009China’s investment and services great wall

Blue sky Policy Alert 009

FP7 themes health agro ict nano energy environment transport ssh space security
ERA goals mobility infrastucture rtd institutions knowledge sharing  joint programming  cooperation 
Author(s)Joe Ravetz, Rafael Popper, Rob Ashworth, Thordis Sveinsdottir
Contributor(s)David Alexander, Alastair Brown, Tony Diggle, Pierre Rossel, Anna Sacio, John Turnpenny
ManifestationPlease, select...
Potential impacts in Europe
infrastructures
Negligible
people's lives
Minor
legislation & regulation
Moderate
economy & business
Major
defence & security
Major
government & politics
Moderate
environment & ecosystems
Negligible
science & technology
Major
Importance for EUMajor
Strategic attentionby 2030 Moderate  by 2050 Major
Type of impactExtremely positive
Inspired byBrainstorming session and group discussions in the iKNOW Workshop in Manchester (February 2010)
Related to
Keywords, , , , , ,
 

 

Wild card

Aggressive Chinese outward foreign direct investment (OFDI) outstrips and halts European and US investments and technology leadership in Africa and developing countries. While China’s OFDI is characterised by being politically unconditional, therefore highly welcomed, the predominance of state-owned enterprises (SOEs) investing in Africa and other developing countries could eventually become a “great wall” or major extension of China’s defence, security, science and technology policies. Such a pervasive OFDI strategy could sooner or later create natural market barriers for European and north-American firms to operate in some sectors and industries dominated by China (mainly in the tertiary and the manufacturing sectors, but also in energy and natural resources).

 

Surprises ("wild" scenario features)

With a steady GDP growth, nearly 2 trillion USD in foreign exchange reserves, and a healthy current account, it is not surprising to see the rapid growth of Chinese investments abroad. So the unexpected element of this wild card would be size and pervasiveness of China’s OFDI growth to the point that it becomes a serious challenge for global players. China’s thirst for natural resources and amazing capability to provide affordable and reliable solutions in the service industry may result in the capture and control of raw materials such as oil so that China could control prices and commodity markets. This leads to a major shift of global power and, possibly, to truly multi-polar world with environment-friendly and fair-trade policies driving competition. New political allegiances may arise in line with the new distribution of global investment and humanitarian aid. China could increase its political power becoming the dominant super power – or an idealistic power with production outsourced to Africa, Latin America and the Caribbean. In the long run China-US conflicts could lead to new “cold war” situations but China’s new investment and services “great wall” successfully contains any coordinated effort to stop Chinese influence.

 

Possible interpretations

This wild card has multiple interpretations. People eager for a revolution to bring about change in global politics would see Chinese’s influence expansion as a positive step toward a truly multi-polar world. However, the conservative political and economic elite would interpret this as a major threat that requires urgent action in order to maintain the status quo. Politicians, industrialists and the civil society in Africa and developing countries would see this as a major opportunity to develop new infrastructures, promote industrialisation and achieve major technological and socio-economic development goals. Some researchers and social activists would see this wild card as a sign of cultural shift towards collectivism.

 

Key actors

Key actors related to this wild card, include:
  • Scanners or "early warners" such as international and national financial institutions monitoring OFDI (e.g. OECD, Eurostat, the World Bank, and the International Monetary Fund, etc).
  • Shapers (i.e. enablers/inhibitors) : Chinese State Owned Enterprises (SOEs) in China, transnational companies, financial institutions and global aid and humanitarian agencies.
  • Stakeholders positively or negatively impacted include governments as well as public/private actors in China, African countries, developing countries, USA, Russia, Iran and European countries with interests in Africa, among others.

 

Potential impacts

The impacts of China’s investment and services “great wall” could include: Manufacturing activities being reduced in China and outsourced or increasingly provided by Africa and developing countries. China could eventually control global CO2 policy, export media and culture as well as global poverty reduction solutions. Consequently, the EU and USA may get closer.

 

Potential actions

This wild card may be associated with Chinese science and technology overtaking Europe and the US. The current European policy based on leading the global knowledge economy would be undermined. Would the maturation of China follow conventional routes and how this will affect Chinese communism? Will China be more capitalist? Can Europe have an influence on this? Will China dictate ideas and cultures to the world in a way that happened with the US with beverages, fast food and via Hollywood etc? Could Chinese become the dominant language of the web or global lingua franca? For that reason, a number of early actions (pre-wild card) and early reactions (if the wild card occurs) should be considered:

  • Policy actions

    Early actions: Strengthening national/EU business enterprises; Paving the way for European businesses and corporations worldwide; Strengthening EU/national relationships with African countries; Investment in science and technology research; Focus on education policy is vital.

    Early reactions: Putting in place policy measures that protect EU businesses (imports and exports) Continuing investment in science and technology research.

  • Business actions

    Early actions: Strategic innovation to compete with Chinese SOEs, strengthening of business relationships with African countries.

    Early reactions: Continuing innovation and relationship building with Africa, as well as with the rest of the world.

  • Research actions

    Early actions: Focus on the legislative environment of businesses, innovation research; Research into Chinese business models and ideology.

    Early reactions: Continuing focus on innovation, science, technology, business and economic research to support the EU market system.

 

Weak signals

There are many observables warning us about the probability of this wild card. For example: Western investors in Africa have either left or reduced their presence as a result of the recent economic and financial crises. Consequently, Chinese SOEs (practically unaffected by the global recession) have been able to take up abandoned businesses in Africa. According to the OECD, China’s accession to the WTO in 2001 has transformed the country’s trade, investment and financial regimes and the recent announcement of a “go global” policy has lead to an average annual OFDI growth rate of 116% from 2000 to 2006, which is certainly one the fastest in the world. Since then, China has made even bigger investments in more than twenty African countries, including: Algeria, Angola, DR Congo, Egypt, Ethiopia, Gabon, Guinea, Ivory Coast, Kenya, Libya, Madagascar, Mali, Morocco, Niger, Nigeria, South Africa, Sudan, Tanzania, Zambia and Zimbabwe, among others. The “aggressiveness” of Chinese investment is reflected in the large variety of investment areas, which include: services (mainly banking, construction, insurance and transport), oil and mining (including iron, ferrochrome, chromium ore, gold and copper, among others), telecommunications and manufacturing (e.g. electronic goods, automotive industry, etc.). Among the political signals we can see the government officials in Africa openly declaring that China is seen as a new strategic partner and that the fact that there is no colonial history between Africa and China makes the relationship extremely special. In addition, Chinese partnerships come without conditions as opposed to Western deals which typically impose a number of trade and aid policies often disguised with “human rights” labels.

Disclaimer: The wild card presented in this brief may not happen at all or in the near future. iKNOW is a new EU funded research project aimed to explore surprising events (wild cards) and emerging issues (weak signals) potentially shaping or shaking the future of Europe and the world.
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