

significant driving force behind PRC foreign policy. He finds that, though diversification of

overseas oil supplies has increased significantly in recent years, this trend has resulted in

increased international pressure on the PRC to behave responsibly, particularly with regard to its

dealings with countries such as Iran and Sudan. He cites a recent study produced by policy

researchers in the CCP, which states that “The shortage of oil is the most important challenge for

China’s energy security in the foreseeable future. The question of importing oil is not a pure

economic issue, but more an issue involving international politics.”67 Tang concludes that the

overall energy security policy of the PRC is not dominated by the drive to acquire overseas

resources, but rather is comprised of a more complex set of international and domestic

measures68 such as increasing energy efficiency. Tang also points out that “maintaining good

relationships with major western powers has remained a key foreign policy objective of the

Chinese leadership.”69 Wu and Storey provide a similar analysis, writing on the subject of

65 Tang (2006), 28-29. 66 Ibid, 30. 67 Ni Jianmin, ed. (2005), cited in Tang (2006), 28. 68 Tang (2006), 29. 69 Ibid, 31.

25

China’s willingness to discuss Iran’s nuclear weapons program in the United Nations: China’s actions underscore the fact that in the hierarchy of foreign policy priorities, “great power diplomacy” trumps “energy diplomacy… while energy security concerns have influenced China’s foreign, defense, and national security policies, they have not transformed them. The PRC’s number one priority will continue to be stability in the international system, a prerequisite for China’s continued economic growth.70

These analyses highlight a central characteristic of Chinese diplomacy in an era of heightened

concern over energy security. Though increasing foreign oil imports has become a major policy

goal of the PRC, and energy diplomacy has become an important new tool in this quest, the

established foreign policy tenet of maintaining the international system and preserving relations

with great powers and trading partners has not lost significance. Indeed, in 2005 China signed

the Joint Marine Seismic Undertaking, a cooperative agreement between Vietnam, the

Philippines, and the PRC to explore potential oil deposits in the South China Sea, despite an

ongoing territorial dispute with these and other countries with regard to these waters. This

example, as well as other cooperative ventures between Chinese and foreign oil companies (in

India, for instance) and collaboration between China and the United States (such as those made

to cooperate on the use of strategic oil reserves)71, reinforce this assertion.

Conclusion: Implications for the Conduct of China’s Foreign Policy

Chinese foreign relations and the issues involved in their conduct have become

increasingly complex since the Deng Xiaoping era. New developments, such as economic

globalization, changing trade patterns and relationships, China’s increasing participation in world

multilateral organizations, and the increasing significance of energy security have necessitated

some significant changes in the formulation, implementation, and objectives of PRC foreign

policy.

Ultimate decision making power with regard to foreign affairs has generally remained the

exclusive prerogative of the CCP central leadership. All major, and even seemingly minor,

foreign policy goals, guidelines, and strategies still require consultation with and approval by the

paramount leader, his personal cadre, the Politburo Standing Committee, and the full Politburo.

In other words, determination of the policies that the PRC will or will not pursue remains under

70 Wu and Storey (2008), 204-205. 71 “China, U.S. to cooperate on use of strategic oil reserves.” Xinhua News Agency, December 13, 2007. Accessed online October 16, 2008 at <http://news.xinhuanet.com/english/2007-12/13/content_7243495.htm>.

26

the purview of the CCP leadership elite. That said, the complexity of foreign affairs and their

management in a globalized world has required increasing institutionalization and

decentralization of the formulation and execution of PRC policies in the foreign policy

bureaucracy from the top down, with the support of the pragmatic third and fourth generation

Party leadership.72 This trend can be seen in the heightened role of the MFA in information

provision and policy proposal to the top leadership, in the availability of the professional and

specialized perspectives of experts and advisors, and in the increasing employment of academics,

think tanks, and other ‘external inputs’ in the discussion of foreign policy. The upshot of such

institutionalization, decentralization, and professionalization in the policy-making process is that

Chinese leaders have more technical, specialized, considered, and varied perspectives available

for consideration in their determination of which policies to pursue. Given the highly technical,

professional, and pragmatic character of the Hu Jintao leadership itself, this trend seems likely to

continue.

The chief instruments of China’s foreign policy, consistent with its concept of “peaceful

rise/development,” are primarily economic and diplomatic, rather than military, in nature (though

the case of PRC relations with Taiwan counts as at least a partial exception to this rule). China’s

status as the world’s second largest economy and second largest trading power has accorded it

significant influence in the world economy. Economic diplomacy, in form of large purchases of

expensive goods such as industrial and transportation equipment, has become one important tool

of the PRC, particularly with regard to the United States. China’s joining the WTO was an event

of great significance, confirming the willingness of the PRC to “play by the rules” of the

international economy. Since this development, the use of FTAs and PTAs has become another

instrument of policy-makers to extend the hand of economic friendship (and the invitation into

China’s vast domestic market) to foreign nations under the banner of “economic cooperation

based on mutual benefit.” Such bilateral agreements have also served the goal of expanding

market access for Chinese exports and multinational corporations (MNCs), high priorities in

China’s development plans. Increased participation in multilateral institutions and organizations

such as the WTO and the United Nations have arguably increased China’s leverage in

constraining the hegemonic influence of the United States, although up until now China’s

attempts to actively oppose the US in any multilateral fora have been few. At present it appears

72 Sutter (2007), 61.

27

that diplomacy, especially bilateral diplomacy and the most recently prominent resource

diplomacy, are the chief instruments through which the PRC pursues the objective of sustaining

China’s economic growth.

Maintaining China’s impressive economic growth and elevating its status in the world

economy and international system remain the core priorities of Chinese foreign policy. China

will continue to use the foreign policy tools mentioned above to expand and develop economic

and trade relations with foreign nations in order to open and expand markets for Chinese goods,

attract foreign investment, promote the expansion of Chinese MNCs, and secure energy and

other resources. The continued outward economic of expansion of China has provoked some

concerns and reservations in many countries around the world, such as those regarding trade

imbalances, “monopolization” of inward foreign direct investment, and the competitiveness of

Chinese exports. Though the ultimate goal of promoting economic development and expansion

will, in the end, take precedence over the desire to placate foreign nations, there are indications

that the PRC has been at least partially attentive to such concerns.73

Concerns over energy security and securing overseas energy resources have become

more prominent under Hu Jintao, but have not displaced broader foreign policy objectives.

Efforts to address the problem of energy insecurity have had a primarily domestic focus, though

state-owned oil companies have expanded their international operations and sources of imported

oil have diversified significantly. Chinese dependence on oil imported via US-patrolled sea lanes

has been identified by the PRC as a strategic vulnerability, yet as elimination of this vulnerability

will not be possible in the near future, it will remain a consideration in foreign policy for years to

come. As the imperative of economic development requires stability in the international system,

preserving the “status quo” in world affairs and friendly relations with key powers will also

continue to be central objectives of PRC foreign policy. Given the high priority of maintaining

these relations and projecting the image of a responsible rising power, it seems likely that as

resource security, and particularly energy security, become increasingly crucial foreign policy

issues worldwide, China will attempt to pursue a more cooperative than competitive strategy in

73 For example, the Chinese government has participated in discussions with South African trade unions and the SA Department of Trade and Industry regarding the negative impact of Chinese exports on the local textile industry. See Embassy of the People’s Republic of China in the Republic of South Africa (2006), “TRADERS interview with Counsellor Ling Guiru”, <http://www.chinese-embassy.org.za/eng/zt/ask/t251719.htm>. However, it is important to note the South Africa constitutes a key regional ally for China; whether the PRC will be as attentive to the concerns of other, less “important” African trading partners remains to be seen.

28

meeting its resource needs.

Realpolitik has long played prominently in Chinese foreign policy decision-making.

However, the emergence of liberal and internationalist perspectives among Chinese scholars and

analysts in the late 1990s combined with the growing institutional influence of such actors on

policy discussion and formulation in recent years implies that such perspectives may be

challenging established political realism in Chinese foreign policy circles. The recent growth in

emphasis in Chinese foreign relations on maintaining international stability and good foreign

relations and on employing multilateralism and cooperative engagement would seem to support

this implication. This is not to say that realist perspectives do not continue to dominate Chinese

foreign policy discussions, nor that there is not the potential for serious conflicts between China

and other foreign powers in the future. Currents of realpolitik can still be detected even within

seemingly internationalist policy decisions. The issues of Taiwanese independence, the massive

US trade deficit with China, territorial disputes with Japan and other countries in the East and

South China Seas, domestic nationalism, and political pressure for increased democratization in

the PRC are all potential flash points for Chinese foreign relations, particularly with the US.

David Lampton (2001) summarizes this phenomenon succinctly in the closing pages of “China’s

Foreign and National Security Policy-Making: Is It Changing and Does It Matter?” He states that Beijing may initially be entering into encumbering international relationships based on tactical considerations, but that international involvement is a slippery slope. As a nation seeks to derive maximum benefit from the system, it becomes increasingly constrained. As it becomes increasingly constrained, the costs of withdrawal become progressively greater. What starts out as tactical adaptation may slowly change into “learning” (permanent change)… In short, China’s elite will show no less dedication to the PRC’s interests in the future than in the past, but gradually, by fits and starts, even narrow calculations of national interest may produce progressively more cooperative behavior.74

As China continues its seemingly irreversible integration into international economic and

political systems, the risks of allowing these flash points to overheat into serious conflict will

become ever greater. Thus it follows that, as China becomes increasingly interdependent with the

international community, its approach to resolving international disputes and pursuing its

national interests is likely to become increasingly diplomatic.

74 Lampton (2001), 35-36.

29

Chapter 2: Economic and Political Development in Angola and South Africa

This chapter will provide a review of modern political and economic development in

Angola and South Africa. For Angola, this will include a brief explanation of the anti-colonial

and civil wars that racked the country from 1961 to 2002, followed by a more detailed

examination of the economy and of the effects of conflict, oil, state mismanagement, and other

factors on Angola’s development in this period. It will conclude with an overview of more

recent, post-civil war developments in the Angolan economy, and the key challenges to

development at present. The following section will begin with an overview of apartheid South

Africa and the struggle against it, as well as the political situation after 1994. It will go on to

examine the structure of the economy and of political and economic power under and after

apartheid, and conclude with a review of recent developments in the South African economy.

The purpose of the chapter is to provide a foundational understanding of the modern and recent

social and economic development of these respective nations, in preparation for the following

chapter’s discussion of Sino-Angolan and Sino-South African relations.

30

Part 1: Angola Background: Conflict in Angola 1961 – 2002

Angola was first established as a colony of Portugal in 1575, and Portuguese rule

extended 400 years until the colony won its independence in 1975. Though several splinter

factions arose and disappeared during the conflict for independence, the main rebel groups

responsible for the defeat of the Portuguese colonists were the MPLA, the FNLA, and UNITA.

The anti-colonial insurgency was initiated in 1961 by the Popular Movement for the Liberation

of Angola (MPLA), a formal, well-organized Marxist-Leninist group that grew mainly from

urban, intellectual assimilados (black Angolans ‘assimilated’ to Portuguese culture), mestiço (a

term for mixed-blood Angolans), and Mbundu, the country’s second largest ethnic group.75 The

MPLA’s insurgency in the north and east of Angola was accompanied by a campaign of guerilla

warfare begun by the National Liberation Front of Angola (FNLA), also in 1961. The FNLA,

more peasant-populist oriented than the MPLA, was comprised mainly of Angolans of the

Bakongo ethnic group. It was less well-organized than the MPLA, had no clear ideological

concerns aside from nationalist opposition to Portuguese colonialism, and was confined mainly

to the north-western regions of Angola.76 A third rebel group, the National Union for the Total

Independence of Angola (UNITA), formed in 1966 after splitting from the FNLA, and was based

primarily among the peasant peoples of Angola’s southern regions. Militarily small, UNITA

emphasized the mobilization and building of support among the large peasant populace.77 The

Marxist-Leninist MPLA was supported primarily by the Soviet Union and Cuba, while the less

ideologically-oriented FNLA and UNITA were backed at various points by numerous countries

including Zaire, South Africa, Namibia, the People’s Republic of China, and the United States.

The war for independence dragged on for fourteen years, culminating in the collapse of

the Portuguese dictatorship in 1974 and the final relinquishing of power by the Portuguese

government in the Alvor Accords of January 1975. Later that year, however, cooperation

between the three rebel groups had proved impossible, and civil war broke out between the

MPLA and the two other factions. South Africa invaded Angola from the South and Zaire from

the North in support of UNITA and the FNLA, respectively, in attempts to prevent the Soviet- 75 Jackson, 391. 76 Ibid, 392. 77 Ibid, 391-392.

31

and Cuban-backed MPLA from retaining power by driving the group from the capital of Luanda.

After the Cuban military intervened on the side of the MPLA and the United States withdrew its

support of UNITA and the FNLA, both South Africa and Zaire pulled out of Angola. The civil

war had begun, however, and fighting between the three Angolan rebel groups would continue

for decades.

The FNLA faded out of the picture early in the civil war, having been largely destroyed

by MPLA/Cuban retaliation in 1975-76 and further weakened by Zaire’s subsequent

normalization of relations with the Luanda. UNITA, however, was able to regroup and

perpetuate its insurgency, and enjoyed the continued technical and material support of South

Africa. The rebel group’s operations gradually spread from southern and central Angola into the

north, and eventually reached the border with Zaire, within which UNITA established rear bases

for guerilla operations in northern Angola.78 UNITA also utilized the Zairian border to facilitate

diamond smuggling operations, which funded the insurgency. The MPLA, meanwhile, exploited

oil revenues to gain funding for its military operations.

In addition to diamonds and oil, external involvement by foreign powers continued to

fuel the conflict into the 1980s. Though South Africa had aborted its major military thrust into

the heart of Angola in 1976, the South African Defense Force (SADF) periodically attacked

Angolan military bases and economic infrastructure, and joined UNITA forces in larger

confrontations with MPLA and Cuban soldiers, who remained in the country. The United States

resumed covert funding for UNITA in 1985, motivated by the Reagan Doctrine that called for

supporting anti-Communist resistance movements in the Third World; predictably, this led to a

Soviet response in the form of large transfers of arms to the MPLA.79 As the Cold War drew to a

close, however, external support for both sides began to decrease. The USSR and the United

States began a wholesale withdrawal from the practice of fighting proxy wars in the Third

World. Cuba signed an agreement with South Africa that resulted in the departure of their

respective military presences from Angola by 1991.

For the first time, the MPLA and UNITA agreed to participate in peace talks between

1990-91, coinciding with an ideological shift by the MPLA from Marxism-Leninism toward

economic liberalization. The Bicesse Accords, which provided for a ceasefire, a unified military

78 Hodges, 11. 79 Ibid.

32

force, and multi-party elections was signed in May 1991, but its promise proved short-lived.

UNITA rejected the results of the elections held in September, and shortly thereafter hostilities

resumed until 1994. During this period UNITA was able to capture major urban centers for the

first time, though increased oil revenues enabled the MPLA to counter UNITA’s initial

advantages and eject its forces from the cities eventually; The UN estimated that 300,000 people

died in this period alone as a result of the conflict and the chaos it brought.80 In November of

1994 a new peace deal, the Lusaka Accords, was signed by both parties. Once again, however,

delays and foot-dragging (particularly by UNITA) in the Accords’ implementation increased the

tension between UNITA and the MPLA, and by December of 1998 the MPLA re-initiated

hostilities. UNITA fell back to their customary tactics of rural guerilla warfare, once again

disrupting and destroying Angola’s rural society and economy. Nonetheless, morale fell and

internal cohesion began to give way within UNITA, and the gradual weakening of the movement

culminated in the death of its leader, Jonas Savimbi, in February of 2002. Two months later, the

MPLA and UNITA signed a peace agreement formally ending the 27 year conflict.

Tony Hodges, to whom this section owes much for his concise history of the Angolan

civil war, illuminates the driving forces that lay at the heart of the devastating conflict. He states, For all its intractability, the war has neither a real social basis, even in terms of ethnicity, nor substantive ideological motives, at least since the MPLA’s abandonment of Marxism-Leninism. Furthermore, since the end of the Cold War and the transition to majority rule in South Africa, it is no longer fuelled by external strategic interests. Rather, it is a war driven by personal ambition, mutual suspicion and the prize of winning or retaining control of the state and the resources to which it gives access.81

Control over Angola’s mineral wealth, both as a source of military funding and as the ultimate

goal of both sides, was a central factor in the country’s twenty-seven year civil war. The conflict

had a devastating effect on Angola’s economic development both directly and indirectly.

Hundreds of thousands of Angolans were killed, and millions more were displaced from their

homes. Much of the nation’s infrastructure was destroyed or fell into disrepair. Danger and

uncertainty lowered productivity (particularly in agriculture), and discouraged foreign

investment in the economy. A large share of government resources, which might otherwise have

been directed toward productive investments, were devoted to military operations, which

80 Hodges, 15. 81 Ibid, 18.

33

distracted from the goal of economic development on the whole. These and other impacts on

Angola’s development will be addressed in greater detail in the following section.

Colonial and Post-Colonial Development in 20th Century Angola

This section reviews the trajectory of economic development in Angola during two

periods: the years of Portuguese colonial rule preceding independence in 1975, and the period of

MPLA rule from 1975 to the end of the Angolan civil war in 2002. The pre-independence years

were marked by a boom in coffee production, by the development of light industry that followed

it, and by a gradual increase in the production of oil. The exodus of the Portuguese in 1975-76,

the underdevelopment of indigenous capacity leading up to it, and the disruptions that followed

dealt a shocking blow to the Angolan economy. Agriculture and manufacturing failed to mount a

sustained recovery to the levels of production seen at independence, either under the Marxist-

Leninist policies of the late 1970s and 1980s or under the variously neoliberal and interventionist

policies of the 1990s. Only the extractive industries were characterized by higher levels of

production after independence, and soon became the backbone of the Angolan economy.

Macroeconomic problems, such as high inflation, overvaluation of the exchange rate, persistent

government deficits, and rising external debt, developed and grew, as did social problems such

as poverty, illiteracy, and lack of access to health care. Although many factors were involved in

the economic and social deterioration that characterized this period, the legacy of colonialism,

the devastating effects of the civil war, and failures in the formulation and implementation of

coherent economic policies were some of the most significant.

Colonial Development to 1975

In Angola: A Country Study (1991), contributor Nancy Clark provides a succinct

overview of Angola’s economic development under Portuguese rule.82 From its colonization in

the sixteenth century, Angola served Portugal primarily as a source of slaves until 1858, and

thereafter as a source of cheap land, labor, and natural resources. Through the early 20th century,

most Portuguese remained in Angola’s cities, facilitating trade with the mother country, as many

settlers found rural farming difficult due to unpredictable world prices for cash crops and the

unreliability of cheap labor. Infrastructural development was relatively limited until after World

82 Clark (1991), 113-115.

34

War II, when Portugal began actively developing the colonial economy and infrastructure as its

trade ties with Angola had grown closer. Portugal built a series of dams, hydroelectric power

stations, and transportation systems in Angola, and by the commencement of the Angolan

insurgency the developing economy featured a successful commercial agricultural sector,

growing mineral and petroleum production, and a young but promising manufacturing industry.83

Agriculture, Petroleum Production, and Industry

The growth of the agricultural sector after WWII came in response to a worldwide rise in

the price of coffee. By 1950 coffee was Angola’s primary export, representing 30% of foreign

currency earnings, and production increased from 14,000 tons in 1940 to close to 100,000 tons in

the early 1960s.84 The boom in coffee production in particular resulted in an influx of Portuguese

settlers, the population of which rose from 44,000 in 1940 to 172,000 in 1960.85 Angolan lands

were appropriated for use by these settlers, who utilized forced as well as voluntary native

Angolan labor to grow cash crops, thereby disrupting local peasant production.86 By the early

1960s, coffee and other agricultural goods comprised 56% of the country’s export value87, and

by 1975 Angola produced a variety a agricultural goods, including cassava, coffee, and cotton in

the North, maize (another export good) in the center, and cattle in the south. Angola was the

worlds fourth largest coffee producer by the early 1970s as coffee production continued to grow,

doubling between 1960 and 1974.88 The large Portuguese commercial farms, which received a

good deal of assistance from the colonial state, dominated the production and marketing of these

crops.89 Coffee remained Angola’s principal export until the 1973, when it was exceeded by

another commodity: oil.

Oil production commenced in the mid-1950s, and quickly expanded through the 1960s.

Initial exploration and drilling was accomplished in the Cuanza River Basin near Luanda by the

Petroleum Company of Angola, which discovered more deposits in the Congo River Basin that

were drilled jointly in association with the US oil company Texaco. After 1969, when a

subsidiary of the US company Gulf Oil commenced operations in the Cabinda area in north-west 83 Clark (1991), 114. 84 World Bank (1991), 4. 85 Ibid, 4. 86 Clark (1991), 115. 87 Ferreira (2006), 25. 88 World Bank (1991), 4. 89 Clark (1991), 135.

35

Angola, oil production levels increased dramatically, from 2.5m tons in 1969 to 8.2m in 1973.90

The United States was Angola’s largest oil customer at this time, accounting for 28% of oil

exports91, and with the global rise in oil prices during this period, oil production became

increasingly significant for Angola. Ferreira (2006) highlights this significance, stating that The current account turned positive in 1972 and 1973. A shift in the export structure had occurred, putting non-agricultural raw materials (crude oil, diamonds, and iron) in first place with 47 percent of total exports against 33 percent of agricultural raw materials. At the same time, manufacturing products (25 percent of GDP in 1973) and agricultural consumer goods were responding well to domestic demand.92

. The influx of Portuguese immigration into Angola significantly expanded the country’s

domestic market, which, combined with new economic policies and infrastructural investments

undertaken by the Portuguese, made possible the development of profitable industry in Angola in

the 1960s and early 1970s. Manufacturing was dominated by light industries throughout the

1960s, with heavy industry accounting for just 22% of total output.93 Within light industry the

food and beverage, textile, and tobacco subsectors dominated, comprising 54% of output

between 1966-71, 44% of which was accounted for by food and beverages alone.94 Of the

manufacturing sector on the eve of independence, Manuel Ferreira (2002) writes: Composed of 3,846 enterprises, chiefly of small and medium-size, the sector employed some 200,000 workers transforming domestic raw materials and other inputs for the food and beverage and light industries and, using imported inputs, for the heavy and light industries.95

Overall growth in manufacturing was high, averaging 11% in real terms from 1960-73.96 With

this growth, industrial goods came to comprise over 90% of imports.97 Though the Portuguese

share of imports dropped from 44% in 1961 to 26% in 197398, Angola remained dependent on

Portugal as its top import partner. The changes in the composition of imports were not reflected

in the composition of exports, as manufactures largely served the domestic market, exporting

roughly 20% of output from 1966-71.99

90 Clark (1991), 125-126. 91 Ferreira (2006), 25. 92 Ibid, 25. 93 Clark (1991), 141. 94 World Bank (1991), 191. 95 Ferreira (2002), 252. 96 Hodges, 94. 97 Ferreira (2006), 25. 98 World Bank (1991), 189. 99 Ibid, 191, 203.

36

The war for independence from 1961 to 1975 did not appear to have a devastating impact

on economic development. In fact, it was partly due to unrest in the colony that several policies

were adopted in the early- and mid-1960s intended to promote industrialization and economic

development, and are described in a country review conducted by the World Bank in 1991.100 In

1961, all barriers to the trade and movement of goods between the various territories within the

country were abolished, save quantitative restrictions deemed absolutely necessary for the

protection of the region’s economy. From 1963 to 1971 an exchange rate union, managed by the

Bank of Angola, simplified the process by which Angolans paid for imported goods. An

Investment Code was established in 1965, which, along with an opening up of Portugal’s

economy to OECD countries, facilitated the flow of foreign capital to Angola and eliminated

licensing restrictions on the establishment of new industries in Angola. These flows concentrated

in both the capital-intensive extractive industries as well as labor-intensive industries in the

agricultural and manufacturing sectors. Imports from Portugal, upon which industry heavily

depended for industrial inputs, were accorded a reduction if not exemption from tariffs, and some

new Angolan industries were granted tax exemptions by the Overseas Minister. Infrastructural

development, especially regarding transportation infrastructure, was undertaken by the

Portuguese. These industrial policies undertaken from the 1960s until independence greatly

facilitated the growth of industry, and particularly the manufacturing industry, in Angola during

that period.101

Industrial Vulnerability at Independence

Though the process of industrialization in Angola was promising through the 1960s to

1975, it was also fragile on the eve of independence. The share of manufactured goods in total

exports was still relatively low, and Angolan producers were still strongly dependent on Portugal

for both imports and markets. Only oil and diamond production enjoyed a more diverse range of

foreign customers. Furthermore, the boom in oil production was contributing to a real

appreciation of Angolan currency of 20% between 1971-73, and 25% between 1973-75,

symptoms of the so-called “Dutch disease” that has similarly afflicted many resource-endowed

developing countries. Perhaps the most obvious vulnerability of Angolan industry, and the one

which would have the most immediately crippling effect on the country’s development, was the 100 World Bank (1991), 4, 189-192. 101 Ibid, 191.

37

“notorious lack of, and lack of promotion of, indigenous capability.”102 In the words of George

Wright (1997), settlers not only populated the high and middle rungs of the bureaucracy and economic enterprises, occupying administrative positions, owning coffee plantations and working as traders, they also dominated lower sectors of the urban work-force.103

Up until independence, native Angolans were excluded from positions in government and

enterprise that could impart the technical, managerial, and other knowledge and training

necessary to prepare them for the maintenance and growth of the Angolan state and economy

after 1975. Political and administrative offices above the level of clerk, as well as upper

management and ownership of the large commercial farms and manufacturing enterprises, were

barred for black Angolans. Thus, when the Portuguese colonists withdrew en masse from Angola

in 1975-76, they not only “took with them every asset that could be transported,”104 but

effectively took the country’s political, administrative, economic, and technical capabilities with

them as well.

Post-Colonial Development, 1975 – 2002

After the initial phases of Portuguese political and military withdrawal in 1975, the

eruption of hostilities between the MPLA, FNLA, and UNITA quickly encouraged the flight of

private Portuguese citizens from Angola. Due to the aforementioned monopolization of political

and economic power by the colonists this exodus of human capital, combined with an

interruption in supplies and “together with the paralysis of most banks, Angolan industry

suffered a devastating blow from which it has not yet recovered.”105 Nancy Clark (1991) states

that, according to the MPLA, In August 1976 more than 80 percent of the agricultural plantations had been abandoned by their Portuguese owners; only 284 out of 692 factories continued to operate; more than 30,000 medium-level and high-level managers, technicians, and skilled workers had left the country; and 2,500 enterprises had been closed (75 percent of which had been abandoned by their owners). Furthermore, only 8,000 vehicles remained out of 153,000 registered, dozens of bridges had been destroyed, the trading network was disrupted, administrative services did not exist, and files and studies were missing.106

Marxism-Leninism and the Planned Economy, 1975 – 1990

102 Ferreira (2006), 26. 103 Wright, 3. 104 World Bank (1991), 6. 105 Ibid, 198. 106 Clark (1991), 115.

38

It was against the backdrop of nationwide chaos outlined above that the MPLA

announced the independence of the Republic of Angola and established a single-party socialist

state guided by the principles of Marxism-Leninism. The government immediately embarked

upon a program that emulated a Soviet-style strategy of socialist industrialization, under which

agriculture would provide the foundation upon which heavy industry, in combination with light

industry, would be the driving force in a planned economy. The immediate goal of the MPLA

government, the revival of production, was to be accomplished through nationalization of the

bulk of productive enterprises, central planning, and tight state control over the economy.107

The framework for the nationalization of agricultural and industrial enterprises was

outlined in the aptly-titled Law of Nationalization and Confiscation, passed in March 1976. The

program was partly a manifestation of the MPLA’s socialist ideology, but was more importantly

an imperative response to an impending collapse of employment due to the massive

abandonment of private businesses by the Portuguese.108 The assumption of ownership of so

many large and small private enterprises by the state occurred on a massive scale, but stopped

short of wholesale nationalization of all private businesses. Some private businesses were

allowed to exist, although it was envisioned that the state-owned sector should gradually replace

the private sector over time. Ferreira (2002) points out that an integral component of the

nationalization policy was the centralization of state operation and supervision of industrial sub-

sectors via the amalgamation of the individual enterprises within them.109 Other economic

policies enacted by the MPLA government included the imposition of price controls, rationing of

foreign exchange, subsidization of state-owned industries, and the rigid centralization and

regulation of economic management and control within the administrative bureaucracy of the

state.

Despite the hopes and efforts of the MPLA, the performance of the Angolan economy

after the devastating blow dealt it in 1975 was dismal. The Special Party Congress of 1980

openly acknowledged several disappointing shortcomings in the attempt to revive production,

including the failure to re-establish linkages between the agricultural and industrial sectors and to

“institute a rational system of production,” the fact that the total volume of production fell short

107 World Bank (1991), 8. 108 Ibid, 8. 109 Ferreira (2002), 253. The author cites the example of IMAVEST, a state-owned company that was formed by merging twelve textile and clothing enterprises and which employed 2,400 workers.

39

of the total amount paid in wages, the development of a parallel market in response to price

controls, and the depressing performances of both agriculture and industry.110 According to

Ferreira (2002), this prompted the government to refocus their industrial policy on the

development of light industry, and to adopt a new strategy of import-substitution

industrialization.111 However, due to a variety of factors including the persistent civil war with

UNITA, the country’s growing external debt, the continued decline of agriculture, and certainly

not least the overall incoherence and insufficiency of policy measures, this strategy failed as

well. By 1985, this failure had prompted the MPLA to begin contemplating a shift toward

liberalization. It was decided that a Program of Economic and Financial Restructuring, scheduled

to take effect in 1987, would make sweeping changes to the Angolan economy by restructuring

the state-owned sector, expanding the private sector, and reducing central planning and state

control over the economy.112 These and subsequent policy shifts will be elaborated on in the

following sub-section.

The commercial agricultural enterprises abandoned by the Portuguese in 1975-76 had

been nationalized and converted into large, state-run farms. Many farms had lost not only their

white owners, but also their native Angolan workers, who had fled the fighting in rural areas or

simply returned to their home villages. After this massive disruption in the agricultural sector,

the state farms consistently failed to achieve the levels of production seen on the eve of

independence, and output continued to fall year after year. Coffee, the backbone of the Angolan

economy until the early 1970s, suffered particularly, and ultimately collapsed in the years after

independence.

Partly as a result of the contraction in agriculture, Angolan industry also suffered a

decline after 1975. The index of overall industrial output value (1987 prices, 1975=100) fell to

67% in 1977, and though it recovered briefly in the following years it was still only 91% of pre-

independence production in 1981, after which it continued to decline to just one-third of 1975

levels by 1991. Within the manufacturing industry the food and beverage sub-sector, which had

dominated light industry prior to independence, suffered the worst decline, falling to 22% of

1975 output by 1991.113 The contribution of the manufacturing industry as a whole to Angola’s

110 World Bank (1991), 9. 111 Ferreira (2002), 254. 112 Ibid, 260; World Bank (1991), 9-10. 113 Ferreira (2002), 256, 274 (Table 11A.1).

40

GDP contracted from 11.3% in 1982 to 8.2% in 1988 and 4.7% in 1991, and by 1990 the number

of workers employed in the sector had fallen from 200,000 in 1975 to just 86,000.114

In ‘Angola: Civil War and the Manufacturing Industry: 1975-1999, Manuel Ferreira

(2002) insightfully examines the causes of this decline in industrial production. One important

factor was the ongoing conflict with UNITA. The civil war had direct impacts, such as the

bombing of industrial areas and sabotage of factories, which had obvious deleterious effects on

the economy. The conflict had two significant indirect impacts as well. The absorption of human,

technical, and financial resources by the military, which could otherwise have been designated

for civilian use, was one. The second was the disruption of agricultural production and

transportation infrastructure, which hurt industrial production by reducing domestic inputs and

complicating the distribution of power and water. Ferreira also examines the state’s failures in

policy implementation. Indeed, the characterization of Angola’s economy as “planned” seems

almost to stretch the truth, for national “plans” were only drawn up on an annual basis, and no

medium-term strategy for the national economy was ever conceived. The consistent lack of

coherence and articulation in policy measures made them utterly ineffective in reviving or

sustaining domestic production. Ferreira cites several examples. First, because the MPLA

dismissed currency devaluation out of hand as un-socialist, the real exchange rate became

increasingly overvalued through the 1980s. The punishing effect of foreign competitiveness on

domestic industry was offset by government subsidies. Second, fixed prices forced companies to

sell output at levels below the costs of production; this problem was again “solved” by the

distribution of subsidies, which provided a disincentive against increasing productivity. Policy

blundered again on foreign investment, which was highly restricted, resulting in the

technological obsolescence of Angolan industry over time. Lastly, Ferreira points to the system

of central planning and its rigid and complex bureaucracy, which led to production slowdowns

and stoppages115 and also gave rise to “vested interests” in the MPLA and government. While the

author acknowledges that the war certainly played an important role in industrial decline, he

finds the primary factor behind the failure to revive production in the inadequacy and

mismanagement of economic policy by the MPLA.

114 Ferreira (2002), 258. 115 Ibid, 260, 268. Ferreira states that these slowdowns and stoppages in shipments and production were consistently recognized by the MPLA as being one of the most important factors explaining the poor performance of manufacturing.

41

Liberalization and Policy Fluctuation, 1990 – 2002

In Angola, the period of the 1990s was characterized not only by the oscillation between

war and peace, but also by oscillation between various and contradictory economic programs,

their incomplete and ineffective implementation and synchronization, and by the persistence of

deeply rooted economic problems, such as a lack of transparency in public finance and large

government deficits. This sub-section owes much to Tony Hodges concise description of “the

chequered history of economic reform” in the 1990s in his book, Angola: From Afro-Stalinism to

Petro-Diamond Capitalism (2001),116 and again to Manuel Ferreira for his account of the

impacts on the manufacturing industry.117

The Program of Economic and Financial Restructuring announced in 1985 marked the

beginning of the transition toward liberalizing the Angolan economy. In practice very little of the

program’s goals were actually implemented, but nevertheless it marked a significant change in

policy orientation. More substantive change was initiated in 1990-92 with the Government

Action Program (PAG), the first of a series of programs in the 1990s that alternated between

neoliberal and interventionist policies. The PAG entailed a dramatic shift away from the state-

controlled economy of the 1970s and 1980s, and included measures to liberalize most prices,

monetize wages, abolish the ration card system, privatize hundreds of state-owned enterprises,

devalue the kwanza, and initiate reforms in the banking sector.118 A brief follow-up to the PAG

in January 1993 also introduced an auction system for allocating foreign exchange.

With liberalization came new problems. The government failed to rein in the fiscal deficit

which continued to be monetized, fuelling inflation that largely offset industry’s competitive

gains from devaluation. However, along with high levels of military spending, devaluation itself

can be seen as a contributing factor to this fiscal failure. As noted by Kalonga Stambuli (2002), A well-known characteristic of African [emphasis in original] states is that government is the largest consumer of foreign exchange, in the context of debt service payments. This means that exchange rate depreciation magnifies the public sector net cash requirement and leads to a faster rate of monetary growth, thus resulting in further cyclic inflation.119

As has been the case in other African countries, devaluation caused an increase in the money

supply as the government was forced to spend more domestic currency to acquire the foreign 116 Hodges, 89-122. 117 Ferreira (2002), 251-274. 118 Hodges, 103. 119 Stambull (2002), 2.

42

exchange needed to service external debt; the fact that the government printed more currency in

order to accomplish this only further exacerbated the problem. Devaluation raises the price not

only of imported goods but also of transportation, thus significantly increasing the costs of

domestic production. As Stambuli also points out, the inelasticity of demand among African

farmers for imported inputs as well as the need to transport agricultural goods to market results

in higher costs “taking away the initial gains” of devaluation.120

Privatization was conducted without transparency, and so benefited primarily government

and Party officials. A change in the currency (from the ‘kwanza’ to the ‘new kwanza’) was

accompanied by the freezing of 95% of bank accounts, destroying confidence in the public

banks, and by a general confusion in which “many people were unable to convert their old

money and the switch effectively destroyed much of the country’s savings.”121 And, lastly, the

brief follow-up to the PAG was short-lived because its foreign exchange auctions resulted in a

sharp drop in the new kwanza’s value, causing a backlash within the government that ended the

program just weeks after it was launched.

In March of 1993 a new cadre of economic officials in the MPLA government rolled

back much of the previous years’ neoliberal policies with a new program. The new kwanza was

revalued and more centralized planning measures were reintroduced. However, the failure of this

approach was soon manifest and the government was forced to again devalue the currency, and

the pendulum swung back toward liberalization.

A new program was announced in 1994 that focused on devaluation, stabilization of the

fiscal budget and a restrained monetary policy. These measures seemed promising enough to the

IMF that it agreed to implement a shadow program with the Angolan government in 1995, under

which progress toward specific macroeconomic and policy goals would be monitored. However,

once again the failure to curb the fiscal deficit (possibly related to a jump in military expenditure

from 5% to 72% of GDP between 1993-94) undercut liberalization policies. Hyperinflation

developed, and peaked at over 12,000% in 1996. Determination of economic policy once again

devolved to interventionist policy-makers, and the IMF abandoned the monitoring program.

The New Life Program of 1996 again reintroduced administrative controls over the

economy. These included a fixed exchange rate, price controls, and strict import restrictions, as

120 Stambull (2002), 5. 121 Aguilar, 3.

43

well as tight fiscal and monetary policies. Inflation was curbed somewhat successfully, but

public debt increased as arrears accumulated.

January of 1998 marked yet another return to neoliberal policies. These repealed some of

the strict New Life Program provisions, and introduced staged devaluations. Failure to sign a

negotiated agreement with IMF, however, coupled with a drop in oil prices and the resumption

of hostilities with UNITA (which once again enlarged the government deficit and the burden of

debt), resulted in a “radicalization” of reform policies under yet another team of economic

officials. This time, however, the policy pendulum swung even further toward liberalization. The

exchange rate was floated, which closed the gap with the parallel market rate. Interest rates were

liberalized, and yet another new currency was introduced (this time simply the ‘kwanza’). Fuel

subsidies were abolished, and new taxes levied on oil revenues to curb the federal deficit and the

inflation rate, which stood at 329% at the end of 1999. A new IMF staff monitoring program was

agreed to in 2000, with the potential to develop into a full-fledged, loan-backed adjustment

program.

In sum, Angolan economic policy in the 1990s was marked by unpredictable and

sometimes dramatic shifts between neoliberal and interventionist programs, was often ineffective

or incomplete in its implementation, and suffered from a failure to sequence reforms with

comprehensive efforts at macroeconomic stabilization, specifically regarding reduction of the

fiscal deficit. The chaotic economic climate during this period was one of the primary reasons for

the continued depression of the non-oil sectors of the economy. Hodges (2001) identifies five

inter-related causes for this decline: the environment of insecurity shaped by the ongoing civil

war, the “extreme shortage of skills” in these sectors, macroeconomic uncertainty and instability,

“distortionary policies” implemented by the government (e.g. management of credit and foreign

exchange), and “the severe and prolonged deterioration in physical infrastructure and

services.”122

The civil war, which continued with relatively brief interruptions in 1991 and 1994-98,

continued to interrupt or completely inhibit access to domestic inputs for industry, and made

transportation within the country more difficult, more risky, and more expensive (as did the

continued deterioration of infrastructure). Illustrative of infrastructural disrepair is the fact that as

122 Hodges, 93.

44

of 1989 approximately 20% of Angola’s electricity was produced by individual businesses123,

which were forced to install their own generators due to the unreliability of power supplies;

according to a 2002 UNDP study, In particular, the fact that businesses have to provide their own power supply from generators is one of the most important reasons why the cost of production is so high in Angola, making the country uncompetitive in virtually all branches of industry, outside mining.124

The privatization of much of small- and medium-sized enterprises in the early 1990s, undertaken

without transparency and with much corruption, effectively passed the reins of small industry

over to MPLA insiders, who, in the words of Ferreira (2002), “became owners of de-capitalized

and obsolete enterprises.”125 He writes, These new entrepreneurs, without any kind of prior business experience and possessing at best just the barest of management know-how, and lacking their own financial resources, were now submitted to free-market forces. Suffering competition from remaining state-owned enterprises regarding access to domestic credit and foreign exchange, the newly privatized enterprises did not live in an easy environment.126

The failure of currency devaluations to compensate for inflation resulted in a consistent

overvaluation of the real exchange rate which rendered domestic producers unable to compete

with cheap imported goods. Access to foreign exchange also remained restricted, and was often

granted according to patron-client relationships that benefited a select few private entrepreneurs.

A similarly restrictive trade policy discouraged the importation of necessary inputs. And even

producers who were granted access to foreign exchange and were willing to pay import tariffs on

industrial inputs faced difficulties in obtaining credit from domestic banks due to a series of tight

monetary policies. As some output price controls and subsidization in the state-owned sector

continued despite the deficit problem, it is unsurprising that few private manufacturers were able

to compete given the limitations imposed on them.

The Oil Enclave and the ‘Gatekeeper’ State

An essential factor in the history of Angola’s post-independence political economy has

been the role of oil production. The primacy of the oil industry was already evident by the time

the MPLA came to power in 1975, and its significance only grew in the decades that followed.

By 1973, oil had already overtaken coffee as Angola’s primary export. Immediately following

123 Clark (1991), 143. 124 UNDP (2002), 65. 125 Ferreira (2002), 265. 126 Ibid, 265.

45

independence the MPLA created the state-owned oil company Sonangol, declaring it the sole

concessionaire for exploration and development of Angolan oil, and requiring all foreign oil

companies interested in Angolan oil to operate in partnership with the state firm. Production

more than tripled between 1980 and 1990 as a result of new exploration and development by

foreign companies in conjunction with Sonangol (see Figures 2 and 3), and by 2000 had reached

nearly 800,000 barrels per day.127 In 2007 Angola joined OPEC, and was assigned a quota of 1.9

million barrels per day.

Oil has come to dominate the Angolan economy, accounting for over 80% of GDP, 95%

of exports, and 96% of state revenues in 2005.128 Oil production in the Angolan case however is

a perfect example of an enclave industry, geographically and economically isolated from the rest

of the country. The vast majority of oil production is located offshore, far removed from the

interior of the country. There are few linkages, forward or backward, between oil and the rest of

the Angolan economy, and nearly all oil-related equipment and inputs must be imported.129

Worse still, the repeated failure of economic policies to counteract or take advantage of real

exchange rate appreciation in the 1980s and 1990s indicates that symptoms of ‘Dutch disease’

have manifested as a result of Angola’s increased dependence on oil production. Hodges (2001)

points out two other negative consequences of oil dependence. One has been “to encourage

complacency about the dismal state of the rest of the economy,” demonstrated by chronic

underinvestment in public and social infrastructure.130 The second is the effect that oil has had on

the quality of governance. Large shares of oil revenues have been consistently diverted outside

the official government budget (often to finance military operations), decreasing the transparency

of state finances. More broadly, oil rents have reinforced patterns of clientelism that have

developed in the Angolan government. In Hodges’ words, The rent from oil has given Futungo de Belas [the Presidential compound outside Luanda] far larger resources with which to dispense patronage than would have been the case in a non-oil state… suffice it to say that oil-financed patronage has been a fundamental part of the strategy pursued by Futungo de Belas for the consolidation and conservation of political power.131

The Angolan state, and the opportunities for enrichment that it affords members of the

government elite via oil revenues, exemplifies Immanuel Wallerstein’s concept of a “weak state”

127 Hodges, 125-126. 128 Slaibi and Kyle, 34. 129 Hodges, 129. 130 Ibid, 135. 131 Ibid, 139-140.

46

in the world capitalist system. Wallerstein (2004) argues that in weak states, production is

inevitably comprised primarily of ‘peripheral’ processes that provide relatively small

opportunities for accumulating wealth. This has undoubtedly been the case in Angola, where

(with the exception of the oil and diamond sectors) most economic activities, such as agriculture

and light industry, have yielded low (if any) profits and been plagued by a multitude of economic

shocks. This dearth of profitable opportunities leads to the state itself becoming a primary

mechanism for wealth acquisition, through bribery, theft, and corruption. When this becomes the

case, the stakes of competition for political power are raised to include competition for control

over the means of wealth accumulation, which contributes to political instability and expands the

role of the military; as noted earlier, the primacy of control over Angola’s resources was a

hallmark of the 27-year conflict between the MPLA and UNITA. According to Wallerstein, the

focus of the ruling elites on maintaining their power and the concomitant corrupting effects of

patronage networks on government combine to severely detract from the state’s ability to Figure 2. Angolan GDP by sector, selected years.

Source: World Development Indicators Database, November 2008

47

Figure 3. Comparison of extractive industries in Angolan merchandise exports, 1978-81 vs. 1990-91 (all available data).

Source: World Development Indicators Database, November 2008.

perform its usual tasks132; such is manifested in Angola as the failure to implement coherent

economic policies, promote the healthy functioning of government and the rule of law, and

provide basic services to citizens.

Angola also serves as a textbook example of what Frederick Cooper (2002) calls “the

African gatekeeper state,”133 a concept that well complements Wallerstein’s analysis. The term

describes a government structure, inherited by Africans from their erstwhile colonizers, that

derives its power from its control over national borders. In the face of underdevelopment of the

domestic authority and institutions of government, the gatekeeper state in Africa exercises its

authority primarily over the interface (or ‘gate’) between its internal territory and the rest of the

world, chiefly by way of restrictions and duties imposed on cross-border trade, investment, and

travel. Control over the gate entails the potential for the massive accumulation of wealth and

power, but by the same token augments the vulnerability of the state by raising the political and

economic stakes of competition for such control. As Cooper states,

132 Wallerstein, 53. 133 Cooper (2002), 5-6, 156-161; Angola as a gatekeeper state, 139-143.

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A regime not so dependent on gate-keeping benefits from the fact that its opponents can afford to lose; they have other avenues for wealth and other loci for power. Gatekeeper states are in danger for the simple reason that rulers temporarily in control of the gate want to stay there. Hence ruling elites tended to use patronage, coercion, scapegoating of opponents, and other resources to reinforce their position, narrowing the channels of access even further.134

Thus the gatekeeper model reinforces patterns of patronage, rent-seeking, centralization of

political power, and polarization of opposition, all elements that can be seen in the post-colonial

history of Angola. The privatization of Angolan state-owned enterprises in the early 1990s, as

well as the preferential granting of import licenses and access to foreign exchange mentioned

above are but a few examples of the patron-client relationships employed by the MPLA in its

control over the Angolan border. The lack of transparency in government finances, particularly

with regard to oil revenues, is also indicative of a lack of accountability within the state, an

environment within which rent-seeking flourishes. Centralization of power was instituted in the

form of the MPLA’s Soviet-style one-party system, in which “the organs of the state [are] under

the supreme guidance of the MPLA and the primacy of the movement’s structures over those of

the state [are] ensured.”135 Lastly, the polarization of opposition is clearly exemplified by the 27-

year insurgency of UNITA, a conflict that was driven by the desire to claim power over Angola’s

resources and made possible only by UNITA’s ability to circumvent the gatekeeper through the

smuggling of diamonds into Zaire. Furthermore, the emphasis on retaining control over the gate

as well as on the suppression of political opposition which it necessitates leaves little room for

the state to play a substantive role in the human and economic development of its interior,

another consequence that is manifest in the social, economic, and infrastructural deterioration

seen in Angola over the decades.

Contemporary Post-War Developments in the 21st Century

This section will review recent trends in the Angolan economy since the end of the civil

war in 2002, which include a surge in economic growth (supported by rises in oil prices and

production), the persistence of social problems, and the depression of agriculture and

manufacturing. It will conclude by reviewing the importance of three challenges to future

development in Angola: promoting good governance, developing human capital, and reviving

non-extractive industrial production.

134 Cooper (2002), 5-6. 135 Agostinho Neto, Lisbon Radio, 11 November 1975; quoted in Hodges, 45.

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Developments in the Angolan Economy

The neoliberal programs undertaken in the late 1990s formed the basis for the current

path of economic policies in Angola, which continue to be oriented largely toward liberalization.

The end of the 27-year civil war in 2002 marked a significant milestone for the country, allowing

the Angolan government to focus more of its resources on reconstruction and development

efforts. Relations with the IMF have been shaky since 2000, and marked by several rejections of

recommendations and proposed agreements by the Angolan government. Though this has raised

concerns among the IMF and other institutions regarding the tenability of economic policy in the

country, Angola has vigorously maintained confidence in its ability to enact reforms

independently. Since the turn of the millennium the economy of Angola has seen several very

recent and significant developments136, and there have indeed been some signs of progress, such

as the improvement of the macroeconomic climate, of transparency (to a degree), of the

coherence of institutions and policy, and of economic growth. However, many challenges

remain, particularly with regard to aiding and stimulating the recovery of productive industry.

One of the most evident changes in the Angolan economy in recent years has been its

explosive economic growth. In 2000 Angola’s GDP stood at just $9.1 billion, with a modest

growth rate of 3% annually, but over a few short years these figures swelled to $30.6

billion/20.6% and $58.5 billion/23.4% in 2005 and 2007, respectively.137 Inflation, still high in

2000 at over 250%, was successfully reduced to 12% by 2006.138 This improvement is related to

the successful reduction of the fiscal deficit down to 1.5% of GDP in 2004, and an estimated

fiscal surplus of 6.8% in 2005 (accrual basis).139 At the heart of this fiscal improvement as well

as Angola’s accelerated growth has been the increase in the production and value of oil in recent

years.140 This oil-based growth has thus masked huge and persistent social problems and

inequalities in the country. A 2001 survey found that 68% of the population fell below the

poverty line of 1.76 USD per day, with 25% living in extreme poverty, and the urban

136 Due to the rapid pace of these changes and the lack of accurate and up-to-date social indicators, the amount of available literature that has covered them comprehensively, thoroughly, and relatively recently is limited. For this reason I am heavily indebted to the United Nations Development Program for two excellent analyses of the situation in Angola. The ‘Economic Report on Angola’ (2005) and ‘Drivers of Change: Angola’ (2008) both meet all three of the above criteria, and have proven invaluable to the writing of this sub-section. 137 World Development Indicators Database, September 2008. Annual GDP represented in current USD. 138 World Bank (2006), 27; Shaxson, et. al. (2008), 37. 139 World Bank (2006), 27. 140 The UNDP has found that “government operations do not break even until oil price tops 36 USD per barrel” (UNDP 2005, 62).

50

unemployment rate at the time measured 46% of the active population. In 2006, 38% of the

population did not have access to safe drinking water, the mortality rate for children under five

was over 25%, average life expectancy stood at just 41 years, and the majority of people had no

access to health care. Primary school attendance was only 56%, with only 6% of children 10-11

years attending 5th and 6th grade, and fully one third of adults were illiterate.141 In 2001 83% of

the urban population lived in slums, and though this percentage has not changed since 1990, the

total number of people living in urban slums grew from 2,193,062 to 3,918,259 in the same

period142, indicating that urban development has failed to keep pace with urban migration. More

than 70% of the population still depends on agriculture and rural activities as their primary

source of income.143

The structure of the economy today remains dominated by the petroleum and extractive

industries, which accounted for 59.4% of GDP in 2006. As mentioned, this sector provides a

large share of essential government revenue, and is directly linked to the recent positive trend in

the state budget. Oil revenues in particular have also recently been employed by the government

in securing foreign loans to finance development. Resource extraction is an enclave industry,

however, that provides little benefit in terms of employment to the general population. non-

extractive composition of GDP was as follows: agriculture (7.8%), non-extractive industry

(4.9%), electric energy (0.1%), construction (4.4%), and services (23.3%).

Agriculture’s meager contribution of less than 8% of GDP has remained roughly the

same since the mid-1990s, having failed to recover from a dramatic decline during the 1970s and

1980s. However, the growth rate of value added in the agricultural sector has increased from

1.3% in 1999 to 23.6% in 2007, with an average rate of 14.5% annually.144 The revival of

agriculture should be one of the top priorities in the economic recovery process, given the high

percentage of Angolans who already depend on it for sustenance and livelihood, and the large

portion of displaced people in the country who have not yet transitioned into stable civilian

lives.145

Manufacturing has remained similarly depressed for over a decade, its GDP contribution

having fallen from 25% in 1975 to an average of less than 5% in the late 1990s, from which it 141 Social indicators compiled from UNDP (2005), 4-5; Shaxson, et. al. (2008), 37. 142 UN Millennium Development Goals Database, accessed online November 29, 2008 at <http://www.data.un.org>. 143 World Bank (2006), 124. 144 Derived from data from the World Development Indicators Database, November 2008. 145 Ford, Neil. ‘More Power to the People.’ African Business (April 2006), Issue 319, pp. 56.

51

has only recovered to 5.7% as of 2007. The annual growth of value added in this sector is also

promising, however; though it averaged just 2.5% from 1995-1999, that rate accelerated to an

average of 17.7% over the period 2000-2006, and reached 48% as of 2007.146 According to a

UNDP study conducted in 2005, the Angolan Ministry of Industry is instituting a recovery plan

that will endeavor to support small and medium-sized enterprises, create new infrastructure,

build “in-house institutional capacity,” and streamline licensing procedures. Public resources

have also been invested in the creation of new industrial parks, partly to work around persistent

supply-side problems with energy, water reservoirs, access roads, and other infrastructure. A new

tariff policy, aimed at encouraging local manufacturing, was also implemented in 2003-04. This

measure reduced taxes and duties on raw materials and intermediate goods, while raising the cost

of “superfluous consumption goods in competition with local production.” The UNDP, citing a

paper on the challenge of competitiveness, states the crucial productivity factors for the structured insertion of Angola into the regional and world economy [will be] macroeconomic stabilization; rehabilitation and expansion of infrastructure; diversification of the production base; [and] massive investment in human capital (education, health, science and technology).147

This list underscores the significance of several vulnerabilities that have dragged on

Angola’s economy since independence: infrastructural deterioration, industrial

underdevelopment, and deficits of human capacity.

State Reform and Good Governance

Increasing the transparency, accountability, and efficacy of government is a key

challenge for promoting social and economic development in Angola, as substantive state

participation in the development process is vital if development efforts are to take advantage of

the country’s greatest asset: oil revenues. As mentioned earlier, the Angolan state has long been

characterized by endemic clientelism and corruption, with a concomitant lack of responsiveness

to public needs. Recent years have seen signs of change, however; the UNDP report, ‘Drivers of

Change: Angola’ (2008), calls attention to the fact that the perception of the Angolan

government as ‘chaotically’ corrupt, unresponsive to its people, irresponsible in its borrowing,

and unwilling to reform is increasingly incorrect. It states

146 World Development Indicators Database, November 2008. 147 UNDP (2005), 22-23.

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These elements, particularly the first two, are certainly grounded partly in truth, but in fact all three perceptions are wide of the mark. There is no doubt that Angola today is rather more sophisticated, well-ordered and even more transparent than it was during the war; and meaningful reforms are underway, even if not they are often not of the kind traditional development partners would recommend.148

While the report cautions against over-emphasizing the degree of reform, and specifically cites

the system of presidential patronage as a significant constraint on future progress, it is important

to note that there has been a degree of progress in increasing state transparency.149

A salient aspect of the relationship between the state and people of Angola is the low

level of direct taxation. The emphasis on taxing the oil and mineral sectors of resource-rich

countries has been identified as one facet of the so-called ‘resource curse,’ as direct taxation of

the populace encourages demands for state accountability, representation, and service delivery in

return. In the words of one Angolan civil society official interviewed by the UNDP, If we sit hoping that the owners of the riches (the rulers) will remember the people and distribute something, then we are going to be grateful for their gesture; they will view public services as a favour from the government, rather than a right. If I pay taxes, this is money that was mine and I hand it over to the state: so it has to account for what it does with my money. It is a very different situation.150

‘Drivers of Change’ points to the Angolan city of Benguela as an example of the positive effect

that direct taxation can have on governance. In Benguela, the report states, public administration is among the best in Angola, and considerable effort is expended to collect taces from a wide variety of actors; this brings representatives of the authorities face to face with citizens who are also in a position to press their demands.151

If Benguela is any indication, it seems likely that diversifying the sources of tax revenue to

include a larger percentage of the population would foster greater public demand for good

governance. Similarly, increasing local input regarding the allocation of funding for development

efforts is a method by which increased demands for state accountability might be (partially)

satisfied. Decentralizing development by allowing local communities to define and prioritize

local development projects (e.g. whether a new school, clinic, or road should be the immediate

priority) can both engender a sense of ownership of the development process and increase the

efficacy of development expenditures.

148 UNDP (2008), 16. 149 Importantly, transparency must be recognized as a step toward rather than the ultimate goal of state reform; the UNDP notes that “transparency improvements do not so far seem to have led to changes in the way in which business is done – only helped shed light on them” (2008, 5). 150 UNDP (2008), 38. 151 Ibid, 39.

53

Lastly, the promotion of civil society groups in Angola will be integral to improving the

accountability of the state. Civil society organization in Angola is still relatively young, having

only begun to emerge in the 1990s. Its influence, particularly on governance, is constrained by

several factors, notably government interference, ‘patronage politics’, and a common mistrust of

civil society among many Angolans.152 The UNDP states that while the government continues to deploy pressure, intimidation, infiltration, co-option, and dilution in the NGO sector, it has allowed a controlled opening in certain areas: notably by adopting more consultative approaches to public policy making, especially at lower tiers of authority… [suggesting] a somewhat more humble approach than before towards the sector.153

Human Capital Development

The decades since independence have been marked by the almost complete absence of

educational opportunities for the majority of Angolans, evidenced by the dismal rates of literacy

and public school enrolment cited earlier. Furthermore, the long-term displacement of millions of

people during the decades of civil war has resulted in a ‘lost generation’ of young people who

have grown up with no connection to or knowledge of the livelihoods that sustained the previous

generation; these youths lack not only education but also the basic skills necessary to make a

living. Many of the country’s hundreds of thousands of former soldiers face similar problems in

adjusting to civilian life. Investment in public education and capacity building is thus a vital step

in rebuilding and advancing social and economic development in Angola. Attention must be

given to providing technical and vocational training opportunities in addition to basic education

to increase the percentage of skilled workers in the labor force. Education and training projects

must be supported by welfare programs focusing on addressing the issues of hunger, housing,

and health services, as educational programs are likely to be ineffective where these problems

persist. Finally, the success of capacity building measures will be heavily dependent upon the

ability of a more effective state to harness and invest the revenues generated by oil production.

Industrial Development

Reinvigoration, development, and diversification of domestic industry is essential to

reducing Angola’s dependence on oil exports, providing domestic employment, raising the living

standards of the population, and promoting broad and equitable economic growth. A major

152 UNDP (2008), 57. 153 Ibid, 56.

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element of this effort must be the rehabilitation and expansion of public infrastructure,

particularly transportation networks and power generation/delivery capability; the difficulty and

expense of transporting goods and the unreliability of electricity in Angola raise costs and reduce

the efficiency and competitiveness of producers. Angola’s economic growth in recent years has

increased domestic demand, and with it the viability of employing an industrial policy of import-

substitution. The recent tariff policy implemented by the Angolan government (mentioned

earlier) marks a positive step forward in this regard, but additional steps could be taken to

nurture the recovery of Angolan manufacturing. Domestic demand, however, is limited, and a

gradual orientation toward exports will be necessary for continued industrial development.

Regional markets, such as the Southern African Development Community (SADC), will be

important in this regard, though the degree of diversification and competitiveness of Angolan

manufacturing will likely be the key determinants of success in export-orientation.

55

Part 2: South Africa Background: The Apartheid Era, 1948-1994

Apartheid and Resistance

The colonial situation in South Africa was markedly different from those which

characterized most of the other nations of sub-Saharan Africa. The Union of South Africa, an

amalgamation of the British Cape and Natal colonies and the Boer republics of Transvaal and the

Orange Free State, came into existence in 1910 as a dominion (not a colony) of the British

Empire, and the white population, mainly of Dutch, British, and European descent, were citizens

of their own sovereign country.154 However, though South Africa was thus one of the first

colonized areas in Africa to achieve formal independence, its black population would be the last

on the continent to achieve true independence for themselves. The prolonged racial inequality in

the country, which is still manifest today in many respects, was a result of another difference

between South Africa and other colonial states that Frederick Cooper characterizes as “the ruling

fiction of each power.” While by the 1940s the colonial empires to the north had begun to claim

a responsibility to “civilize” Africa and convert Africans into “modern” peoples, the government

of South Africa carried to an extreme the idea that Africans existed in their peculiar cultures, that these differences were essential and unbreachable, and that a regime could be organized to keep them that way. South Africa excluded blacks from citizenship and pretended that their lives should remain centered on tribal homelands, not in the national space which their labor was enriching.155

This exclusion and repression of the black population of South Africa was cemented by

the 1948 electoral victory of the National Party, which established the system of apartheid

(separateness) that would last until the early 1990s. The apartheid system classified people

according to racial categories (e.g. White, Black, Coloured) and institutionalized racial

discrimination against non-whites. Many black people were expelled from the cities, and a pass

system was instituted to control their movement and residence; to live in an urban area required a

pass that could be produced on demand, and which was issued only to those black South

Africans that held employment in the city. Denied South African citizenship, black South

Africans (formally citizens of their respective “homelands”) were thus denied the civil, political,

and economic rights it accorded. Segregation laws barred black South Africans from white 154 As a result of a whites-only referendum, the Union of South Africa left the British Commonwealth to become the Republic of South Africa in 1961. 155 Cooper (2002), 57-58.

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establishments and from using white facilities. Racism further infused nearly all other aspects of

South African life, underlying extreme inequalities in income, opportunity, employment,

education, health care, and basic infrastructure.

Mobilization against apartheid began as early as the 1940s in the form of strikes,

“squatter invasions,” and civil disobedience. Groups such as the Communist Party of South

Africa (CPSA), the African National Congress (ANC), and later the Pan-African Congress

(PAC) emerged (and were soon banned), drawing together trade unions, activists, and other

radicals in the fight against the apartheid system. The labor migrations mandated by the pass

system spread activism and radicalism from urban to rural areas, furthering anti-apartheid

agitation. The state actively fought, often brutally, to repress such political activism among the

black population, employing police and security forces to aggressively enforce draconian

apartheid policies and often to wage violence against activists. Nonetheless, the politicization of

urban black culture continued, and membership in the increasingly militant ANC jumped from

4,000 to 100,000 in the early 1950s.156 Political activism grew during the 1950s, as did the

multidimensional political networks both within and across South African borders. The ANC, in

association with several other key anti-apartheid groups, issued the Freedom Charter in 1955,

which stated the Congress’ core principles and demands for a democratic state. Anti-colonial

activism across the African continent increased substantially during this period, providing a base

of support as well as international recognition for the struggling anti-apartheid movements in

South Africa. The support of African and other nations (notably the Soviet Union) was

particularly crucial in sustaining groups such as the ANC in the face of the apartheid

government’s oppression.

The increasing galvanization of South African resistance, in the form of strikes,

demonstrations, boycotts, and civil disobedience, came to a head in 1960 when police opened

fire on an anti-pass law demonstration in Sharpeville. The ANC and PAC were immediately

banned, and began to operate in exile from bases in Tanzania and Zambia. This coincided with

the development of armed branches of the anti-apartheid organizations, and the onset of violent

methods of resistance. The Sharpeville massacre provoked outrage from the international

community, and condemnation of the South African government began to grow as the UN,

foreign nations, and other organizations began to condemn the apartheid system with increasing

156 Cooper (2002), 57.

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frequency. As the wages and quality of life of black South Africans remained depressed while

prices and economic prosperity grew around them, the underground organization of black

workers developed, manifesting itself in a slew of industrial actions in the 1970s. In 1974, a year

after the entire workforce of a Durban brick factory walked out of work, 58,000 workers

participated in a total of 374 strikes.157 Strikes followed in the gold mining industry from 1975-

77. In efforts to co-opt the rise in worker unrest, the apartheid government legalized black unions

in 1979, and organized labor subsequently became a major force in the country. In 1976 black

students organized a protest against moves to require Afrikaans and English as the language of

educational instruction; the demonstration and its concomitant repression turned violent, and

became known as the Soweto Uprising. The late 1970s saw an increase in international calls for

divestment from South Africa in response to apartheid, and the UN passed a voluntary arms

embargo against the country. South Africa was becoming increasingly isolated from the

international community.

The cracks that had appeared in the apartheid system (such as in the recognition of trade

unions) widened in the 1980s. Though the repression of the police state continued, so did

resistance to apartheid, and urban violence began to escalate in the mid-1980s after the economy

entered a recession in 1982.158 A national organization, the United Democratic Front (UDF),

formed to coordinate the actions of many smaller anti-apartheid organizations and allied with the

ANC, became an important force in South African townships.159 By the early 1980s international

opinion had turned decisively against the apartheid government, and divestment and trade

sanctions had increased significantly. As unrest continued to grow across the country and

business and the white elite began to tire of international isolation, Prime Minister F.W. de Klerk

agreed to begin negotiating the transition to majority rule with imprisoned ANC leader Nelson

Mandela. The early 1990s saw the dismantling of the apartheid system, culminating in free

elections and the political victory of the ANC in 1994.

The Economy Under Apartheid

During and after WWII South Africa underwent a period of extensive industrialization,

with industry’s contribution to GDP rising from 23.3% in 1948 to 31.8%, nearly twice that of

157 Cooper (2002), 147. 158 Ibid, 150. 159 Ibid, 151.

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agriculture and mining combined, in 1970.160 As Charles Feinstein (2005)161 asserts, growth

during this initial period from 1945 to the early 1970s reflected the rising importance of

industrialization while the contribution of agriculture declined and that of mining remained

relatively stable.162 Starting in the early 1970s, however, problems began to arise, and by the

mid-1980s the economic situation had become untenable.

Real GDP began to decline in 1965, from nearly 6% per year to around 1% by the late

1980s; growth in GDP per capita dropped significantly after the Soweto uprising in 1976, turned

negative in 1982, and fell again in 1985 after the imposition of financial sanctions.163 This period

also saw an increasing ratio of investment to GDP, which together with the decline in growth

reflected an overall decrease in productivity growth that could be seen across the primary sectors

of the economy. The “extraordinarily capital-intensive” commercial agricultural sector was

characterized by only modest increases in efficiency and productivity between 1960 and 1989,

despite huge investments. Output in mining similarly stagnated from the early 1970s, declining

at 1% per year despite 6.6% annual increases in capital stock from 1970 to 1980. The

productivity of capital in manufacturing, relatively stable from 1950 to 1970, likewise saw a

decline in spite of increased capital investment after this period.164

Employment growth also steadily declined since 1970, and unemployment became in

increasingly serious problem in the years leading to the end of apartheid. Unemployment grew

particularly among black South Africans, but also grew significantly among white workers after

1985. As of the early 1990s, less than half of the black work force was employed in the formal

sector of the economy, and growth in the informal sector only partly compensated for the

difference, leaving around 25% of black South Africans without work.165 At the same time

extreme racial inequality persisted; the per capita income of whites was roughly 9.5 times that of

black South Africans, and whites benefited disproportionately from government expenditures on

public services, infrastructure, and education.

A World Bank study conducted in 1994 found five main problems underlying the decline

in growth in the decades before the fall of apartheid. First, declining growth of investment and 160 Feinstein (2005), 144. 161 This section owes a great deal to Feinstein’s insightful analysis of the South African economy in his book, An Economic History of South Africa (2005). 162 Feinstein (2005), 144. 163 World Bank (1994), 4. 164 Sectoral analysis from World Bank (1994), 5. 165 World Bank (1994), 6.

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capital stock in the 1980s led to increased capital-intensity in the economy, which exacerbated

unemployment. Second, investment increased primarily in activities with low capital

productivity. Third, this lower productivity growth can be traced to a dearth of skills in the labor

force. Fourth, unskilled labor saw a decline in work input, and lastly, industrial unrest and a rise

in wages further aggravated unemployment.166 It is possible to trace at least three of these factors

to the oppressive nature of the apartheid regime. First, though it is estimated that skilled black

laborers as a percentage of total skilled labor increased from 25% to 35% from 1965 to 1989, this

percentage still greatly under-represents the percentage of black South Africans who make up the

majority of the population. This can be seen as a direct result of the limited opportunities for

advanced education available to black people as a result of apartheid regulations. Secondly, there

are two factors that can be related to the decline in work input in unskilled labor. One is the fact

that the falling standard of living for black workers and the distance between work and the home

affected their effectiveness while on the job. Another factor is the rise of strikes and industrial

actions, especially after the legalization of trade unions; while around 175,000 work days were

lost in 1980s due to such actions, by 1990 this number had grown to almost 1.7 million.167

Thirdly, the rise in wages and industrial unrest can also be partly attributed to agitation against

apartheid by laborers and other activists. Overall, given the effects of domestic and international

resistance on the economy, apartheid proved to be unsustainable. In the words of the World Bank

in 1994, “despite a recovery in 1986-88, growth has been increasingly influenced by continuing

political uncertainty and growing social unrest. Growth in the economy has become increasingly

unstable.”168 It was against this backdrop that South Africa made the transfer to majority rule in

1994.

South Africa in the post-Apartheid Era

At the end of apartheid the new South African government faced several daunting socio-

economic problems. Inflation, unemployment, and the fiscal deficit were high, while investment,

labor skills, and GDP growth remained low. Aside from the declining performance of the

economy, the state also had to implement a sustainable strategy for dismantling the

166 World Bank (1994), 9. 167 Ibid, 14. 168 Ibid, 4.

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discriminatory and exclusionary policies of the past and including the victims of apartheid in the

country’s new development path. The challenge for the new political leadership then was to

reinvigorate economic growth while simultaneously addressing the massive socio-economic

distortions and inequalities that were the legacy of apartheid. Overall, both the political transition

to democracy and to a lesser extent trends in the economy have been promising, especially when

contrasted against the prior decades under the apartheid regime. However, significant challenges

remain with regard to the economy and human development, particularly those of persistent

unemployment, poverty, and inequality.

Transition in South Africa, 1994 – 2000

Although the ANC had prepared a policy for social development in South Africa by the

time of the 1994 elections, some of the original elements of the ANC’s Freedom Charter of 1955

had been dropped by the time of the party’s victory in 1994. Conspicuously absent from the new

South African Constitution were references to the nationalization of industry and the

redistribution of land, both of which had been included in the original Freedom Charter.

Focusing on political goals for much of its existence, the formulation of an economic policy for

South Africa had been sorely neglected until the early 1990s, and as a result the ANC was

vulnerable to pressure exerted by business groups, international financial institutions, and the

existing National Party government to adopt neo-liberal policies. Reputable orthodox economists

were brought in by private business associations to advise the ANC, and key economic leaders

within the Congress “took part in abbreviated executive training programmes at foreign business

schools, investment banks, economic policy think tanks and the World Bank, where they were

‘fed a steady diet of neo-liberal ideas’.”169 These ideas would exert increasing influence on

policy in post-Apartheid South Africa.

The ANC’s initial development policy framework was instituted in the form of the

Reconstruction and Development Programme (RDP). The RDP held that neither central planning

nor completely free markets could remedy the serious structural problems in the South African

economy, and emphasized a holistic approach to addressing these issues that involved

democratic participation and cooperation among government, trade unions, business, and civil

169 Gumede (2005), 72. Internal quotation: Asghar Adelzadeh. (1996). “From the RDP to GEAR: The Gradual Embracing of Neo-Liberalism in Economic Policy.” Transformation (31).

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society.170 The Program focused on invigorating the manufacturing sector, creating jobs, and

fulfilling the basic needs of South Africans171, to which end it combined neo-liberal

macroeconomic policies with concerted efforts to address issues of human development in the

country. Economic facets of the program included implementation of a tight fiscal policy,

initiation of gradual privatization of state assets, and adoption of a WTO-linked program of trade

liberalization. The improvement of service and infrastructure delivery to the disadvantaged was a

major element of the RDP, and specific targets were set to increase access to education, health

care, and basic necessities such as water and electricity for all South Africans. Land

redistribution and a the development of a social security system were also elements of the

Program.

In 1996 a second program was introduced, the Growth, Employment, and Redistribution

Strategy (GEAR), that pushed the policy paradigm further towards neo-liberalism. Whereas the

RDP had been developed in conjunction with the Congress of South African Trade Unions

(COSATU) and the South African Communist Party (SACP), the GEAR was the product of a

group of conservative policy-makers from the Development Bank of Southern Africa, the South

African Reserve Bank, and the World Bank, as well as several state officials and academics.172

The program set targets for GDP growth at 6% per year and for employment growth by 400,000

jobs per year, to be accomplished by the year 2000. Policies aimed at furthering these goals

included attempts to increase fixed investment from both within and without South Africa and to

improve exports, with a focus on manufacturing and other non-agricultural and non-extractive

sectors.173 GEAR also furthered the RDP’s emphases on macroeconomic stability, promotion of

competitiveness, and augmenting the role of the private sector174 by setting specific targets for

these goals. A 1999 World Bank Country Assistance Strategy itemizes the GEAR’s key

measures, which included: fiscal tightening, achieved through pre-announced deficit targets; continued gradual liberalization of exchange controls; accelerated reduction in tariffs; tax incentives to fund training; accelerated delivery on the backlog of social infrastructure; maintenance of a stable and competitive real exchange rate; effort to promote greater labor market flexibility; and accelerated privatization and restructuring of state-owned assets.175

170 Lodge (2003), 55. 171 Ibid, 55. 172 Visser (2004), 8. 173 World Bank (2007), 10. 174 Ibid. 175 World Bank (1999), 4.

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The GEAR scaled back the role of the state in the South African economy, cut state spending,

emphasized export-oriented growth, and reprioritized social service and infrastructure delivery,

though some social services deemed to be more effectively implemented by the private sector,

were cut. In the words of Wessel Visser (2004), ‘growth through redistribution’ was to be replaced by ‘redistribution through growth’… Perhaps the most important difference between the RDP and GEAR was that, while the former expected the state to conduct a people-orientated developmental policy, the latter saw South Africa’s economic ‘salvation’ in a high economic growth rate that would result from a sharp increase in private capital accumulation in an unbridled capitalistic system. The government’s task in this was to refrain from economic intervention and to concentrate on the necessary adjustments that would create an optimal climate for private investment (Terreblanche, 1999:5).176

By 2000 the RDP and GEAR had made some significant progress in the area of human

development in South Africa, as elaborated on by Tom Lodge in his book Politics in South

Africa: From Mandela to Mbeki (2003). Over 4.8 million people had been provided access to

safe, clean water. Over 1.1 million cheap houses that could accommodate 5 million of the

estimated 12.5 million people who lacked adequate housing, had been constructed by the

government. Roughly 1.75 million homes had been added to the electrical grid since 1994, and

the percentage of rural homes with electricity had risen from 12% to 42%. Hundreds of new

clinics gave access to health facilities to 5 million more people, millions of children had been

immunized through vaccination programs, and 240,000 people had been employed over five

years through a large public works program.177

However, though 39,000 families had been settled on their own lands using Settlement

Land Acquisition Grants, and the state claimed that some 250,000 people had ‘received land’,

land redistribution fell short of set targets. The ANC had implemented the World Bank’s willing-

buyer/willing-seller principle of land reform, which prioritized protection of private property and

relied on market forces and compensation for redistribution. Though this policy helped to ensure

rural stability and maintain commercial farming operations, it did little for subsistence farmers or

the deprived poor of the erstwhile black “homelands.”178 In fact, the policy effectively made

previously “black-only” lands available for purchase by the disproportionately wealthy white

176 Visser (2004), 9. In text citation of SJ Terreblanche. (1999). ‘The Ideological Journey of South Africa: From the RDP to the GEAR Macro-economic Plan.” In Religion in Public Life, <http://www.uct.ac.za/depts/ricsa/confer/me99/procs/pro_terr.htm> version 11/29/2001. 177 All figures from Lodge (2003), 57-58. 178 Gumede (2005), 78.

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population, while most of the overwhelmingly poor black South Africans had insufficient

financial resources to “compensate” any willing-sellers of white-owned lands.

Other macroeconomic targets set by the GEAR were missed by the end of the decade.

From 1996 to 2001 economic growth, through which redistribution and development would

ostensibly be accomplished, grew by only 2.7% against the stated target of 6%. Employment fell,

significantly missing its growth target of 3%; the loss of more than 1 million jobs in this period is

attributed by Visser to “the introduction of labour-saving technologies, increased out-sourcing

and a market turn towards using casual and contract labour.”179 Private investment fell, as did

welfare and health spending, though redistribution measures did not fall short of targets because

none were ever set by the GEAR.180

Recent Developments, 2000 – 2008

Economic performance has become more impressive since the turn of the millennium,

with some caveats. Growth has been particularly strong since 2004; the average growth rates of

GDP rose from 3.4% over 2000-2003 to 4.9% over 2004-2007, and GDP per capita rates grew

from 1.8% to 3.9% between the same periods.181 The main impetus for this growth has been a

worldwide rise in commodity prices, which have increased the value of South Africa’s natural

resource exports and led to a rise in domestic consumption. Increases in foreign direct

investment182 have also contributed more recently to growth. However, several issues have

persisted in this context.

Though progress has been made since the fall of apartheid toward including the poor in

the development process, inequality is still a major problem in South Africa. In 2001 the highest

10% of the population owned 45% of national income, a figure that had remained unchanged

since 1995, and the country had a Gini index of 57.8183; by 2006, the Gini index actually

increased to .68 according to the OECD/ADB.184 Related to this, many South Africans still live

in poverty, with 34% subsisting on less than two dollars per day and 10% on less than one.185

179 Visser (2004), 10-11. 180 Ibid. 181 Derived from data from the World Development Indicators Database, November 2008. 182 Some of this increase has been related to South Africa’s planned hosting of the FIFA World Cup in 2010. 183 World Development Indicators Database, November 2008. 184 OECD/ADB (2008a), 567. 185 UNDP Human Development Report 2007/2008, online at <http://hdrstats.undp.org/countries/data_sheets/cty_ds_ZAF.html>.; data from most recent year between 1995-2005.

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The unemployment rate remains high, averaging over 28% in between 2000-2005.186 As the

promotion of industrial development and competitiveness has been an important element in the

government’s strategy to reduce unemployment, the mixed results in the performance of the

manufacturing industry are of some concern.

South Africa has, by African standards, an impressive manufacturing capacity. However,

though the ratio of capital to output in manufacturing began to decline after 1994, and labor,

capital, and total factor productivity improved somewhat, this has both failed to substantially

increase employment (as capital intensity has continued to rise) and failed to increase the

percentage contribution of manufacturing to GDP and to total exports, even during the increased

period of growth since 2004 (see Figures 4 and 5). South Africa’s National Industrial Policy

Framework (NIPF) has targeted manufacturing as a priority sector, with a focus on promoting

and diversifying exports. However, trade liberalization and export-orientation have failed to

deliver and a “long hoped for export-led growth boom driven by labour-intensive

manufacturing”; the performance of export manufacturing has been disappointing, partly as a

result of poor productivity growth, disappointing levels of FDI, and inadequate competitiveness

in the sector.187 In ‘African Economic Outlook 2008’ the Organization for Economic

Cooperation and Development (OECD) and the African Development Bank (ADB) identify

several key structural issues that have constrained growth and fuelled continued unemployment

and poverty in South Africa; these are i) inadequate infrastructure resulting from 20 years of under-investment; ii) lack of competition in key sectors; iii) social and economic distortions inherited from the Apartheid regime; and iv) the very low skill levels of much of the labour force… High crime levels remain another important negative factor.188

Figure 4. South African GDP by sector, selected years.

The OECD/ADB (2008a, 567) places the percentage of the population living under the poverty line of ZAR 3000/year (about $2/day) at 43.2% as of 2006. 186 World Development Indicators Database, November 2008. 187 OECD/ADB (2008a), 560-562. 188 Ibid, 562.

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Source: World Development Indicators Database, November 2008.

Figure 5. Composition of South African Exports, 1994-2006.

Source: World Development Indicators Database, November 2008.

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In light of these observations, it is clear that South Africa faces several crucial challenges.

Investments in the rehabilitation and expansion of infrastructure (especially transportation and

electric power) will be imperative both to provide necessary services to citizens and to facilitate

industrial productivity. The role of human development and poverty alleviation in the national

economic strategy must be re-emphasized, and efforts must be stepped up to increase public

access to basic rights and services such as housing, health care, and education. The problem of

crime and public insecurity must be addressed to improve the safety of South African citizens

and improve the country’s overall economic climate. Education, including technical and

vocational training, must be a key priority in this regard in order to address the dearth of skilled

labor in the workforce. Finally, increasing the competitiveness of industry, and particularly of

labor-intensive manufacturing, must remain a primary goal of national industrial policy.

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Chapter 3: China’s African Relationships: Perspectives, Data Analysis, and Discussion

Introduction

The previous chapters of this paper focused on Chinese foreign and economic policy as

well as the historical and economic development of Angola and South Africa. Against this

background the present chapter will begin an inquiry into the nature of the developing

relationships between the PRC and these two African nations. It will begin by outlining recent

developments in Sino-Angolan and Sino-South African ties. The second section will discuss two

broad perspectives on the potential of Sino-African engagement, and the third will propose four

hypotheses on how each perspective might be reflected by patterns in Sino-Angolan and Sino-

South African trade data. The fourth section will present the main findings, and the final section

will analyze these results in the context of the hypotheses suggested in the third section.

The last decade has seen an unprecedented surge in Chinese engagement with the African

continent consisting primarily of increased levels of trade, investment, and aid packages. The

first Forum on China-Africa Cooperation (FOCAC), a diplomatic platform for furthering

cooperative ties between China and African nations, was held in Beijing in 2000, with two more

following in 2003 and 2006 and a fourth planned for 2009. Trade between China and the African

continent increased more than threefold from $10 billion in 2000 to over $50 billion in 2005189,

and was estimated at $100 billion in 2008.190 This section will provide a brief overview of recent

developments in Sino-Angolan and Sino-South African relations.

Recent Engagement: Angola

Angola has been at the forefront of the recent expansion of Sino-African diplomatic and

economic ties. In recent years China has become Angola’s largest aid donor, and Angola has

become China’s largest African trading partner. Post-conflict reconstruction and infrastructural

development have become national priorities for Angola since the end of the civil war in 2002,

just as the quest for industrial and energy resources has become a paramount concern for China.

189 Alden (2007), 14. 190 People’s Daily, “Sino-African trade to top 100 billion USD in 2008.” December 22, 2008. Available online at <http://english.peopledaily.com.cn/90001/90776/90884/6559789.html>.

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These concerns have provided the impetus for a partnership between the two nations, with

Angola supplying oil to the PRC in return for development assistance.

Central to the Sino-Angolan relationship is the financial assistance provided by the PRC

for Angola’s reconstruction efforts, which has come in the form of several multi-billion dollar

development loans. Chinese funding, which is primarily directed toward public investment

projects in infrastructure, telecommunications, and agro-business191, first began to flow into

Angola in 2002, and soon increased dramatically. The bulk of these loans have been extended by

the Chinese Import Export (Exim) Bank in the form of long-term, low-interest lines of credit for

public works projects. The Exim Bank loan agreements stipulate that 70% of these projects must

be awarded to one of thirty Chinese construction firms, specially selected by the PRC

government for work in Angola.

Trade between Angola and the PRC has grown remarkably in recent years, from just over

$1 billion in 2002 to over $10 billion in 2006192 and $25.3 in 2008193, making China Angola’s

second largest export partner and fourth largest import partner. Primary fuel-related products

comprise 99.9% of Angola’s exports to the PRC. Chinese exports to the country are significantly

more diversified, with the major groupings consisting of industrial supplies (28.3%), capital

goods (22.9%), transport equipment (19.7%), and consumption goods (14.5%) in 2007.194

Though the terms of trade do not favor Angola, the country has run a consistent and significant

trade surplus with China due to the large volume of oil it exports; of 5the $12.9 billion in total

bilateral trade in 2006, Angolan exports to China accounted for nearly $11 billion.195

Recent Engagement: South Africa

Chinese relations with South Africa have expanded dramatically since diplomatic

relations were officially established in 1998. The two countries signed the Pretoria Declaration in

2000, an agreement which formalized a mutual commitment to cooperation, partnership, and

constructive dialogue, and which established the Bi-National Commission (BNC) for the

coordination of dialogue and cooperation on issues of interest in bilateral and multilateral

191 Campos & Vines (2008), 3. 192 ITC Trade Statistics, accessed online January 22, 2008 at <http://www.intracen.org>. 193 PRC Ministry of Commerce Website, “Minister of Commerce Chen Deming Meets with Angolan Prime Minister Kassoma and Holds Separate Talks with Angolan Ministers of Finance and Trade.” Accessed online January 24, 2008 at <http://english.mofcom.gov.cn/aarticle/bilateralexchanges/200901/20090106017698.html>. 194 UN COMTRADE; BEC commodity codes. 195 ITC Trade Statistics, accessed online January 22, 2008 at <http://www.intracen.org>.

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affairs.196 The BNC has concluded several agreements between China and South Africa, which

have resulted in the recognition of China as a market economy by South Africa, the launching of

free trade agreement negotiations between the Southern African Customs Union (SACU) and

China, and numerous bilateral agreements on cooperation in areas such as education and the

promotion of peace and development in Africa.197 It is clear that South Africa represents a key

regional ally for China. However, in the words of Sanusha Naidu, “while the BNC has cemented

ties politically between Beijing and Pretoria, it is uncertain whether these relations extend much

beyond the realm of technical co-operation.”198

Economic ties have also expanded rapidly in the last decade, with bilateral trade

increasing by 64% from 1998 to 2003 alone.199 After Angola, South Africa is China’s second

largest trading partner in Africa. Despite South Africa’s relatively advanced level of industrial

development, South African exports to China consist mainly of primary products and semi-

refined raw materials such as iron, steel, aluminium, nickel, and gold, while imports from China

are dominated by manufactured goods such as clothing, footwear, plastic products, appliances,

and white goods.200

China’s Role in Africa: Partner or Competitor?

The dramatic expansion of China-Africa relations in recent years has raised both hopes

and concerns among analysts, and different perspectives on the China-Africa relationship have

emerged as these ties have developed Some of the wealth of recent literature on Sino-African

engagement identify the imbalance in the terms of trade between China and Africa as a troubling

sign that this new relationship may hinder the ability of African nations to move away from

dependence on primary exports.201 The displacement of African industrial producers, disregard

for human rights abuses, and the potential hindrance of attempts to promote “good governance,”

have been suggested as causes for concern. Conversely, some observers have highlighted

196 Shelton (2005), 12. 197 Naidu (2006), 467. 198 Ibid. 199 Naidu (2006), 468. 200 Shelton (2005), 13. 201 For example, see Kaplinsky, R. (2008), ‘What does the Rise of China Do for Industrialisation in Sub-Saharan Africa?’ Review of African Political Economy, 115, 7-22. Eisenman, J., & Kurlantzick, J. (2006). ‘China’s Africa Strategy.’ Current History, 105(691), 219-224. Online at <http://www.carnegieendowment.org/files/Africa.pdf>.

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potentially positive aspects of developing Sino-African relations.202 These include the significant

increase in developmental aid and support offered by the PRC, the benefits of technology and

skills transfers to Africa, as well as integration into global supply chains for African producers,

the increased availability of low-cost capital goods to African producers, and the empowerment

of African states.

In China in Africa (2007), Chris Alden divides the distinct viewpoints that have emerged

from the various analyses of the evolving China-Africa relationship into three categories. The

first of these perspectives sees China as a development partner, driven not only by economic

need but also by a long-term commitment to cooperation and development on the continent. The

second interpretation regards China as an economic competitor, and holds that Chinese interests

are limited to short-term resource-grabbing without regard for Africans’ local needs or concerns,

and which are undermining African development prospects. The third position sees China as a

neo-colonialist, and argues that Chinese long-term strategy is aimed at eventual political control

of African nations by forging links with African elites under the guise of South-South

cooperation.203

For the purposes of this chapter, the second and third perspectives outlined by Alden will

be combined into one broadly negative category. There are two reasons for this. First, any

attempt by China to consolidate political influence by forging ties with African elites would be

extremely difficult to quantify, and would certainly not be reflected by simple trade data.

Second, I will assume any Chinese neo-colonial influence that could be manifested in the trade

data would be that which reproduces classic neo-colonial trade patterns with African states,

namely those characterized by heavy trade partner dependence and uneven terms of trade. The

negative effects of such a neo-colonial economic relationship, namely on local concerns and

development prospects in African countries, are similar enough to those of the second

perspective that the two may be grouped together for the purposes of this investigation.

202 For example, see Schoeman, M. (2007). ‘China in Africa: the rise of hegemony?’ Strategic Review for Southern Africa, November 2007. Online at <http://findarticles.com/p/articles/mi_hb1402/is_2_29/ai_n29399002>. Muekalia, D. (2004). ‘Africa and China’s Strategic Partnership.’ African Security Review, 13(1), 5-11. Sautman, B. (2007). ‘Friends and Interests: China's Distinctive Links with Africa.’ African Studies Review, December 2007. Online at <http://findarticles.com/p/articles/mi_qa4106/is_200712/ai_n24393253>. 203 Alden (2007), 5-6.

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Hypotheses

Hypothesis #1: China as Development Partner in Angola

The development partner perspective holds that China’s expansion of relations with

Africa is part of a long-term strategy aimed not only at increasing access to natural resources and

new markets for goods, but also at fostering cooperative economic partnerships with other

developing nations that are mutually beneficial. This sub-section will briefly review the current

development challenges faced by Angola, and suggest what types of changes in Sino-Angolan

trade patterns might be manifested if Angola’s relationship with China is indeed making a

positive contribution to the country’s development.

The deindustrialization, destruction, and underdevelopment that characterized the long

period of the Angolan civil war have left the country facing many challenges in its current drive

toward post-war reconstruction and development. As discussed in Chapter 2, some of the most

crucial of these challenges are to rebuild and expand physical infrastructure and to reduce

economic dependence on oil exports by reviving and expanding the manufacturing sector. As a

development partner, in what ways could China make a positive contribution to Angola’s efforts

to address these issues?

The rehabilitation and expansion of infrastructure is one area in which China has become

a key partner. While relations between Angola and the IMF have remained shaky into the 2000s,

the PRC has extended to Angola several billions of dollars in loans to finance infrastructural

repair and construction, and as a result of these loans’ conditions at least 70% of the contracts

tendered have gone to Chinese construction companies204 and at least 50% of the inputs used in

construction originate in China.205 Given the centrality of Chinese firms and products to the

reconstruction process, a significant increase in products and materials related to infrastructural

construction would be expected in Angolan imports from China in recent years.

Given China’s uniquely integral role in Angola’s post-war development, specifically the

dominance of Chinese firms and products within the construction industry, we might also expect

to see an increase in China’s share of total merchandise imports entering into Angola. Though

the total value of Angola’s imports from all partner countries has likely risen during the post-war

204 Corkin and Burke (2007), 19-20. 205 Corkin (2009).

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reconstruction period, imports from China are likely to comprise a greater share in recent years

due to Chinese firms’ increased presence within the country.

If China is acting as a partner in the development of Angola’s manufacturing capacity,

how might this be reflected in the composition of trade between the two nations? As we know,

the vast majority of Angolan exports are comprised of oil; however, a small fraction of the

country’s exports are comprised of other goods. While it would be unrealistic to expect any

extreme changes in a few short years, any diversification of non-oil exports, and especially an

increase in manufactured exports, from Angola to China might lend some small support to the

view that China is positively contributing to the development of Angolan manufacturing. Given

the low level of Angola’s current manufacturing capacity, however, an absence of such a

diversification or increase should not be taken as evidence against this hypothesis.

Hypothesis #2: China as Competitor/Neocolonialist in Angola

The competitor/neocolonialist perspective maintains that China’s relationship with

African nations is motivated by short-term interest in acquiring natural resources with little

regard for African goals or concerns, and that China will ultimately undermine African economic

development by competing with African producers and perpetuating unfavorable terms of trade.

This sub-section suggests ways in which such a relationship would be reflected by the trade data.

One classic characteristic of colonial trade relationships is high trade partner

concentration, with the colonizer representing the main buyer and seller of the exports and

imports of the colonized nation. If the competitor/neocolonialist perspective is correct, we would

expect to see a colonial-style pattern of trade dependence emerging between Angola and the

PRC, with China’s shares of Angolan imports and exports becoming disproportionately large.

In terms of trade composition, we would expect a competitive or neocolonial relationship

to be reflected by uneven terms of trade, with China supplying higher value manufactured goods

in return for Angola’s raw materials. Given the deindustrialization that Angola has experienced

in recent decades, however, it would be too much to expect even terms of trade between Angola

and an industrial powerhouse like the PRC, so we must adjust our expectations slightly. Let us

suggest instead that a competitive or neocolonial relationship, in which China is undermining the

goals of Angolan industrial development, might be substantiated by data showing an increase in

imports of goods from China for which locally manufactured goods might be substituted. For

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example, a large share of imports from the PRC consisting of food and beverages would be more

indicative of a competitive/neocolonial relationship than would a large share of computer

products, as food and beverage products could more easily be substituted by those produced by

Angolan manufacturers. In terms of exports, data showing a high concentration of raw materials

in exports to China might support the competitor/neocolonialist perspective, as it fits the

colonial-style trade pattern of uneven exchange of manufactures for primary products.

Hypothesis #3: China as Development Partner in South Africa

If the development partner perspective is correct in the case of South Africa, we would

expect to see patterns of trade between China and South Africa that are mutually beneficial, i.e.

correspond to the continued economic development of both nations. What trade patterns might fit

this description?

One pattern that might imply a mutually beneficial trade relationship would be an

increase in both imports and exports of similar products between the two countries, which might

reflect an increase in intra-industry trade. For example, trade data showing an increase in both

imports and exports of automotive equipment between South Africa and China might imply that

stronger trade relations are proving beneficial to the automobile manufacturing industries of both

nations.

Another pattern that could be considered beneficial for South Africa would be an overall

increase in the share of labor-intensive manufactured goods in its exports to China. High levels

of unemployment have become a serious issue in South Africa in recent years, and stood at over

20% in March of 2009.206 Such a pattern would demonstrate that increased trade with China is

contributing to the growth of labor-intensive manufacturing in South Africa, which in turn might

contribute to the overall reduction of unemployment.

Hypothesis #4: China as Competitor/Neocolonialist in South Africa

The competitor/neocolonialist perspective holds that China’s relationship with South

Africa is detrimental to South African economic development. There are several ways in which

this might be revealed by the trade data.

206 Mail & Guardian Online (March 2, 2009), ‘Stats SA: Unemployment Rate Down.’ Online at <http://www.mg.co.za/article/2009-03-02-stats-sa-unemployment-rate-down>.

74

Clear evidence of Chinese competition with South African industries would be reflected

by data showing a large share in Chinese imports of basic manufactured products and finished

goods already produced locally by South African manufacturers, without a concomitant increase

in South African exports of such products to China. Such a pattern would suggest that many

goods imported from China are competing directly with those produced in South Africa, without

the benefit for South African manufacturers of increasing their own sales abroad.

Another clearly negative pattern of trade might be an increased concentration of primary

products in South African exports to China. Trade commodity concentration in primary products

is a classic symptom of uneven terms of trade in colonial-style trade relationships, with lower-

value raw commodities traded for higher value added manufactured goods in a partnership of

unequal exchange. Data showing a growing concentration of raw materials and primary products

in South African exports to China would certainly lend support to the perspective of China as an

economic competitor.

Trade Data and Observations

Angola – Trade Partner Data

As shown in Figure 6, Angola’s export partner concentration is extremely high. The

United States represents the country’s top trading partner during the selected years with an

average export share of 41%, though this position has come under increasing threat from China.

The value of Angolan exports to China grew tenfold between 2002 and 2006, increasing the

share accounted for by Angola’s top two export partners from 57.9% to 72% in the same period.

China’s percent share of total Angolan exports, which rose from 13.7% to 34.1% between 2002

and 2006, has also grown significantly.

As demonstrated in Figure 7, Angolan imports originate from a much more diverse cross-

section of partners, with the top two partners representing less than 30% of total imports in 2006.

It is clear that Portugal, Angola’s erstwhile colonizer, has lost its position as the number one

source of imports, having been overtaken by the Republic of Korea in 2004-2005 and by the

USA in 2006. China does not appear in the top five partners until 2006.

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Angola – Trade Composition Data

Angola’s exports are almost entirely comprised of petroleum. As Figure 8 illustrates, oil

comprises over 99% of Angola’s exports to China, and most of the remaining non-oil exports are

also primary products (mainly diamonds, precious stones, and timber). The composition of

exports depicted in Figure 8 is not unique to 2000 or 2007, but rather typifies the structure of

Angolan exports to China since the mid-1990s. While the structure of exports has not changed, it

is clear that the total value of exports to China has increased dramatically.

Angolan imports from China are more diverse. As shown in Figure 9, Chinese products

imported into Angola in 2000 were comprised primarily of light manufactures such as footwear,

clothing, and textiles. Angola’s Chinese imports in 2007 were dominated by road vehicles and

industrial machinery, but also included significant shares of manufactures, chemicals, food

products, and raw materials. This snapshot of imported goods represents a significant shift from

the composition of China-Angola trade in 2000, a shift toward more complex and specialized

industrial equipment and higher value manufactured goods.

South Africa – Trade Partner Data

The diversity of South Africa’s export partners sharply contrasts with the partner

concentration seen in Angolan exports. Figure 10 illustrates the respective shares of South

Africa’s top five export partners, none of which accounts for higher than 12.2% of the total in the

years selected. China does not appear among the top five partners until 2007, when total exports

to the country reached $4.1 billion.

While the partner concentration of South African imports, shown in Figure 11, is

similarly low, China’s share of imports is more significant. The fifth largest partner in 2002 with

an import value of $1.35 billion, by 2007 China had come to rival Germany as South Africa’s

top import partner, with imported goods valued at over $8.5 billion.

South Africa – Trade Composition Data

The composition of South African exports to China has also seen changes in recent years.

Figure 12 shows the top five commodity categories exported to China from South Africa in 2000

and 2007. It is clear that the total value of exports in all five categories has risen dramatically;

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total exports to China grew from roughly $335 million in 2000 to $4.1 billion in 2007.207 It is

also clear that though the percentage of exports to China accounted for by ores, scrap, and iron

and steel have remained constant, petroleum products have grown to account for more than a

quarter of the total, while industrial machinery and textile fibers have dropped out of the top five.

Figure 13 depicts the composition of South Africa’s total exports to all partners in the

2000 and 2007. These data are shown for purposes of comparison with the above data on South

African exports to China in the same years. These charts show less dramatic changes than those

above, though a modest increase in the shares of the top five merchandise categories is apparent.

While the value of total exports grew from $26.3 billion to $64 billion between the selected

years, this percent increase (243%) is dwarfed by that of exports to China (1,244%) in the same

period.

Figure 14 shows the top five merchandise categories imported into South Africa from

China in 2000 and 2007. Again it is clear that total annual import value has increased

substantially, from $995 million to $8.5 billion in the selected period. Though the percent shares

of the top five products have changed, three of the top five import categories in 2000 (office

machines and computers, clothing and accessories, and telecommunications and sound

equipment) remained in the top five in 2007.

Discussion

Angola: Data Patterns

Figure 6 clearly shows that the growing volume of exports to China comprise a large

portion of the overall increase in the value of Angolan exports in recent years. Also apparent is

the dramatic expansion of China’s share of Angolan exports, and the extent to which this has

both increased the overall share of Angolan exports accounted for by the top two export partners

as well as threatened the position of the United States as Angola’s #1 export partner. It is

important to note that petroleum and petroleum products account for nearly all of Angola’s

exports to both the US (99.5%) and China (99.9%).208

The growth of China’s export share has increased Angola’s export partner concentration,

with the share of exports accounted for by the top two partners (the US and China) rising from

57.9% to 72% in a mere four years. This increase is consistent with that predicted by Hypothesis 207 UN COMTRADE Data reported by South Africa, SitC Rev.3 Commodity Classification. 208 Percentages of total exports to both countries in 2007, SitC Rev.3 code 33. Source: UN COMTRADE.

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#2, which stated that rising trade partner dependence manifested by a disproportionately large

Chinese share of exports would lend support to the competitor/neocolonialist perspective. Taken

together with the centrality of Chinese loans, firms, and products to the Angolan reconstruction

effort, it seems clear that Angolan development is becoming increasingly, and perhaps

dangerously, dependent on the PRC.

There is one caveat to this statement that deserves mention. The growth of China’s share

of Angolan exports can be seen as having somewhat paradoxical implications for Angola.

China’s rise as an export partner can be seen as increasing Angola’s export partner dependence,

as it resulted in a significant expansion of the share of exports accounted for by the top two

partners. However, China’s increased significance for Angola as a trading partner can also be

seen as balancing that of the US, which alone accounted for the lion’s share of Angolan exports

in earlier years. While China’s emergence has increased Angolan trade dependence on its top

two export partners, it has also decreased Angolan trade dependence on its top export partner, the

United States. The US government has already noted the increased importance of China to

Angola, and begun to discuss its implications for US policy.209 If the Angolan government is

empowered by the ability to leverage the competing interests of China and the United States to

its country’s advantage, this could be seen as a positive result of increased China-Angola trade.

The origins of Angola’s imported merchandise, shown in Figure 7, are far less

concentrated than the destinations of its exports, and in 2006 the value of products imported from

China accounted for a mere 8.6% of total import value. While China’s share of Angola’s exports

is extremely high, its share of imports is relatively low. These data lend less support to

Hypothesis #2, as colonial-style trade partner dependence implies a situation in which one

country accounts for a disproportionate share of both exports and imports.

The composition of Angolan exports to China, illustrated by Figure 8, is characteristic of

the high trade commodity concentration predicted by Hypothesis #2. These exports consist

almost entirely of oil, and while the total value of exports to China rose greatly between the

selected years, their structure remained unchanged. This indicates that Angola’s trade

relationship with China has so far done little to reduce the country’s economic dependence on oil

209 See Morrison, S. “China in Africa: Implications for US Policy.” Testimony before the US Senate Committee on Foreign Relations Subcommittee on African Affairs, June 4, 2008.; Wilson, E. “China’s Role in the World: Is China a Responsible Stakeholder in Africa? Testimony before the US-China Economic and Security Review Commission, August 4, 2006.

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exports, and supports the prediction of Hypothesis #2 that the relationship is characterized by

uneven exchange.

Unlike that of Angolan exports to China, the structure of Angolan imports from China

changed significantly between 2000 and 2007. In 2000, the relatively low volume of imported

Chinese goods was largely comprised of relatively low value-added, labor intensive

manufactures and foodstuffs; by 2007 the composition of Chinese imports had shifted towards

vehicles, industrial equipment, and machinery, and their total value had skyrocketed. Though the

importation of complex manufactures in return for raw materials exports does typify a

relationship of uneven exchange between Angola and China, it is important to note that this shift

likely reflects the pivotal role that China has come to play in the Angolan post-war

reconstruction process. The shift in import composition toward vehicles, equipment, and

materials used in construction is unsurprising given the extent of Chinese firms’ involvement in

the construction of public works and other development projects in Angola, as well as the fact

that many of these imported products, such as special-purpose construction vehicles and

industrial machinery, simply cannot be manufactured domestically given Angola’s current level

of industrial development. This analysis brings us to an important point; while the unfavorable

terms of Angola’s trade with China (oil for complex manufactures) tend to support Hypothesis

#2 (China as competitor/neo-colonialist), this implication must be weighed against China’s

financial, technical, and material support of Angola’s internal infrastructural and economic

development.

To sum up, the data on Sino-Angolan trade largely supports the predictions of Hypothesis

#2, but also yields some mixed interpretations. It is clear that Angola is becoming increasingly

dependent upon the PRC as an export partner, and that trade between the two countries is

characteristic of colonial-style patterns of uneven exchange (primary products for value-added

manufactures). However, China’s relatively low share of Angolan imports does not reflect the

trade partner concentration that characterizes its share of exports, and thus the prediction of

colonial-style trade dependency is only partially applicable to the Sino-Angolan relationship.

And though it can be argued that the composition of trade between the two countries is

characteristic of colonial trade patterns, this must be viewed in the context of recent Sino-

Angolan engagement. China’s purchases of Angolan oil as well as the loans it has extended to

the Angolan state are both key sources of funding for Angola’s current development projects,

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and much of the value-added manufactures that China trades for raw materials are being used in

those projects’ implementation. While the patterns seen in the data on Chinese trade with Angola

are cause for some concern, they do not conclusively confirm the allegations of the

competitor/neocolonial perspective.

South Africa: Data Patterns

As Figure 10 illustrates, South Africa’s top five export partners remained relatively

constant during the selected years, and China was not represented among them until 2007. This

indicates that though Sino-South African trade may have increased, China has not come to

represent a disproportionate share of total South African exports. The increased importance of

Chinese trade to South Africa should, however, be noted.

China’s share of South African imports, shown in Figure 11, increased more

significantly, doubling from 5.2% to 10.7% of total import value in the selected period. While

these shares are not disproportionately large, it is clear that the flow of Chinese goods into South

Africa has dramatically increased, as has China’s significance as a trading partner. It is also

instructive to note that the value of Chinese imports into South Africa in 2007 ($8.5 billion) was

more than twice the value of South African exports to China ($4.1 billion) in the same year,

which shows that South Africa runs a large trade deficit with the PRC.

The composition of South African exports to China in 2000 and 2007 is shown in Figure

12. Comparison of the two charts clearly shows that exports have become more concentrated in

primary products. Both the absolute value and overall percentage of exports accounted for by

ores, petroleum products, and iron and steel have grown significantly, while exports of

manufactures such as industrial machinery and textile fibers have disappeared from the list of top

exported products. Comparison of the structure of South Africa’s total exports in the same years

(Figure 13) to the structure of those destined for China (Figure 12) reveals that South African

exports to China are more heavily comprised of ores, metals, and other primary products than are

total exports. While these products account for a significant amount of total South African

exports, they do not constitute the majority thereof. It is clear that their shares in South African

exports to China are disproportionately large.

Furthermore, while one of the two top export categories that consist of manufactured

products (road vehicles and industrial machinery) is represented among the top five exports to

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China in 2000, neither category appears on the list in 2007. Exports in SITC 3 category 74,

‘General Industrial Machinery n.e.s’, and category 78, ‘Road Vehicles’ (Table 1, lightly shaded),

amounted to $20.1 million and $2.1 million in 2000, growing to $36 million and $15 million in

2007, increases of 180% and 715% respectively. The percent increases in the value of the ores,

iron and steel, and petroleum products categories (Table 1, darkly shaded) over the same period,

however, amount to 1,200%, 1,379%, and 53,564%, respectively. This example clearly

illustrates that growth in primary exports to China has surpassed the growth of manufacturing

exports in recent years. The fact that the shares of categories 74 and 78 in the composition of

South Africa’s total exports grew slightly during the same period suggests that the shrinking

share of manufactures in exports to China is not part of a larger trend of declining manufactures

exports, but rather is specific to the Sino-South African trade relationship. These findings lend

support to Hypothesis #4, which predicts a disproportionate increase in primary products in

exports to China as a sign of a competitive/neocolonial relationship.

The composition of South African imports from China, shown in Figure 14, saw an

increase in the shares of computers, telecommunications and electrical machinery, though

clothing and miscellaneous manufactures remained among the top five merchandise categories.

The increased in clothing imports from China, which grew 564% from 2000 to 2007, has been a

cause of particular concern among South African clothing manufacturers. The influx of cheap

clothing from China has been blamed for a decline in the clothing manufacturing sector in South

Africa, with job losses and decreased profitability being attributed to the increased competitive

pressure that these products have put on domestic producers. The data shown here lends

credence to the assertion of Hypothesis #4 that increased importation of goods that could be

produced locally (without a concomitant increase in the exports of such goods) implies a

competitive/neocolonial relationship.

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Appendix I: Chapter 3 Figures and Tables Figure 6. Export partner concentration of Angola, 2002-2006.

Source: International Trade Centre (ITC) Statistics, online at <www.intracen.org>.

Figure 7. Import partner concentration of Angola, 2002-2006.

Source: International Trade Centre (ITC) Statistics, online at <www.intracen.org>.

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Figure 8. Composition of Angolan exports to China in 2000 and 2007. Based on data reported by China.

.

Source: UN COMTRADE Database.

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Figure 9. Composition of Angolan imports from China in 2000 and 2007.

Source: UN COMTRADE Database. Based on data reported by China.

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Figure 10. Export partner concentration of South Africa, 2002-2007.

Sources: International Trade Centre (ITC) Statistics, online at <www.intracen.org> (years 2002-2006); *UN COMTRADE Database (year 2007). Figure 11. Import partner concentration of South Africa, 2002-2007.

Sources: International Trade Centre (ITC) Statistics, online at <www.intracen.org> (years 2002-2006); *UN COMTRADE Database (year 2007).

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Figure 12. Composition of South African exports to China in 2000 and 2007.

Source: UN COMTRADE Database.

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Figure 13. Composition of South Africa’s total exports in 2000 and 2007.

Source: UN COMTRADE Database.

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Figure 14. Composition of South African imports from China in 2000 and 2007.

Source: UN COMTRADE Database.

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Table 1. Top South African exports to China by value, 2000 and 2007. Selected raw materials categories darkly shaded, selected manufactures categories lightly shaded. Year Commodity Code

(SitC Rev.3) Commodity Description Value (USD)

2000 28 METALLIFEROUS ORE,SCRAP $120,238,010 2000 67 IRON AND STEEL $89,380,898 2000 74 GENERAL INDUSTL.MACH.NES $20,098,181 2000 26 TEXTILE FIBRES $14,640,621 2000 68 NON-FERROUS METALS $12,869,320 2000 25 PULP AND WASTE PAPER $10,587,515 2000 66 NON-METAL.MINERAL MANFCT $10,379,724 2000 51 ORGANIC CHEMICALS $5,800,827 2000 27 CRUDE FERTILIZER,MINERAL $5,711,340 2000 53 DYES,COLOURING MATERIALS $5,501,992 2000 32 COAL, COKE, BRIQUETTES $3,933,639 2000 71 POWER GENERATNG.MACHINES $3,917,906 2000 56 FERTILIZER,EXCEPT GRP272 $3,707,232 2000 72 SPECIAL.INDUST.MACHINERY $2,770,668 2000 52 INORGANIC CHEMICALS $2,496,483 2000 33 PETROLEUM,PETROL.PRODUCT $2,302,231 2000 12 TOBACCO,TOBACCO MANUFACT $2,181,243 2000 78 ROAD VEHICLES $2,099,762 2000 79 OTHR.TRANSPORT EQUIPMENT $2,023,033

Year Commodity Code

(SitC Rev.3) Commodity Description Value (USD)

2007 28 METALLIFEROUS ORE,SCRAP $1,452,950,287 2007 33 PETROLEUM,PETROL.PRODUCT $1,233,162,510 2007 67 IRON AND STEEL $860,525,747 2007 68 NON-FERROUS METALS $128,079,251 2007 51 ORGANIC CHEMICALS $67,569,644 2007 26 TEXTILE FIBRES $66,546,520 2007 57 PLASTICS IN PRIMARY FORM $39,650,029 2007 74 GENERAL INDUSTL.MACH.NES $36,101,938 2007 25 PULP AND WASTE PAPER $32,684,259 2007 27 CRUDE FERTILIZER,MINERAL $28,009,390 2007 53 DYES,COLOURING MATERIALS $26,322,187 2007 52 INORGANIC CHEMICALS $24,298,377 2007 72 SPECIAL.INDUST.MACHINERY $21,487,103 2007 12 TOBACCO,TOBACCO MANUFACT $17,247,510 2007 69 METALS MANUFACTURES,NES $15,662,638 2007 78 ROAD VEHICLES $15,000,239 2007 08 ANIMAL FEED STUFF $13,872,433

Source: UN COMTRADE Database.

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Chapter 4: Further Discussion: Motivations, Concerns, and Implications in China’s African Relationships

Introduction

As discussed in the previous chapter, the recent swell of Chinese engagement with the

African continent has generated a wealth of scholarly literature representing a variety of

perspectives on the nature and implications of Sino-African relations. Many (though not all) of

these viewpoints fall to some degree into the two categories outlined in Chapter 3, viewing China

as having either a favorable or detrimental impact on African development. One of the primary

concerns of this paper has been to interrogate this dichotomy by examining the nature of China’s

relationships with Angola and South Africa. To accomplish this, the paper has endeavored to

analyze the motivations behind China’s foreign policy, including its expansion of ties with

Africa, the past and present state of economic development in Angola and South Africa,

including current development challenges, and recent engagement and trade patterns between

China and the case countries in recent years. This chapter will review and elaborate upon these

analyses, and attempt to situate them in the context of the broader debate on Sino-African

relations. It will also look at some of the implications of these findings, and opportunities therein

for further study.

Motivations Behind Sino-Angolan and Sino-South African Relations

Chapter 1 identified several fundamental goals behind the foreign policy of the PRC, with

the maintenance of domestic economic growth being the most paramount. Since the advent of

the Deng Xiaoping era in 1978 the promotion of the economy has been the central focus of the

Chinese government, both as a means of augmenting China’s role in the world and as a

prerequisite to the continued survival of the Chinese Communist Party. Another priority of the

PRC government is elevating China’s status in the international system. Making China a key

player in world affairs involves not only expanding the country’s economic power but also its

political alliances. Developing countries are of particular significance in this arena, as China has

come to be viewed by many as a leader in the developing world, and fostering alliances among

developing nations is crucial to building coalitions of support in multilateral fora such as the UN

and the WTO. A third priority which is becoming increasingly significant for the PRC is that of

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enhancing the country’s energy security. Though only part of the solution, acquiring overseas

energy resources is an important element of the PRC’s efforts to mitigate the problems and

vulnerabilities associated with domestic energy supply, distribution, and consumption.

Chapter 2 discussed past and present political and economic developments in Angola and

South Africa, providing context for an analysis of these countries’ engagement with the PRC. In

the Angolan case it is clear that expanded relations with China center around Angola’s post-war

reconstruction process. Though rebuilding the nation’s dilapidated and destroyed infrastructure

became Angola’s number one priority after the cessation of the civil war in 2002, the country’s

relations with the IMF and other traditional Western donors had been fraught with conflict for

years, due primarily to Angola’s frequent rejection of the traditional neoliberal policy

recommendations of the donor community, as well as the push by Western donors for increased

transparency and accountability in state operations. Chinese loans, which began to materialize in

the early 2000s, gave Angola a more favorable alternative source of funds for financing the

reconstruction process. Indeed, the PRC offers not only financing, but also technical and material

support; the Chinese construction firms working in Angola are experienced, efficient, and

competitive, and the finished work is of high quality. Given the number of projects that have

been completed and the degree to which the Angolan economy has grown in recent years, it is

unsurprising that Angola views China as an important ally in the development process.

For South Africa, China is most significant as a strategic political ally rather than a

source of development aid. As Africa’s most economically and industrially developed nation,

South Africa is a key player in African affairs and an important representative of African

concerns in international organizations. Given the growing political and economic influence of

the PRC in world affairs as well as on the African continent, South Africa has much to gain from

a strategic partnership with China. Bilateral cooperation and coordination on issues of mutual

concern has the potential to benefit both nations. Economically, China represents a large market

for South African companies, as well as an important trade partner.

China, Angola, and South Africa – Issues and Concerns

Chapter 3 provided a brief review of China’s recent engagement with Angola and South

Africa, presented data on bilateral trade patterns, and discussed the data presented in the context

of two broad perspectives on China’s expanded relations with Africa, one positive and one

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negative. This section will expand upon that discussion by addressing specific areas of concern

in both the Sino-Angolan and Sino-South African relationships.

Angola Since the conclusion of decades of devastating civil war in 2002 Angola’s development

prospects have significantly improved, and the rapid pace of economic growth and post-war

reconstruction in recent years has been encouraging. China has been a key partner in the post-

war period, supporting and assisting Angolan development initiatives, specifically in the area of

public infrastructure expansion, in return for guaranteed access to Angolan oil. As discussed in

Chapter 3, this “oil-for-aid” relationship also carries positive and negative implications for

Angola.

On the positive side, Chinese assistance has been integral to boosting Angola’s post-war

reconstruction efforts, and has also effectively freed the Angolan government to pursue its own

development course, independent of the conditionalities imposed by Western donors. The ever-

increasing Chinese presence in Angola also implies that the PRC is committed to a long-term

relationship with the country, a relationship which may benefit the Angolan economy in the form

of increased investment, technical cooperation, and knowledge and technology transfer.

There are, however, several causes for concern in the Sino-Angolan relationship. As the

data presented in Chapter 3 has shown, the growth in oil exports to China has greatly increased

the partner concentration of Angola’s exports, and thus Angola’s trade partner dependence.

Though Angola enjoys a trade surplus with China, the terms of trade between the two countries

are far from equal, as Angola imports complex manufactured goods in return for exports of oil

and other raw materials. Angola’s economic dependence on oil production has risen as a result of

this increase in oil exports, increasing Angola’s vulnerability to the plethora of problems

associated with the “resource curse.” One such problem, that of diversifying the economy by

fostering the growth of a healthy and productive manufacturing industry, already faces Angola.

As discussed in Chapter 2, Angola’s persistent scarcity of human and technical capacity is also a

major obstacle to economic growth and diversification. There is an urgent need for the

implementation of a coherent, targeted industrial policy to aid the recovery of Angolan industry,

as well as to attract and foster human capital growth and technology and knowledge transfer into

the country.

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While the design and implementation of policy is ultimately the responsibility of the

Angolan government, there may be room for the PRC to contribute to this process in an advisory

and technical capacity. China may also be of assistance in the effort to address Angola’s human

capital deficits by establishing cooperative programs in areas such as education, technical

training, and information sharing. However, direct engagement on the part of Angola is crucial to

the advantageous expansion of the Sino-Angolan relationship. Angola’s development goals, as

well the role for China to play in their accomplishment, must be clearly defined by the Angolan

state. In order to maximize the benefits of its ties with China and realize the promise of a true

“development partnership,” Angola must challenge China to hold true to its rhetoric of

cooperation and mutual benefit.

South Africa

While China’s relationship with South Africa is qualitatively different from its ties with

Angola, it prompts some similar concerns, chiefly regarding the terms of trade between the two

countries. Though to a lesser degree than Angola, South African trade with China is also

characterized by high levels of natural resource exports and imports of manufactured and

technology goods. Unlike Angola, however, this uneven trade relationship has resulted in South

Africa running a significant trade deficit with China. Furthermore, the concentration of primary

products in South Africa’s exports to China is even more troubling in light of the country’s high

level of industrial development. While there are logical reasons why manufactures are all but

absent in Angolan exports, one would expect to see a significant proportion of manufactured

goods in South African exports to China, especially as such goods represent significant shares of

the country’s total exports.

As well as contributing to its trade deficit with China, South Africa’s increasing

specialization in the export of lower-value-added natural resources to the PRC represents a

missed opportunity for South African industry. An in-depth examination of Sino-South African

economic ties conducted by Nicanor et. al.210 points to the growth of mining investments and the

automotive industry in China as areas of potential benefit to South African industry, which is

highly competitive in the production of mining machinery and automotive components. So far,

however, intra-industry trade between South Africa and China in these and other sectors remains

210 Nicanor, et. al. (October 10, 2006), 56.

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relatively low, and Nicanor et. al. warn that the opportunities open to these South African

industries will disappear without a concerted effort on the part of South Africa to build its

production capabilities. If such steps are not taken, the inequality in the Sino-South African trade

relationship is likely to deepen.

In a statement in Cape Town in 2006, South African president Thabo Mbeki warned

against the perpetuation of unequal exchange between China and all African nations, as well as

the potential dangers of developing “colonial” relationships with the PRC.211 He stated,

The potential danger in the relationship between Africa and China is that it is possible to build ... an unequal relationship, the kind that has developed between African countries as colonies - including this one - and the colonial powers… In terms of this, the African continent exported more material and imported goods, condemning it to underdevelopment, being only a supplier of raw materials. I am saying that this is a potential danger in terms of the relationship that could be constructed between China and the African continent…212

That this cautionary statement refers not only to the South African relationship with China but

rather to Sino-African relations as a whole points to the potential for South Africa to take the

lead in fostering strategic cooperation between African states in their dealings with the PRC.

South Africa is already a leading participant in African affairs, and, as stated earlier, this

leadership status is one of the reasons why ties with South Africa are of key strategic

significance to the PRC. This additional strategic leverage vis-à-vis China as well as its status on

the continent places South Africa in a unique position to play a leading role in the coordination

of a collective African response to the increasing Chinese presence on the continent. Nicanor et.

al. also address this possibility, stating that ...China’s strategic interests in Africa as a whole have implications for South Africa. China’s international relationships are evidently geared to ensuring access to resources. This underpins Alden’s analysis that African states are in a relatively strong bargaining position (Alden, 2005a; Sidiropulos, 2006). But, utilising these strengths, and minimising the negative implications of China’s interaction with the weak states which characterise many African countries, requires a strategic engagement in which South Africa could play a leadership role.213

211 ‘South African President warns against Africa-China ties.’ December 14, 2006. Afrol News. Accessed online April 3, 2009 at <http://www.afrol.com/articles/23341>. 212 ‘South African President warns against Africa-China ties.’ December 14, 2006. Afrol News. Accessed online April 3, 2009 at <http://www.afrol.com/articles/23341>. 213 Nicanor, et. al. (October 10, 2006), 56.

94

China in Africa as Partner and Competitor

In view of the positive and negative elements of the Sino-African relationships identified

in this study, it is clear that the dichotomy of China as “development partner” versus

“neocolonial competitor” is a false one. The PRC’s recent engagement with these and other

African nations is too complex and varied to be described by diametric generalizations. Indeed,

as Lucy Corkin and Sanusha Naidu (2008) note, “…the polarization of the debate has served

only to mask the nuances inherent in both China and India’s engagement with economies on the

African continent.”214 As Chris Alden himself states in the concluding chapter of China in

Africa, It should be evident by now that these characterizations oversimplify what are complex and overlapping interactions… and, in consequence of the ever-increasing ties, throwing the spotlight on a particular incident or event will at best capture momentarily a feature of the relations that cannot be mistaken for the whole.215

It is hoped that this paper’s examination of China’s African relationships has shed light

on some of these nuances, and shown that China’s ties with Angola and South Africa are, and

have the potential to be, both beneficial and detrimental to these countries. The extent to which

the potential benefits are realized and the disadvantages minimized will depend on many factors,

including the domestic policies pursued by Angola and South Africa, the level of substantive

cooperation exhibited on the part of China, and the extent to which a collective regional African

stance on relations with China materializes.

Implications and Opportunities for Further Study

The examinations of the Sino-Angolan and Sino-South African relationships made in this

study raise some broad questions regarding China’s relations with the Africa and the developing

world in general. This section will discuss the extent to which bilateral relations with China

allow for the implementation of certain industrial policies on the part of developing countries, as

well as the relationship between a country’s level of development and the ways in which it is

affected, both directly and indirectly, by the economic rise of China.

214 Corkin & Naidu (2008), 115. 215 Alden (2007), 125.

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Policy Space in Sino-African Relations

The prime focus of this study has been on Chinese ties with Angola and South Africa,

and the effects of these ties on the development prospects of these two nations. Though these

countries and their relationships with the PRC are different in many ways, this paper has

concluded that they share a common need for specific and targeted state initiatives to foster

industrial growth in the face of their developing ties with China. In the Angolan case, a coherent

industrial policy will be essential to the successful reinvigoration of the domestic manufacturing

sector and the diversification of the economy away from over-dependence on oil production. For

South Africa, efforts need to be made by the state to promote more trade in industrial products in

which South Africa is competitive, such as automotive components, to reduce the concentration

of primary products in trade with China and to more broadly reinvigorate the manufacturing

industry and manufacturing exports. This common need for state initiative begs the question of

how much space is available to these nations for the implementation of such policies, and, more

specifically, whether bilateral agreements with China have restricted this space.

A recent study by Rachel Thrasher and Kevin Gallagher (2008) has already begun to shed

some light on this issue. In this study the authors examine a ‘toolkit’ of various policies

employed by developed and developing nations to protect and foster industrial growth and

diversity, and compare the extent to which US, EU, WTO, and South-South trade agreements

constrain or prohibit the use such policies. The ‘toolkit’ of policies examined includes several

that might serve as useful elements of industrial initiatives in Angola and South Africa, such as

tax incentives for exports, safeguards for injurious imports, and domestic content, technology

transfer, and joint investment requirements. Among the trade agreements reviewed, Thrasher and

Gallagher found that while WTO, EU, and especially US trade agreements were significantly

restrictive, South-South agreements provided ample space for the implementation of these and

other industrial development policies. Included in the South-South category is the China-Chile

Free Trade Agreement, which, like most other South-South agreements studied, was found to

“effectively contain commitments only in the area of goods trade.”216 According to the authors,

the China-Chile FTA contains no restrictions on tax issues (e.g. export incentives), services,

investment, or intellectual property rights (IPRs). These findings suggest that trade agreements

with China are less constraining to African nations than those made with the continent’s

216 Thrasher and Gallagher (2008), 16.

96

traditional trade partners. The growing body of literature on Sino-African relations would greatly

benefit from additional research on Chinese trade agreements in Africa.

Trade Impacts and Levels of Development

As stated in the previous section, China’s relationships with Angola and South Africa are

as different as the two countries themselves. To Angola, China is a primarily provider of

development assistance and a customer of the nation’s oil industry. For South Africa China

represents both a strategic political ally and an important trade partner. However, China also

poses a competitive threat to South Africa industry that is of far less concern in its relationship

with Angola. The fact that South African industry seems to have suffered more from the

competitive pressures of China than has Angola’s fledgling manufacturing sector poses the

question as to how the developmental differences between countries such as Angola and South

Africa determine the degree to which they benefit or suffer from expanded relations with China.

In a 2006 study, authors Steven and Kennan217 suggest a method for assessing the effects

of China on developing countries’ trade which may provide insight into this question. In their

examination, the authors select groups of products for which China’s import or export growth

has been rapid, and which are of particular importance to the trade of developing countries. One

group is comprised of products that have become key Chinese imports, defined as those for

which China’s imports are a high percentage of the world total, and which are significant imports

or exports for sub-Saharan Africa and/or Latin America, and which includes feed, chemicals,

cobalt, copper articles, aluminium oxide, sulpher, and ferrous metals. The other group consists of

products which have become significant Chinese exports (defined similarly), and includes leather

and articles thereof, textiles, clothing, footwear, aluminium, white goods, brown goods, and

ferrous metals. Steven and Kennan then examine how the change in world prices of these goods

has affected the trade balance of each country by sector, …splitting the effects into those likely to favor a country’s trade balance (increased demand for their exports or lower prices for their imports) and those likely to disfavour it (increased export competition in third markets, or increased world demand for goods that are imported)…If a country exports a product which China imports or imports a product which China exports, it is seen as being a beneficiary of expanded trade flows. On the contrary, if it exports products which China exports or imports products which China imports, it is likely to be a loser.218

217 Steven, Christopher, and Kennan, Jane. (2006). ‘How to Identify the Trade Impact of China on Small Countries.’ IDS Bulletin, 37(1), 33-42. 218 Steven and Kennan (2006), 38.

97

This provides a framework for assessing the impact of China on developing nations. Steven and

Kennan add up the number of sectors which have gained and subtract the number which have

experienced negative effects to determine the overall effects on each country’s exports and

imports. The study finds that most countries in sub-Saharan Africa have a high incidence of

gains, with only two of twenty-seven losing in more sectors than they gain. Most of these gains

are in the form of lower import costs, with export gains being relatively lower. The exception is

South Africa, which enjoys high import and export gains, as well as high import and export

losses. The authors suggest that the relatively higher incidence of negative effects for South

Africa (in the form of greater competition with China’s exports and higher prices for certain

imports) is likely also to be a function of the commodity composition of trade. China’s imports are those associated with a rapidly industrialising state; since few SSA states fall into this category they are not competing for world supplies of the same products. China’s exports are of manufactures. About the only manufacture of SSA that is significant across several countries is clothing.219

This argument may partially explain why South Africa has experienced more negative economic

pressures than Angola as a result of expanded trade with China. South Africa’s higher level of

industrial development means that the composition of its imports and exports is closer to that of

“a rapidly industrialising state,” and thus overlaps to a greater degree with that of China. As a

result, South African industries compete more directly with those of China for “world supplies of

the same products,” and thus the competitive pressures of Chinese industry on world prices

impact a greater number of South African imports and exports. These findings suggest that the

smaller development gap between South Africa and China increases the degree to which South

Africa both gains and suffers from expanded ties with China. The respective gains and losses

that accrue to countries at different levels of economic development as a result of direct and

indirect effects of the Chinese economy is a subject that merits further research.

Conclusion

The prime goal of this study has been to contribute to the study of the emergent China-

Africa relationship through a specific examination of China’s growing ties with the nations of

Angola and South Africa, with an emphasis on bilateral trade. Related to this, the study has also

sought to interrogate some of the broad perspectives that have emerged regarding China in

219 Steven and Kennan (2006), 39.

98

Africa in the context of these particular national case studies. It has been concluded that these

relationships are both complicated and mixed in their effects, posing both threats and

opportunities to these African nations, and that no single generalization of China as a “partner,”

“competitor,” or “neocolonialist” in Africa is capable of capturing this complexity. It has also

become clear that the extent to which Sino-Angolan and Sino-South African ties will prove

beneficial or detrimental in the long run will depend on multiple factors. It is hoped that future

research will be devoted to examining these factors more closely, in the interest of maximizing

the potential for these relationships to advance economic development and prosperity in both

countries.

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