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The mountains are high and the emperor is far away

In a time before emails, global social media and instant communication, local officials in the vast Chinese empire, could easily disregard the policies and wishes of the capital on the basis that “the mountains are high and the emperor is far away”. One could scarcely think that such an insular view of either one’s own responsibility, or the world at large, could survive almost two decades into the 21st century, when most of what we think and say is in the public domain.

Yet, remarkably, at this time in history, the West has become inward in its thinking with political rhetoric following suit. The USA, under leadership of President Trump, is putting America first in order to make it great again. The Tories in the UK are working hard on their exit plan post the Brexit referendum. Scotland is again contemplating a second referendum on its exit from the UK. And the pundits have already made up terms for the next possible candidates to exit the EU, such as Frexit, Italexit and Grexit to name a few.

At a time when we would have thought that globalisation could be the economic driver behind a united world, it seems that the opposite may be playing out. Fears of being unable to compete in the global market are in fact driving nations to become more inward and protectionist in their world view.

The West has become fragmented in how it approaches the world. We may have seen the end of the united West as it was in the eighties and early nineties. On the other hand, China is not fragmented or schizophrenic in its world view. It is clear how it intends to engage the world, and it is getting on with it. It is adapting its policies to assimilate western thinking; its children learn English and many youngsters obtain their degrees from prestigious western academic institutions.

In the late seventies and post Chairman Mao’s death in 1976, China adopted a revised policy of “socialism with Chinese characteristics”. This policy change culminated in the remarkable economic and corporate governance reforms of Chinese state-owned enterprises (SOEs) and their re-packaging into the world capital markets. The seminal transactions in furtherance of this new policy happened in the early nineties when SOEs were floated on the stock exchanges of the world in order to generate much needed capital for economic growth and expansion within China. It also paved the way for private ownership, a concept distinctly non-Marxist, but which has laid the foundation for entrepreneurial economic growth.

It is simply remarkable that in just under three decades of active economic reform, China is standing at the precipice of overtaking the USA as the largest world economy. It is already the USA’s biggest lender and the largest infrastructure developer in Africa.

It is almost unthinkable that globalisation will disappear, no matter how insular nations become. What we understand as globalisation will most likely require a re-think, but as the West tries to come to grips with it, China has drawn from its experiences of socialism with Chinese characteristics, to adopt a policy of “globalisation with Chinese characteristics”. Simply based on the successes over the past three decades, it is unlikely that China will not succeed in putting its stamp on globalisation.

And on the face of it, China does not only appear to be putting its interests first. It has joined the wealthy nations in providing financial aid and it is estimated that China has spent some US$23 billion in relief aid in Africa. Not an insignificant effort at all and it should be lauded. However, research suggests that most of this aid was spent in six of the 54 recognised nations in Africa. Who are these nations who received aid from China, and why did they?
The nations that received the aid from China fall into two categories, namely, those who are rich in mineral commodities, and those who are not.

In the mineral rich category, South Africa, Ghana and Nigeria received aid. This of course suggests that China wants to improve its relationships with these countries to ensure that the recipient nations’ mineral extraction policies benefit China. We have seen an insatiable appetite for mineral commodities from China. In times of mineral regulatory turmoil, particularly in South Africa with the publication of the controversial third mining charter and proposed amendments to its mineral laws, China and its private entrepreneurs actively seek out investment opportunities when others develop their exit strategies.

In the mineral poor category, Ethiopia, Kenya and Uganda received aid. Ethiopia’s economic growth has been remarkable in recent years, achieving double digit growth. Its infrastructure development has been stellar and its economy is about to overtake that of Kenya. Similar growth performance has been experienced in Uganda. Kenya has long been recognised as a growing and sizable economy in Africa and the predictions are that its economic growth will be around 6% in 2017.

Of course these economies present opportunities to China to enter new markets. Partnering on infrastructure development and obtaining favourable terms on the import of Chinese manufactured goods, seems a fair trade when billions of dollars have been advanced in aid.

In time we will see the upsurge of China’s economic interaction with settled and growing economies in Africa. We will not only see the limited focus on mineral extraction and commodities (as may have been the case in the past), but we will also see a rising appetite to trade with growing economies where target markets with disposable income exists.

While the West is trying to find its identity in a world turned upside down, China is getting on with the business of the day presenting a litany of opportunities throughout Africa for public-private partnerships and entrepreneurial investment. Those who think that the mountains are high and the Emperor is far away may just find that they will lose out on the opportunities created by China’s policy of globalisation with Chinese characteristics.

Written by Wessel Badenhorst, Partner and Head of Asia-Africa Practice at Hogan Lovells (South Africa)