Pambazuka News

Emerging powers news roundup

Stephen Marks

2009-10-30, Issue 455

In this week's emerging powers news roundup, Stephen Marks looks at preparations for the upcoming Forum on China-Africa Cooperation [FOCAC] ministerial meeting, the growing controversy over Chinese investments in Guinea and DRC, and criticism of China from the US for keeping its currency too low.

Chinese Premier Wen Jiabao will attend the opening ceremony of the fourth Ministerial meeting of the Forum on China-Africa Cooperation [FOCAC] in the Egyptian resort of Sharm el- Sheikh on 8 November. And he will take the opportunity to pay an official visit to Egypt’s President Hosni Mubarak, according to China’s official Xinhua news agency. More

China’s delegation will be led by Foreign Minister Yang Jiechi and Commerce Minister Chen Deming. The meeting will review how the consensus of the Beijing Summit has been implemented. It will also adopt a ‘Sharm el-Sheikh declaration’ and an action plan for 2010-2012 to chart the path for further China-Africa cooperation. More

In the first half of this year China's direct investment in Africa, excluding in the financial sector, shot up 78.6 percent year-on-year to $875 million, according to an unnamed Commerce Ministry official quoted in the official Communist Party organ‘Peoples Daily’.

Last year's total African investment was $5,49-billion, or about one-tenth of China's total overseas investment, said the paper.

At the first China-Africa summit in 2006, President Hu Jintao promised $5-billion in loans and credit. The People's Daily said that of that money, $2-billion had already been lent out to 11 projects. The report did not say how much of the remaining $3-billion has been disbursed.
As of 2008, China's overall investment in Africa had reached $26-billion, the report added, though it did not give an exact timeframe. More

There is growing evidence that the controversial $7 billion deal with a Hong Kong-based Chinese company announced by the Guinean miltary junta is not what it seems. More

China’s $9 billion investment package in the Democratic Republic of Congo promises to provide the country with badly-needed infrastructure. But controversy continues including over the predictable issues of environmental impact, financial terms, and transparency. There are also calls for closer liaison between the Chinese embassy, civil society, and Chinese entrepreneurs on the ground. More

China's CNOOC is drilling a $26 million exploration well in northern Kenya that will be the deepest yet in a country that has searched in vain for commercial oil and gas deposits for decades. More

Foreign Direct Investment (FDI) from China to Nigeria has doubled from $3 billion in 2003, to $6billion, with the oil and gas sector taking the lion share of 75 per cent, according to a Nigerian business leader. More

China Petroleum & Chemical Corp.’s spokesman Huang Wensheng said he isn’t aware of discussions with Ghana National Petroleum Corp. to jointly bid for the Jubilee offshore oil field. More

US criticism of China for keeping its currency too low by pegging the RMB to the dollar has traditionally come from the neo-con right, or from US unions worried for their members jobs. So it was a surprise when liberal economist Paul Krugman joined the chorus, claiming in the New York Times that
‘China’s bad behavior is posing a growing threat to the rest of the world economy. The only question now is what the world — and, in particular, the United States — will do about it’. More

With the dollar falling, Krugman argued, the RMB peg amounts to a devaluation against other currencies than the dollar, boosting China’s jobs at the expense of the EU and of other poor countries.

But consultant and fund manager Zachary Karabell disagreed. ‘Before the crisis of the past year, Chinese authorities had actually begun a slow, quiet revaluation of the currency, but only after American politicians and officials stopped using the currency question as a cudgel against China. The recent decision of Timothy Geithner and the Obama Administration not to label China a currency manipulator marked a welcome change in tactics’ he argued
‘But with China now accounting for nearly $1 trillion of American debt, and with the two economies in a symbiotic relationship that neither loves but that neither can escape, the U.S. can't simply insist that China do something about its currency and expect action. These economies are now fused...China will again allow its currency to appreciate when it feels that doing so won't cause a crisis or disrupt growth. Its massive accumulation of reserves is an issue. As the crisis eases, it's likely that Beijing will return to its pre-2008 policy of gradual appreciation, especially now that it is focusing on generating domestic demand and wants greater purchasing power for Chinese citizens. More

Independent analysts seem to agree that China will maintain a weak yuan until its export sector has recovered from the global crisis, prioritising concerns at home despite growing pressure from its major trading partners.
"Their focus is domestic issues, not foreign issues," Ben Simpfendorfer, a Hong Kong-based economist at the Royal Bank of Scotland, told news agency AFP.
"They recognise the problem of a weak currency but they have to worry about a large low-income population which has an overwhelming influence on policy-makers." More

But China’s economic policy is also under fire for diverting too much of its massive economic recovery package into inflated and often corrupt state investment, instead of boosting real consumer spending. More

Once again Zachary Karabell comes to China’s defence, arguing that even if official figures are unreliable and much of the growth package ends up in speculative bubbles, the underlying dynamism of the economy and continuing development of the interior means that China’s growth is real.
‘Yes, there will be bubbles, but what the critics have missed is that the growth of the past years has seen multiple bubbles form and pop--in Shanghai real estate, in stocks not once but at least three times, in export industries, and in loan growth and contraction. To those who warn darkly of another stock bubble, the response should be, so what? Shanghai can go up and down 75%--enriching and then destroying portfolios, elating and then depressing millions of investors--and the lumbering giant of the overall economy will continue to plow ahead’. More
An in-depth analysis by Time Magazine came to similar conclusions.

"Most economists think they've overdone investment and underdone consumption and spending for social welfare," says Stephen Green, the Shanghai-based head of research for Standard Chartered Bank. "There will be a price to pay. No one knows how big that will be. The bet is they'll grow through it. That's the bet they're taking." More

Meanwhile Time’s rival Newsweek argued that at least one aspect of the massive boost to China’s infrastructure will have real and revolutionary implications for China’s economy and society - the transformation of the country’s rail network and the consequent ‘shrinking of China’.
‘Over the next three years, the government will pour some $300 billion into its railways, expanding its network by 20,000 kilometers, including 13,000 kilometers of track designed for high-speed trains capable of traveling up to 350kph. Result: China, a nation long defined by the vastness of its geography, is getting, much, much smaller’. More

The promised boost in healthcare spending could have similarly far-reaching results. But the form it will take has still to be decided, and it could be less radical than some earlier predictions. More

Meanwhile, in a tit-for-tat move, China was reported to be preparing to launch a trade investigation into whether US carmakers are being unfairly subsidised by the US government. The move comes at a time of heightened trade tensions between the two countries after the US imposed duties on Chinese tyres last month. Many warned this would prompt Beijing to retaliate. Few vehicles are actually exported from the US to China, but the move would have symbolic power by turning the tables on Washington. More

Other emerging economies in the BRIC group were feeling the backwash from the glut of global liquidity, and the peg of the RMB to the dollar. Brazil’s decision to impose a 2 per cent tax on inward portfolio capital inflows was described by one commentator as ‘an unorthodox response to a global problem’. ‘
‘As emerging market currencies gain ground against the super soft dollar, the prices of too many financial assets — stocks, property and other assets from Turkey to Brazil — are bubbling.. But one big currency, the fixed Chinese renminbi, isn’t appreciating. Brazil is just one of many emerging economies to find it is losing competitiveness to the Asian leviathan’. More

The IMF’s decision to criticise Brazil for imposing the levy sparked a controversy. More

Former Indian Finance Secretary S. Narayan argues that if the fall in the US currency looks like becoming permanent, India should consider following China in diversifying away from the dollar. More

* Stephen Marks is research associate and project coordinator with Fahamu's China in Africa Project.
* Please send comments to [email protected] or comment online at Pambazuka News.