Meditations on China’s reemergence often get trapped in metaphors about traps. Its economy could fall into the “middle-income trap”; its politics are stuck in a “trapped transition”; and it confronts the “Thucydides trap” with the United States.
With so many traps to avoid, Beijing has somehow found the time to get embroiled in another: the “debt-trap.” This refers to the notion that Chinese infrastructure loans in Africa and other regions are a ploy by Beijing to extract concessions and buy political allegiance.
But the debt-trap narrative obscures more than it elucidates, in part because it is almost exclusively defined by American or Chinese actions. This denies agency to African countries, rendering them as passive observers in a great power rivalry, a point emphasized by Gyude Moore, former Liberian Minister of Public Works.
What’s more, fixating on China’s debt financing in Africa also elides a more crucial trend: the trade, investment, and knowledge transfer of Chinese firms happening every day across the continent.
China’s economic engagement with Africa is far more than state behemoths building roads and bridges. It is a bold experiment in whether the East Asian development model, having produced prosperity in Japan, then South Korea, and now China, can be transplanted to Africa. (This model may already have found favor in East Africa, particularly Ethiopia, which has embraced aspects of the East Asian model via China’s sizable presence in the country.)
That development model is typically composed of several key ingredients: capital investment in a manufacturing industrial base, policies and subsidies that promote exports, and copying existing technology and know-how. These are the essence of catch-up growth and can explain the divergence between East Asian (including Taiwan) and a number of Southeast Asian economic outcomes.
In short, industrialization is the ticket to economic liftoff for low-income countries, and can go a long way toward eliminating poverty. Does African countries’ economic success lie in adopting the tried-and-tested formula that catapulted China from poverty to prosperity?
That formula is, in reality, quietly being transferred by the roughly 10,000 Chinese firms that currently operate across Africa, according to a McKinsey analysis that led to Irene Sun’s 2017 book. The report’s large data set of Chinese firms (over 1,000), coupled with diligent fieldwork and interviews, provide granular details on their behavior and operations in the African market (see Figure 1).
Figure 1. Let 10,000 Chinese Firms Bloom
Source: McKinsey.
The data are striking. Far from marching to the beat of “China Inc,” 90% of the firms surveyed are private, two-thirds provide skills training to their workforce, and 89% of their employees are African (though only 44% of managers in these firms are African) (see Figure 2).
Headlines of China-led construction projects proliferate, yet more than half of these firms are in manufacturing and services. Surprisingly, 12% of Africa’s annual manufacturing output of $500 billion is already done by Chinese firms. If these estimates are correct, Chinese firms are already contributing more to the African economy than they are to the US economy.
Figure 2. Private, Not State, Firms Dominate Chinese Presence in AfricaSource: McKinsey.
Some of these firms, like Huawei, are well known. While Huawei is increasingly verboten in Silicon Valley, it has found success in the “Silicon Savannah” in Nairobi. For example, Kenya’s mobile payment system M-Pesa, similar to China’s Alipay, had all of its 13 million subscribers migrate to Huawei’s platform.
But others like SunDa Group, along with numerous small and micro enterprises, have operated in anonymity. They have been flying under the radar and probably explain why Chinese financial flows to Africa are up to 15% larger than officially reported, according to McKinsey.
The entrepreneurs behind these firms are profit-driven—not idealists. As Chinese labor costs have risen, these gruff and brazen capitalists decided to risk it in Nigeria, Kenya, or Ethiopia instead, in part because they recognized that these markets resemble the poorer China of 20 years ago—a market in which they had navigated and survived (see Figure 3).
Figure 3. China’s Manufacturing Wages Have More Than Doubled (in yuan)Source: National Bureau of Statistics.
Herein lies Chinese firms’ potential and intangible advantage in Africa: they intuitively understand early-stage economic development because they experienced virtually the same dynamics less than a generation ago. Industrialization doesn’t require perfect institutions, only “good enough” governance, something Chinese companies know all too well. And it’s no secret that industrialization is by-and-large a dirty and chaotic business, the cost of which is also on full display in China.
That trade-off is for individual African countries to consider and decide what the net benefit is. Among them, there is both wariness of tying their economic fate to China and skepticism of the prescriptive concoctions US-led institutions offer that seem detached from developmental realities. The United States has been so far removed from how it once industrialized that it seems to have forgotten what development actually entails.
Today, it matters that legions of Chinese firms are building factories and transferring expertise to Africans trained on Chinese-owned factory floors, who may eventually start their own plant. Since many Chinese private firms aren’t in the commodity business and sell to the domestic African market, they tend to be profitable and are there to stay (see Figure 4). They are on the frontlines of gradually industrializing African economies.
Figure 4. Private Chinese Firms More Profitable Than State Firms in Africa
Source: McKinsey.
Whether the East Asian Model will take hold in East Africa and beyond is not a given. But it also isn’t a stretch to see how the African “Lion economies” could accelerate their transformation by embracing the formula that successively produced the Asian Tigers and China.
In his seminal Development as Freedom, Amartya Sen equated personal freedom with economic development. But to reach that objective requires traversing through the phase of “development as imitation” of successful models that came before.