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Abstract
Title: “Chinese investments in Zambia – the role of Chinese state-influence and strategic
interests”
Author: Anders Bastholm Hansen
Keywords: Investments (FDI), strategic interests, Chinese investment policy, Chinese
Africa policy, Zambia.
China’s engagement in Africa is growing. This engagement has significant effects on the
political and economic structures on the continent. This study focuses on one particular
element of this multifaceted engagement, namely; Chinese investments in Africa. The study
explains how these investments are influenced by the Chinese state. The study takes its
point of origin in a case-study of Zambia, and seeks to clarify how the Chinese state
influences Chinese investments in Zambia. The study does not only focus on the state-
influence wielded within the Zambian context, but also on the influence manifested
through China’s Africa policy framework and through China’s general investment policy.
Besides focussing on state-influence, the study also provides an explanation to why the
Chinese state seeks influence upon investments in Africa. Here explanatory value is sought
within the set of strategic interests which China has in Africa, and how these interests
constitutes a set of rationales for the Chinese state to seek influence upon investments. The
study concludes that the Chinese state significantly influences Chinese investments in
Zambia through its general investment policy, through its Africa policy and its diplomacy
vis-a-vis African states. The study also finds that the Chinese state wields a significant
degree of influence within the Zambian context through the political leverage that the
Chinese state has vis-à-vis the Zambian political elite in this context as well as through a
framework of Chinese institutions established in Zambia.
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Resumé
Titel: ”Kinesiske investeringer i Zambia – den kinesiske stats indflydelse og betydningen
af strategiske interesser”
Forfatter: Anders Bastholm Hansen
Nøgleord: Investeringer, strategiske interesser, kinesiske investeringspolitik, kinesisk
Afrika-politik, Zambia.
Kinas engagement i Afrika vokser. Dette engagement har betydelig indflydelse på de
politiske og økonomiske strukturer i de afrikanske lande. Dette speciale fokuserer på et
bestemt element af dette komplekse og bredtfavnende kinesiske engagement, nemlig på
kinesiske investeringer i Afrika. Specialet forklarer hvordan disse investeringer er under
indflydelse af den kinesiske stat. Studiet tager udgangspunkt i et case-studie af Zambia og
forklare hvorledes den kinesiske stat influerer kinesiske investeringer i denne kontekst.
Studiet fokuserer ikke udelukkende på den kinesiske stats indflydelse som den kommer til
udtryk i Zambia, men også på den indflydelse der manifesteres gennem Kinas Afrika-
politik og gennem Kinas generelle investeringspolitik. Udover fokus på statens indflydelse,
giver studiet også en forklaring på hvorfor den kinesiske stat søger indflydelse på
investeringerne i Afrika. I forhold til dette spørgsmål bliver forklaringskraften søgt i den
række af strategiske interesser som Kina har i Afrika og hvorledes disse interesser udgør et
sæt af rationaler for den kinesiske stat til at søge indflydelse på investeringer i Afrika.
Studiet konkluderer at den kinesiske stat i nævneværdig grad influerer kinesiske
investeringer i Zambia via den generelle investeringspolitik, via Afrika-politikken og via
Kinas diplomati i forhold til Afrikanske stater. Studiet konkluderer også at den kinesiske
stat udøver en betydelig grad af indflydelse i den Zambiske kontekst ved hjælp af den
politiske indflydelse den kinesiske stat har i forhold til den Zambiske politiske elite og
gennem en ramme af kinesiske institutioner etableret i Zambia.
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Table of Contents
Abstract ............................................................................................................. i Resumé ............................................................................................................. ii Table of Contents ............................................................................................. iii List of figures and tables ...................................................................................v Abbreviations .................................................................................................. vi 1. Introduction ................................................................................................... 1
1.1 China’s engagement in Africa – the topic and its literature .......................................................1 1.2 Objectives, research focus and research questions .....................................................................4 1.3 The structure of the thesis ..............................................................................................................5
2. Methodology ..................................................................................................7
2.1 Methodological considerations.......................................................................................................7 2.2 The case-study of Zambia...............................................................................................................8
Why Zambia? ........................................................................................................................9 Data collection methods ...........................................................................................................9 Fieldwork challenges and weaknesses .....................................................................................11
3. Understanding FDI – bringing the state back in ........................................... 12
3.1 Origins of FDI theory ...................................................................................................................12 3.2 The eclectic paradigm....................................................................................................................13
The OLI framework .............................................................................................................14 The IDP hypothesis...............................................................................................................14
3.3 The relational turn..........................................................................................................................15 3.4 The competitive and proactive nation state ...............................................................................17 3.5 State influence on FDI ..................................................................................................................18 3.6 Summary - towards an analytical approach ................................................................................21
4. Emergence of Chinese FDI ...........................................................................23
4.1 Economic growth factors .............................................................................................................23 4.2 The policy regime – a change from restrictive to facilitative...................................................25
The “Go Out” policy ............................................................................................................27
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The state-owned enterprises ....................................................................................................28 4.3 Summary..........................................................................................................................................28
5. China’s engagement in Africa ...................................................................... 30
5.1 China’s strategic interests in Africa..............................................................................................30
China’s interests in African natural resources ........................................................................31 Chinese interests in access to African markets ........................................................................32 Chinese interests with relation to the international political system...........................................33
5.2 Chinese FDI in Africa and the relation between FDI and strategic interests .......................35 5.3 Governing the engagement - Chinese state-support for Chinese investors in Africa..........38
The Africa-policy framework .................................................................................................39 Means of Chinese state-support..............................................................................................41
5.4 Summary..........................................................................................................................................43 6. Chinese investments in Zambia and the role of the Chinese state.................45
6.1 Chinese state-support within the Zambian host-country context ..........................................46
The Facilitative Institutional Framework ..............................................................................47 6.2 Chinese FDI in Zambia – an overview.......................................................................................51 6.3 Chinese investment cases..............................................................................................................53
The mining sector case ...........................................................................................................54 The construction sector case ....................................................................................................56 The agricultural sector case.....................................................................................................57 The telecommunication sector case...........................................................................................59
6.4 Summary..........................................................................................................................................60 7. Three levels of Chinese state-influence.........................................................62 8. Conclusions ................................................................................................ 68 9. Perspectives .................................................................................................70 References ....................................................................................................... 71 Appendix A ......................................................................................................79
Interview guide: Chinese investors ....................................................................................................79 Interview guide: Association of Chinese Corporations in Zambia (ACCZ)................................88 Interview guide: Chinese Centre for Investment Promotion and Trade (CCIPT).....................91
Appendix B ......................................................................................................95
List of interviewees...............................................................................................................................95
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List of figures and tables
Figure 1: Chinese FDI flows, 1979-2006
Figure 2: Top-5 Chinese import-products from Africa, 1996-2006
Figure 3: The interrelated matrix of Chinese state-support
Figure 4: Registered Chinese FDI in Zambia, 1993-2006
Figure 5: Sectoral distribution of Chinese FDI in Zambia
Figure 6: Three levels of Chinese state-influence upon Chinese FDI to Zambia
Table 1: Number of Chinese companies and stocks of Chinese FDI in Zambia, 1988-2006
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Abbreviations
ACCZ – Association of Chinese Corporations in Zambia
AFP – Agence France Presse
BBC – British Broadcasting Corporation
BOC – Bank of China
CCIPT – Chinese Centre for Investment Promotion and Trade
CCS – Centre for Chinese Studies
CFR – Council of Foreign Relations
CJC – China Jiangxi Corporation
CNMC – China Nonferrous Metal Mining Corporation Ltd.
CSFAC – China State Farms Agribusiness Corporation Ltd.
ECO – Economic Councillor’s Office
ETNC – Emerging Economy Transnational Corporation
FDI – Foreign Direct Investment
FMPRC – Ministry of Foreign Affairs of the People’s Republic of China
FOCAC – Forum of China-Africa Cooperation
ICBC – Industrial and Commercial Bank of China
IDP – Investment Development Path
IHT – International Herald Tribune
MMD – Movement for Multi-party Democracy
MOFCOM – Ministry of Commerce of the People’s Republic of China
NIEs – Newly Industrialised Economies
SOE – State-Owned Enterprise
TNC – Transnational Corporation
TRALAC – Trade Law Centre for Southern Africa
TWM – Third World Multinational
UN – United Nations
UNCTAD – United Nations Conference of Trade and Development
UNHCHR – United Nations High Commissioner for Human Rights
WTO – World Trade Organisation
ZC – Zamchin Construction
ZCCZ – Zambia-China Economic and Trade Cooperation Zone
ZIC – Zambia Investment Centre
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1. Introduction
1.1 China’s engagement in Africa – the topic and its literature The ties between China and Africa have never been stronger than they are today. The scope
of current political and economic relations is unprecedented. The Sino-African relations of
today are dominated by economic and geopolitical interests, while ideology has practically
evaporated in the heat of Chinese economic progress. The range of constituents upon
which the relationship rests has also been considerably broadened since China began its
engagement in Africa in the period around African independence of the late 1950s and
early 1960s. The relationship of today includes dramatically expanding figures of bilateral
trade along with Chinese development assistance, concessional loans for African states,
and Chinese investments.
The growth in bilateral trade between China and the African countries is one of the most
illustrative and commonly cited examples of the strengthening ties. Between 1991 and
2000 the trade figure rose from US$1.44 billion to US$10.6 billion and by end 2006 it had
reached the astounding level of over US$50 billion, making China the third-largest trading
partner on the continent after the United States and France (Alden 2007; Pan 2006; Taylor
2006a). Recently the Chinese premier Wen Jaibao has publicly vocalised the ambitious
goal of reaching US$100 billion in two-way trade by 2010 (Davies 2007).
Simultaneously the relationship between the Chinese political leadership in Beijing and the
political elites of the African countries, has been significantly strengthened and the
intensity of political interaction has been escalating. This materialises in an increasing
number of high-profile political exchanges resulting in an ever increasing production of
joint policy statements and more concretely in a range of new trade and investment deals
along with pledges for increased Chinese development assistance, concessional loans, and
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debt relief1 (Davies 2007: 11). The ministerial meetings in the Forum of China-Africa
Cooperation (FOCAC), which have been taking place every third year since the
establishment of the forum in 2000, symbolises and affirms the emergence of a new and
stronger strategic partnership between China and the African countries (Taylor 2006a).
The overwhelming dominance of China in all aspects of Sino-African interaction apart from
trade has caused the Sino-African relationship to become synonymous in the literature
with the expression the Chinese engagement in Africa. The topic of the intensifying
Chinese engagement in Africa has in recent years, as a consequence of the above described
development, attracted an increasing amount of attention, both in academic circles and in
the wider public media, as well as amongst foreign policy makers world-wide – especially
in the United States and in Europe.
Within the past less than two years at least four academic books on the topic ‘China and
Africa’ has been written, where none previously existed (see Taylor 2006a; Alden 2007;
Manji and Marks (eds.) 2007 and Alden et al (eds.) forthcoming). At present there can be
little doubt about the centrality that the ‘China-Africa’ topic now holds in the study of
current African affairs. The Chinese engagement has, by one Africanist scholar, been
characterised as follows (Tull 2006: 459): “China’s vastly increased involvement in Africa
over the past decade is one of the most significant recent developments in the region (…)
[and it] brings significant economic and political consequences”, while one of the most
renowned observers of Africa in international political affairs; Ian Taylor, writes (2006a:
preface): “This field of study is a hitherto under-researched topic (…) of critical
importance in contemporary international politics”. These authors are but two
representatives within a broad variety of predominantly western observers that underline
how important it has become to include the issue of the Chinese engagement in Africa in
the analysis of the current and future political and economic development on the African
continent.
While the topic is undoubtedly very relevant to study within a wide variety of social
science-fields, the current state of affairs is that there is still a substantial lack of detailed
information on the topic; both in terms of reliable statistical data, and in terms of
empirically based information. Although a lot of ‘text’ has been produced on the subject in
recent years, unfortunately only a very little fraction of this material has actually
contributed to the formation of genuinely ‘new’ knowledge on the subject. The bulk of the
1 A doubling of development assistance have been promised over the period 2007 to 2009, while China has so far
undertaken three rounds of debt relief for the African Highly Indebted Poor Countries. In terms of concessional loans the China Exim Bank, which administers most of China’s concessional loans for African states, in the beginning of 2007 reported an outstanding balance of between US$8-9 billion vis-à-vis African countries (Davies 2007).
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literature has served, the very valuable purpose, of spreading awareness and increasing the
understanding of the topic amongst a wider audience. However, this has predominantly
been done by ‘reproducing’ and ‘redistributing’ already existing data and arguments in a
somewhat ‘closed cycle’ manner. This condition is, at least partially, a consequence of the
serious lack of empirical and statistical inputs. We still need much more, and much better,
information to adequately answer the multitude of questions pertaining to the issue of the
Chinese engagement in Africa. Basic questions of who?, why?, where?, how much? and
how? are questions that currently cannot be answered in a comprehensive manner
(Delman 2007).
More empirically grounded research is needed to break the recycling trend within the
literature. Chris Alden, in his recently published book “China in Africa” (published August
2007) writes that: “(…) empirically based analysis of the content and context of Chinese
involvement in Africa is desperately needed”. However, not much empirical research has
been completed yet and only a handful of empirically based studies have been published
(see e.g. Bräutigam 2003; Egziabher 2006; Dobler 2005; Broadman 2007; and Centre for
Chinese Studies (CCS) 2006). Besides the few empirical studies the academic literature on
Sino-African relations is marked by a great prevalence of ‘general analysis’ seeking to
provide the overall picture of the character and consequences of the increased Chinese
engagement in Africa. Research exploring smaller fractions of the multifaceted, complex,
and quite substantial Sino-African encounter, and providing detailed insights into these
fractions, is seriously lacking.
Due to the above described situation within the literature this thesis sets out to provide a
study, which puts focus on one particular aspect of the Chinese engagement in Africa.
Amongst the multitude of interrelated phenomena of cultural, social, economic and
political character, that this engagement generates, this thesis places its focus on the aspect
of Chinese foreign direct investments (FDI)2 in Africa, and the influence and support
which the Chinese state exerts upon these investments. In order to fulfil the ambition of
contributing to the enlargement of a currently very meagre empirical knowledge-base the
thesis, as part of its research design, employs a fieldwork-based case-study of the specific
context of Zambia (more about the case-study follows in Chapter 2 below).
2 The term FDI here reflects the standard definition of United Nations Conference of Trade and Development (UNCTAD) where FDI is an investment involving a long-term relationship and reflecting a lasting interest and control by a firm in an enterprise resident in a foreign country. FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. FDI comprises three components: Equity capital, reinvested earnings, and intra-company loans. FDI does not comprise stock-market investments (UNCTAD 2005a). In this thesis the terms “FDI” and “investments” are used interchangeably.
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1.2 Objectives, research focus and research questions The purpose of this thesis is to produce and disseminate knowledge of the general, as well
as the context-specific, terms and dynamics of Chinese FDI in Zambia and to increase the
awareness and understanding of the central role that the Chinese state plays in shaping
these terms and dynamics. The primary objective of the thesis is therefore to clarify why
and how (i.e. by what means), the Chinese state influences Chinese FDI to Zambia.
The analysis is separated into a three-pronged investigative design with each part exploring
how the influence of the Chinese state is manifested at three separate ‘levels of
aggregation’.
At the first, and most general level of aggregation, the thesis seeks to establish an
understanding of the general political and economic conditions under which all Chinese
FDI operates, and what role the Chinese state plays in shaping these conditions in terms of
policy-making.
At the second level of aggregation, the thesis will scrutinise the ways in which the Chinese
state influences and supports Chinese FDI directed to Africa. At this level, the thesis will
also examine why the Chinese state is so actively involved in Chinese investment activities
in Africa. This examination is rooted in an assessment of China’s current strategic interests
in Africa, and how these interests reflected in China’s political and diplomatic approach to
Africa.
At the third level of aggregation, the thesis, by means of the Zambian case-study, seeks to
clarify how the Chinese state facilitates Chinese investments in this particular African host-
country context and what the effects of the state involvement are for a selection of Chinese
investors in Zambia.
The ‘levels of aggregation’ outlined above, are not to be regarded as adhering to certain
physical or geographically defined scales, but more as ‘conceptual levels’ utilised in this
thesis to facilitate overview and to help structure the analysis of Chinese state-influence
upon Chinese FDI in Zambia.
The objective of the thesis is thus to account for the different types of state-influence upon
Chinese FDI to Zambia at different levels of aggregation in order to examine the whole
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‘chain’ of Chinese state-influence spanning from the Chinese home-country context to the
Zambian host-country context, and furthermore to scrutinise which motivations might
drive such involvement from the Chinese state. It is thus not, as is otherwise the most
common analytical approach amongst texts dealing with the issue of the Chinese
engagement in Africa, the objective of this thesis to assess any ‘developmental’ effects
(neither socioeconomic nor political) upon Zambia, or African countries in general, of the
Chinese investments. Furthermore the thesis does not, despite its focus on investments,
place any analytical focus upon the ‘investment-environment’ of the host-country context
of Zambia and its relative attractiveness vis-à-vis Chinese FDI. The analysis with regards to
Zambia exclusively focuses upon the role of the Chinese state vis-à-vis the Chinese
investors within this host-country context.
In order to help me accomplish the objectives stated above I have formulated two research
questions to guide my research:
“How does the Chinese state influence Chinese investments in
Zambia? – More specifically; by what means does the Chinese state
influence these investments at different levels of aggregation?”
“Why is the Chinese state actively seeking influence upon Chinese
investments in Africa? – More specifically; what are the strategic
interests which cause the Chinese state to seek this influence?”
1.3 The structure of the thesis The first research question is addressed throughout the chapters 4, 5, and 6, while the
second question will be addressed predominantly in chapter 5. Before the analytical
chapters 4, 5 and 6, the methodological, as well at the theoretical framework of the thesis
will be presented in the chapters 2 and 3 respectively.
Chapter 2 briefly introduces the fundamental ontological and epistemological assumptions
which guide this research project. Besides these methodological underpinnings the chapter
also contains a more in-depth presentation of the Zambian case-study and the research
design and the data collection methods which have been utilised to carry out the fieldwork.
In chapter 3, the theoretical chapter of the thesis, a selection of theoretical approaches to
understanding the phenomenon of FDI and the role of the state vis-à-vis FDI, are
6
presented and discussed. The chapter selectively accentuates elements from various
theoretical approaches, which collectively points at a conceptual approach to FDI, which
endorses the importance of location and the central influence of the home-country context.
Furthermore the chapter points at the importance of the home-country state for FDI and
elaborates on the role of the state as a competitive actor in the international and political
economic system, and as an actor seeking influence on FDI in order to pursue strategic
interests.
Chapter 4 addresses the issues of the emergence and growth of outward Chinese FDI and
presents an overview of some of the central domestic political and economic factors, which
have enabled China to emerge as a significant source of FDI, over the past three decades.
The chapter will pay particular attention to the role of the Chinese state in directing and
facilitating this development. Chapter 4 represents the first level of aggregation upon
which the Chinese state-influence is examined.
Chapter 5 commences with a review of the set of strategic interests which the Chinese state
has in Africa, and how these interests relate to Chinese FDI in Africa. The chapter
thereafter elaborates on the size and distribution of Chinese FDI in Africa and how
different types of investments relate to the different strategic interests. Finally, the chapter
demonstrates how the strategic interests, and the focus on investments as a means to fulfil
the interests, are resonated within the Chinese Africa-policy framework, and how this
framework together with means as diplomacy, development assistance and concessional
loans are used to support Chinese investments in Africa. Chapter 5 represents the second
level of aggregation upon which the Chinese state-influence is examined.
Chapter 6 is dedicated to the case-study of Chinese state-support for investment in Zambia.
The chapter studies the methods by which the Chinese state supports investors within this
context, hereunder the facilitative institutional framework which has been established in
Zambia. Furthermore a number of specific Chinese investment-cases in the sectors of:
mining, construction, agriculture, and telecommunication which were studied during the
fieldwork will be presented, and the ways in which these investments have received support
from the Chinese state will be scrutinised. Chapter 6 represents the third level of
aggregation upon which the Chinese state-influence is examined.
In chapter 7, the findings from the above chapters is elaborated upon and assessed in
relation to the theoretical framework of the thesis. In chapter 8 some conclusions are
drawn upon the research questions posed, and finally chapter 9 contains some perspectives
on the findings of the thesis and their implications for research in the Chinese engagement
in Africa.
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2. Methodology
2.1 Methodological considerations The methodological framework of this thesis takes its point of origin in a realist philosophy
of science3 and a realist ontology. The realist ontology essentially is the belief that a ‘true’
or ‘real’ reality exists independently of our conception of it, and that this reality cannot be
observed directly through research. The realist ontology acknowledges the interference of
the hermeneutic dimension between the observed and the interpretation of the observed.
Thus the ‘real’ reality coexists with a ‘hermeneutically conditioned’ reality. The
hermeneutical conditioned reality is the observers perception of reality, and this perception
is influenced by both the concepts by which ‘reality’ is interpreted, and the context within
which ‘reality’ is observed (Sayer 1992). Following this ontology the thesis adopts a critical
realist conceptualisation of what constitutes knowledge (i.e. a critical realist
epistemology), and how this knowledge can be obtained (i.e. a critical realist
methodology).
Fundamental to the critical realist epistemology and methodology is the notion that what
can be directly observed through empirical research is confined to the concrete dimension
of ‘events’ (i.e. actual phenomena occurring), while the nature of the abstract and
underlying dimensions of so-called ‘mechanisms’ and ‘structures’, which cause the
observed phenomenon to occur, cannot be directly observed, but must be ‘studied’ by
means of abstraction (i.e. by constructing ideas about them) (Johnston et al (Eds.) 2000).
Another fundamental condition of critical realist research is that social systems are open,
conversely to physical systems, and therefore less determinate and less predictable, why
3 The realist philosophy of science is of cause a very complex and non-homogenous school of thought, which is widely debated within the literature. The version adopted here does, of cause, far from account for the extensiveness and complexity of this philosophical idea, however the interpretation presented outlines some of its central concepts which form the methodological foundation for this particular research project.
8
critical realist research is more likely to produce explanatory rather than predictive results
(Sayer 1992).
According to Danermark et al (2002) the fundamental task of realist inspired social science
is to explain social phenomena by revealing the social structures and causal mechanisms
which produce them – in essence; to study causality.
Causality is studied within this thesis when seeking answers to the second research
question posed. However, as it was outlined above, this objective is not the sole objective of
the research project. The thesis also seeks to provide answers to the more exploratory
question of identifying and revealing how the Chinese state, at different levels of
aggregation, influences Chinese investments in Zambia. While the analysis of the two first
levels of aggregation is based on literature studies, the analysis at the final and most
specific level of aggregation is primarily based on information retrieved during the
fieldwork in Zambia.
2.2 The case-study of Zambia The research design applied to the case-study of Zambia is what by Sayer (1992: 242) is
referred to as an intensive research design, as opposed to an extensive design4. The
intensive research approach is chosen because it is characterised by being a more in-depth
research method, where a current social phenomenon (i.e. Chinese state-influence on FDI)
is studied within its real-life context (i.e. Zambia) and where the objective is to clarify how
a specific process works to form certain outcomes in a particular case or a small number of
cases (i.e. Chinese state-influence upon Chinese investments in Zambia). This research
approach is, due to its in-depth character, strong in providing understanding of the
internal dynamics of the studied phenomenon in the particular context within which it is
studied. However, the explanations produced does, according to Sayer (1992), not
necessarily apply in other contexts than the studied one. Hence using an intensive research
design is more likely to produce ideographic results which means that the Zambian case-
study only produces valid insights into Chinese state-influence upon FDI in the Zambian
context and not necessarily insights which apply to other African contexts.
However, as both Yin (2003) and Flyvbjerg (2001) argue, it is indeed possible to extract
knowledge which applies to a more general level from a case-study of a specific context.
4 For a more detailed description of intensive versus extensive research designs see e.g. Sayer (1992).
9
While keeping in mind that the findings from the Zambian case study are context-
dependent, valuable information about the issue of Chinese state-influence upon Chinese
investments in the wider African context might still be obtained from the case-study. Sayer
(1992: 243) also states that findings from intensive research can actually be generalized,
when the causal dynamics of the studied phenomenon, are the same across different
contexts.
The Zambian case-study applied here primarily serves as an ideographic study of Chinese
state-influence upon Chinese FDI within this particular context. However, the knowledge
achieved about the dynamics of the studied phenomenon in this context may to some
extent also be valid in other African contexts.
Why Zambia?
Zambia was chosen as the case-country for several reasons. Historically the Sino-Zambian
ties are amongst the oldest and strongest in Africa. The ties began to emerge in the late pre-
independence period in the beginning of the 1960s and were solidified with the
establishment of official diplomatic ties immediately after Zambia gained independence in
1964 (Taylor 2006a).
Today, the relation is even more significant than before. Zambia is now one of the largest
receivers of Chinese FDI in Africa, and in 2006 China became the third largest investor in
the country (Government of China 2007). Besides investments, Zambia is one of the top-
five African recipients of Chinese bilateral support in terms of development assistance,
debt relief, and concessional loans (Davies 2007). Furthermore, and even more crucial to
the choice of case-country: Zambia is probably one of the African countries, in which
information about the Chinese investments is the least difficult to obtain. The Chinese
engagement in Zambia has not been criticised as forcefully by western observers, as has the
massive Chinese engagement in ‘pariah states’ and/or ‘oil-states’ like Zimbabwe, Sudan,
Angola, Nigeria and others. The Zambian context therefore offers a less politically
sensitised environment where the access to Chinese informants is likely to be relatively
easier than in more ‘controversial’ contexts.
Data collection methods
The fieldwork was carried out in Zambia between 1st June and 2nd July 2007,
predominantly in Lusaka and in the northern Copperbelt region.
10
The information gathered during the fieldwork was predominantly obtained through
qualitative semi-structured interviews with various informants. A total of 20 interviews
were conducted during the fieldwork period. Twelve of the interviews were with ethnic
Chinese based in Zambia, eight of which were senior management or administrative
representatives from Chinese companies in Zambia, while the remaining four were with
representatives from three different Zambian based Chinese institutions supporting
Chinese investors in Zambia. The interviews with representatives from the Chinese
companies were conducted using a pre-prepared interview-guide for Chinese investors, this
guide was also used in the interview with one of the representatives from a Chinese
institution, while the two other interviews with Chinese institution-representatives were
conducted with interview-guides modified to each individual institution (the interview-
guides used can be seen in Appendix A).
The three institutions, from which representatives were interviewed, all form parts of a
facilitative institutional framework which the Chinese state has created to support
Chinese investors in Zambia. This framework will be elaborated further upon in chapter
6.1.
The Chinese companies, from which representatives were interviewed, have invested in the
mining, construction, agriculture, and telecommunication sectors respectively. These
investments constitute the investment-cases which will be scrutinised in chapter 6.3 below.
The remaining eight interviews were with Zambian nationals all characterised by having
some kind of ‘observatory’ or ‘knowledge-gathering’ professional position vis-à-vis the
Chinese investment activities in Zambia. These interviews were done in a more ad-hoc and
less structured manner, where the prepared questions were adjusted in accordance with
the profession of the interviewee, and the interview was allowed to flow more freely and
pursue topics of interest as they appeared during the interview. The central topic of these
interviews was although relatively constant and focussed upon perceptions of the
interactions between the Chinese state and Chinese investors in Zambia, as well as between
the Chinese state and the Zambian political elite.
Not all the interviews conducted during the fieldwork are used directly in the thesis, but the
ones not directly used have served to inspire the work with the thesis in different ways (a
list of all the interviewees can be seen in Appendix B).
11
Fieldwork challenges and weaknesses
The main challenge of the fieldwork was the expected difficulties with obtaining interviews
with Chinese informants. The issue of the Chinese engagement in Africa is perceived as a
controversial issue in many respects, and the consciousness of this controversy was
widespread amongst the Chinese informants. This condition made access to Chinese
informants difficult as well as it complicated the interview situation by limiting the range of
questions which could be posed and considered non-controversial. This condition
constrained the production of valuable insights about the central research theme of the
thesis, namely the influence and support of the Chinese state vis-à-vis Chinese investors.
Moreover, due the difficulties of obtaining interviews and the limited fieldwork period, it
was not possible to study more Chinese investment-cases within each sector. This would
otherwise have strengthened the base-material which the fieldwork provides for the
evaluation of the influence of the Chinese state upon Chinese investors in Zambia.
The language barrier was another expected challenge, however, as it turned out it had only
small effects on the results of the fieldwork, because the Chinese interviewees generally
communicated well in English due to high education levels and their professional positions
in companies operating in an English speaking country.
12
3. Understanding FDI – bringing the state back in
There are two central entities in this thesis of which a theoretical understanding needs to
be built; FDI and the state respectively. In this chapter the main purpose is to present
different theoretical conceptualisations of FDI and the state and the interplay between
these two entities. The objective is to introduce and elaborate on various theoretical
approaches and discussions of what constitutes the central causal dynamics and
determinants of FDI and how the state influences these.
The chapter commences with a presentation of how the study of FDI has emerged as an
autonomous field of research. The chapter then, in the sections 3.2 and 3.3, turns to a
description of the gradual development of the theoretical approaches to FDI towards more
holistic approaches emphasising the influence of context upon economic activity and
stressing the spatial dimension of contexts. Throughout the chapter special attention will
be paid to the ways in which the home-country context is seen to be influencing outward
FDI flows. In section 3.3 the role of the state as an important governing unit in
international economic activities is emphasised, and in sections 3.4 and 3.5 more particular
attention will be paid to the role and character of the home-country state and how this
entity has been seen in different strands of literature as an entity with considerable
influence upon FDI. Finally section 3.6 will point at a general analytical approach
constructed by selectively emphasising and extracting central conceptual elements from
the various theoretical frameworks presented in this chapter.
3.1 Origins of FDI theory Before 1960 no attempts to build a theoretical framework specifically addressing the
phenomenon of FDI had been made. Explanations where until then embedded within the
wider macro-economic theories of Marxist economics (e.g. the Leninist theory of
imperialism, and the export of capital as the ‘highest’ stage of capitalism) and classical- and
neo-classical economics (e.g. the classical Ricardian comparative advantage theory and its
13
replacement; the neo-classical factor endowment hypothesis) (Dicken 2003a; Dunning
1973: 305). These explanations of FDI rested on the assumption of diminishing marginal
returns to investments in the domestic market and the resulting ‘push’ upon capitalists to
seek greater returns by investing in foreign countries. According to this logic FDI is an
‘automatic’ or ‘natural’ process in the ‘evolution of capitalism’ (Seyf 2001, p139). These
‘grand theories’ does therefore not provide insight into specific causal dynamics that
operate at the sub-structural level of for example institutions or individual actors and
hence context is not incorporated (Hosseini 2005, p530).
In order to overcome this ‘structural bias’ the pioneer in FDI theory; Stephen Hymer in
1960 introduced the first theoretical framework specifically seeking to explain the
phenomenon of FDI, by moving focus from the structural level and ‘down’ to the level of
the individual firm (Hymer 1960; Dicken 2003b). His basic assumption was that every firm
has some competitive advantages specific to the particular firm (so-called ownership-
specific advantages). Such advantages are for example: certain technologies, management
skills, marketing skills, brand names, economies of scale and access to cheap capital
(Hymer 1960; Dunning 1993). Hymer emphasised the causal relation between the
configuration of these ownership-specific advantages and the firm’s ability and propensity
to invest in a foreign economy. Thus he was looking for causal explanations for FDI at the
level of the individual firm and thereby managed to produce the first ‘contextualised’
theory of FDI. However, Hymer only included the firm as a contextual factor, while leaving
out the locational context, within which the firm is embedded (Dicken 2003a: 202;
Hosseini 2005: 532).
3.2 The eclectic paradigm The factor of location has since been introduced to FDI theory in the so-called eclectic
paradigm, developed by John H. Dunning. This paradigm is one of the first theoretical
frameworks to introduce and emphasise the importance of location upon FDI activities
(Dicken 2003b: 37). The purpose of formulating the eclectic paradigm is, according to
Dunning (2001: 176), to create a framework for analysing the determinants of FDI, rather
than a predictive theory of FDI. Implicit in Dunning’s formulation of the paradigm lies an
acknowledgment of the condition that it is not possible to construct a general theoretical
model of FDI, because no single theory could possibly encompass the wide range of
potential explanatory factors of FDI and at the same time keep the fundamental virtue of
theory, namely; parsimony (Seyf 2001: 139; Yamin 2000: 73).
14
The eclectic paradigm is formulated in a non-deterministic manner with the intention of
making it adaptable and applicable to all thinkable contexts (Dunning 2000). The
paradigm defines a set of fundamental dynamics of FDI which are flexible for
interpretation and adjustment according to the particularities of different contexts. The
eclectic paradigm can thus be seen as a ‘conceptual toolbox’ from which researchers can
pick the tools which are useful for analysing the particular case or cases of FDI in focus.
The OLI framework
The central concept of FDI dynamics within the eclectic paradigm is the so-called OLI-
framework which conceptualises a company’s decision to invest abroad according to the
configuration of three types of advantages. The three advantage-types are: ownership-
specific advantages (O) which are the same firm-specific advantages that Hymer
introduced (which was described in section 3.1), location-advantages (L) which are the
immobile advantages bound to a certain geographic location (location here is primarily
defined as countries, but can in principle operate at any geographical scale), and the
internalisation-advantages (I) which are the advantages that a firm obtains by internalising
the L and O advantages of an external location or company respectively, by means of FDI.
The configuration of O, L and I advantages and the company’s perception and
interpretation hereof, together provide explanation to why a given company invests in a
particular external location or company at a given time (Dunning 1993, 2001). According
to Dunning (2000: 125) the significance of each advantage type and the configuration
between them is very context-dependent, and will vary between countries, firms, and
industry types. Dunning is thus, more forcefully than Hymer, bringing in the notion that a
wider range of contextual factors matters to the study of FDI. He has placed emphasis on
the importance of looking not only at firm-internal factors, but also on the influence of
firm-external factors embedded in home- and host-country contexts (Dicken 2003a: 226).
The IDP hypothesis
The eclectic paradigm contains another component which, more specifically than the OLI-
framework, conceptualises the influence of the home-country context upon FDI. This is the
so-called investment development path hypothesis (the IDP hypothesis), which connects a
home country’s structural economic features (first and foremost the level of economic
development) with its level and patterns of outward FDI (Liu et al 2005).
The hypothesis employs the biological analogy of an ‘evolutionary’ mode of development,
where FDI flows develops in ‘stages’, which are determined by the country’s general level of
15
economic development (Dunning and Narula 1996; Andreff 2003). The model assumes a
direct relation between the structural features of the domestic economy (primarily
measured by GDP per capita, and sometimes supported by secondary factors as e.g.: the
level and quality of human capital, the technological level, export levels and the size of
inwards FDI flows) and the level of outward FDI (Liu et al 2005: 112).
Even though the correlation between rising wealth and rising FDI can be showed
statistically, this in itself does not prove a direct causal relation – and more importantly; it
does not focus on the interesting part of the dynamic, namely the multitude of intervening
and interrelated causal dynamics which are in operation between and alongside the
assumed causality of the IDP hypothesis. However, the hypothesis still contributes to build
a more context-sensitive understanding of the causal dynamics for FDI, because it
explicitly points at the importance of scrutinising the economic characteristics of the home-
economy when studying flows of FDI.
3.3 The relational turn While the eclectic paradigm allows space for including factors from the home-country
context in the analysis of FDI, these are predominantly kept within the realm of economic
factors. However amongst the more recent theoretical approaches to international
economic phenomena, the so-called relational turn5 in economic geography has emerged.
This literature deals not only with FDI, but more broadly with the changing character of
contemporary international economic activity, and it offers a broadened analytical scope
which includes a more composite variety of factors and dynamics.
Factors of cultural, social, political and institutional character, and more importantly the
role of the relations and interactions between these, are said to be of crucial causal
importance for both FDI and other international economic activities (see e.g. Yeung 2002;
Yeung and Peck 2003; Dicken and Malmberg 2001). According to Yeung (2002: 2): “A
relational economic geography (…) places at its forefront crucial explanatory power in
socio-spatial relations among such actors as individuals, firms, institutions, and other
nonhuman actants”. Observable economic phenomena are thus more seen as being caused
by the relations and interactions between various actants in a non-straightforward manner,
rather than as direct outcomes the actions of the actants.
5 The relational turn is associated with the emergence of the “new economic geographies” and the increased focus on socio-cultural practices and institutional factors in economic geography (see e.g. Yeung 2002).
16
From a relational vantage point, the ways in which the geographically embedded context
influences economic activity is thus far more complex than what is described in Dunning’s
eclectic paradigm. The range of possible explanatory factors is considerably widened,
however, the central notion from the eclectic paradigm that location matters is maintained
and emphasised. More specifically this means that the composition of actants and the
nature of the individual actants, as well as the modes and patterns of their interaction are
conditioned by the ‘particularities of space’ in terms of the locational context.
According to Dicken and Malmberg (2001) the locational context has a set of particularities
rooted in the specific territorial unit within which the economic activity is embedded – a
system comprising certain institutions, norms, rules and conventions which together form
the governance system of that particular geographic area or territory. The myth of the
‘placeless’ transnational corporation (TNC) is therefore vigorously rejected, and the
importance of the home-country context is emphasised (Yeung 1998).
According to Dicken and Malmberg (2001: 355): “Where firms come from – their home
country, even their local origin – appears to remain significant in influencing how firms
behave (...)”. This viewpoint is also found in literature predating the relational turn i.e.
according to Stopford and Strange (1991: 233): “However great the global reach of their
operations, the national firm does, psychologically and sociologically, ‘belong’ to its home
base”. Thus the nature of the individual TNC is seen to be deeply influenced by the
character of its territorial origin.
The geographical scale of territorially determined influences may vary or even operate at
several scales simultaneously, however, according to Dicken (2003b), the most significant
‘container’ and source of distinctive practises of TNCs is the nation state.
Another popular ‘myth’, which hereby is refuted, is that of the ‘borderless world’ and the
demise of the nation state as a significant actor in a ‘globalised’ economic system (as
declared by ‘ultraglobalists’ as for example Ohmae (1990)). Conversely the nation state is
regarded as a very significant and important regulating unit in the global economy6, and
the nation state is even regarded as a guarantor of the functioning of an international
capitalist system (Yeung 1998: 292).
With regards to the role of the state in the international economy Yeung (1998: 296) writes:
“(…) the capitalist state remains a significant governance structure in today’s global
6 The term ‘global economy’ here refers to the system of international economic activities which spans the entire world – it is in that sense synonymous to the term ‘world economy’. The term should not be confused with the term ‘globalised economy’ which refers an already attained ‘state’ or ‘condition’ of ‘globalisation’ in the world economy.
17
economy”. Thus the nation state remains an important and relevant geographical scale
upon which to seek explanatory factors for the global economic activities of national firms.
The state is ascribed a significant regulating role within the global economy and there is a
need to maintain the presence of the nation state in the theoretical work on global capitalist
activities, hereunder FDI (Dicken 2004).
The relational economic geography provides a very valuable, and truly structural realist
inspired theoretical framework which emphasises the importance of studying the
underlying causal dynamics of international economic activities. However, this school of
thought does not provide us with any specific knowledge of how the state acts in the global
political and economic system. In order to seek more concrete knowledge of the nature of
the nation state as an actor in the international economic system we have to look outside
this theoretical framework, and turn to literature more specifically dealing with the nation
state and its interests in, and influence upon, international economic activities and FDI.
3.4 The competitive and proactive nation state Michael Porter (1990), considers the state a competitive state which actively seeks to gain
advantageous shares in the world market. The view of the state as competitive state,
capable of both defining and pursuing its strategic interests within the international
political and economic system is also reverberated amongst international political
economists like e.g. Sally (1995) and Stopford and Strange (1991). Stopford and Strange
(1991:1) writes that states: “(…) compete for wealth as a means for power”, and more
specifically the rationale for gaining power increasingly is to: “(…) maintain internal order
and social cohesion”. The rationale for building national economic power is thus, in this
view, to ensure the internal stability of the state – and thus to secure its survival.
Also within the field of international relations theory, more specifically within the neo-
classical realist7 literature, the perspective of the nation state as a competitive actor
seeking to enhance its share in the world market is evident. Besides increasing world
market shares, the state also has a strategic interest in ensuring supply-security in vital
natural resources, in which the domestic economy is not self-sufficient. These two
7 The neo-classical realist literature forms part of the wider realist tradition within the field of international relations (see e.g. Waltz 1979; Mearsheimer 2001). It is an approach which seeks to explain state actions in the perspective of the state as a competitive unit, seeking to ensure its own internal stability and survival by means of different types of strategic actions in the international political and economic system. The neo-classical realist approach is the only realist approach which moves beyond the traditional emphasis on military capabilities and incorporates economic power as a central means of ensuring state survival.
18
interests, of increasing world market shares and securing supply of vital natural resources,
it is argued, forms part of the fundamental interest in maximising domestic economic
growth in order to enhance the state’s relative economic power vis-à-vis the other states in
the system. The rationale for enhancing the relative economic power is to enhance the
relative power of the state, and thereby to ensure its survival (Rose 1998).
The different approaches presented above all emphasise that the policy actions of the state
is shaped within the complex ‘internal’ interactions taking place ‘inside’ the state between
various institutions as well as individual actors. However, the notion of the state as an
entity capable of identifying and pursuing its strategic interests within the international
political and economic system remains central as well as does the notion of the state’s
strategic interest in enhancing its relative economic power within the system, whether for
maintaining internal stability or for maximising its external security.
In serving the strategic interests in economic growth, FDI plays an important role. FDI can
be used as a means for the state to increase its share in the world market, as well as it can
be used to increase the accessibility to, and control of, external sources of crucial natural
resources (Aykut and Battat 2005). The competitive state thus has vested interests in the
emergence and growth of FDI as part of the process of wider national economic
development, and in turn as a means for ensuring its place in the international political and
economic system.
3.5 State influence on FDI How the state seeks to fulfil these national interests, with regards to FDI, depends on the
characteristics of the particular state. According to Dicken (2004) the competitive strategy
of the state is deeply rooted in the political, social and cultural characteristics of the
particular state and the strategic policy actions will reflect these characteristics. Doremus
(et al. 1998) have stated that the dominant ideology of the state, as well as the nature of its
political and economic institutions, are especially important factors in shaping the socio-
spatial context which influences the operations of domestic firms.
Different generalised categorisations of the political economic systems of states have been
produced (see e.g. Dahrendorf 1968; Johnson 1982; Henderson and Appelbaum 1992), but
common to these is the differentiation between more market-oriented and more plan-
19
oriented political economies8. The most oft-cited examples of market-oriented political
economies are the United States and the United Kingdom, while the common examples of
plan-oriented economies are Japan and the East Asian Newly Industrialised Economies
(NIEs) (particularly South Korea, Taiwan and Singapore) (Dicken 2004). The most
important point of this categorisation is that in the plan-oriented political economy the
state is generally more actively and directly involved in the FDI activities of domestic firms.
Analysed and documented real world examples of strong involvement and influence of the
home-country state in outwards FDI activities of domestic firms, can be found in the
literature on the so-called developmental state, which was developed largely through the
empirical observation and interpretation of the growth of the above mentioned East Asian
economies (see e.g. Johnson’s (1982) seminal study of Japan’s developmental state and
Woo-Cuming’s (ed., 1999) reassessment of the developmental state concept). Within this
very extensive literature the home-country state is seen as the most important and
significant actor towards driving, facilitating and regulating FDI.
Closely associated to the study of the developmental state is the wide range of studies
focussing on the emergence and growth of FDI and TNCs from emerging economies as a
special and separate phenomenon (see e.g. Agmon and Kindleberger 1977; Lall 1983;
Buckley and Clegg (eds.) 1991). These studies strongly support the notion of the state as an
important actor vis-à-vis FDI – especially in emerging economy contexts. Within this quite
heterogeneous literature Dunning’s eclectic paradigm, amongst other, has been criticised
for not providing an adequate conceptual understanding of the dynamics of emerging
economy FDI. The paradigm is criticised for representing the internationalisation process
of an ‘ideal-type’, profit-maximising, and privately owned TNC, transpiring from an ‘Anglo-
Saxon’ context, overly reflecting the empirical base upon which the paradigm was
developed (i.e. FDI of private American companies) (Goldstein 2007).
In order to overcome this inadequacy, the concept of the Third World Multinational
(TWM) or the Emerging Economy TNC (the ETNC) was developed as an alternative
explanatory framework specifically aimed at explaining FDI from emerging economies
(Yeung 1999). One of the main arguments from this literature is that the explanations for
FDI from emerging economy contexts are to be sought predominantly within the home-
country context, rather than in the host-country context (Andreff 2003). Furthermore the
role of the home-country state is emphasised because the ETNCs generally are perceived as
being more closely related to the state, than what is the case for the ‘traditional’ TNC of
8 A wide range of different definitions exists amongst different scholars. The main point here is to differentiate between the two main classes of political economic systems: the market- and plan-oriented systems respectively.
20
western origin. Many ETNCs are actually state-owned enterprises (SOEs) or ‘state
associated enterprises’ and therefore they may act ‘outside’ the logic of the eclectic
paradigm, or other theoretical approaches to FDI, and more in accordance with the
strategic rationales of the state, rather than rationales at the firm-specific level9.
In the emerging economy context, the state will often seek to utilise domestic companies,
especially SOEs, as ‘engines of growth’ for the domestic economy, and the state will put
effort into developing so-called national champions in order for them to function as
national representatives and competitors in the global economy (Yeung 1999). Due to the
sometimes close association between the state and the ETNCs the economic motivations of
the individual company to undertake FDI, cannot always be separated completely from
strategic interests of the home country state. Therefore it can seem more important to look
at the role of the home-country state when studying the international economic activities of
ETNCs – and even more so when these are SOEs (Ibid.).
How then, does the state seek to pursue its interests with regards to FDI? It is argued that
the state, by means of a combination of domestic fiscal and industrial policies, as well as
through its foreign policy, will seek to enhance its national competitive advantage (Porter
1990; Rose 1998). By these policy-means the state is also able to enhance the competitive
advantage of domestic companies and contribute to their pool of ownership- (O) and
location- (L) advantages (as described in Dunning’s OLI framework, see section 3.2 above).
In the literature on the developmental state it is shown how the state in Japan and the East
Asian NIEs by means of various policies, government agencies, and state-owned financial
institutions, played a central role in facilitating and regulating the stream of outwards FDI
emerging from these economies (Johnson 1982; Woo-Cumings (ed.) 1999; Buckley et al
2007). The home-country state can support the FDI activities of domestic companies by for
example distributing information via various state institutions to domestic companies,
about the social, political and economic conditions, as well as business opportunities in
host country contexts and financial constraints may be leveraged by means of state-
guaranteed loans or credit lines (Yeung 1998). In this way, it is argued, the home-country
state can in some degree leverage the disadvantages which the domestic companies may
face when seeking to invest in foreign contexts, and thus enhance the possibilities for the
companies to undertake FDI (Aggarwal and Agmon 1990).
9 “State-associated” refers to a any kind of close association between the state and the firm which is not manifested through ownership structures, but through alternative linkages as for instance close personal ties between the firm management and the political elite of a given country, or through institutionalised linkages between the firm and various state agencies.
21
Besides driving and facilitating FDI, the state can also direct and regulate these flows by
various means. First and foremost the state can intervene through policies affecting FDI.
Another, and more direct method for the state to increase its control of FDI is through
state-ownership (i.e. establishment of SOEs). By a wide range of facilitative and regulative
measures the state is thus able to influence the FDI activities of domestic companies and in
turn this may contribute to the fulfilment of some of the state’s strategic interests with
regards to FDI (Yeung 1999; 1998:297).
3.6 Summary - towards an analytical approach What can the various theoretical frameworks and literatures outlined above contribute
with in terms of building an analytical approach to the phenomenon of Chinese state-
influence upon Chinese investments in Zambia?
Throughout this chapter it has been attempted to follow a theoretical ‘line’ leading towards
an increasingly more nuanced conceptualisation of the interrelations between FDI and the
home-country context – and in particular the home-country state. This ‘line’ is not to be
seen as a progression of constantly ‘better’ theoretical approaches, but is more to be
regarded in its entirety. When seen collectively this line of theoretical approaches reflects a
range of conceptualisations of FDI and the state which have collectively inspired the
analytical approach of this thesis. None of the theoretical approaches are thus applied
autonomously or in their entirety.
The theoretical ‘line’ leads from Hymer’s original break with the ‘systemic’ approaches of
previous ‘grand theories’; over Dunning’s introduction of locational contexts; to the
‘relational’ approach wherein the role of the home-country context was further accentuated
and conceptually deepened and the role of the home-country state was highlighted. Then
over the literature defining the state as a competitive actor in the international system; and
finally to the more concrete examples of state-influence upon FDI provided by the
literatures on the developmental state and the ETNCs.
This theoretical ‘line’ points at an analytical approach which recognises the influence of
factors operating at the firm-specific level as well as the influence of locational context in
which these firms are embedded. Because of the research focus of this thesis particular
attention is placed on the home-country context. Within this home-country context the
interplay of economic and political factors shape the basic conditions for FDI to emerge out
of this context. While Dunning places explanatory power for FDI within the general level of
22
economic development within the particular home-country context, the ‘relational turn’
literature points at the complex and non-linear processes of social and institutional
interactions and interrelations as shaping the causal dynamics of FDI. The ‘relational’
approach at the same time emphasise that the causal dynamics created are spatially or
territorially embedded, and that the most significant ‘spatial unit’ influencing economic
phenomena is; the state.
The ‘nature’ of the state as an actor in the international political and economic system is
further concretized by Porter and other scholars which see the state as a competitive state
with the ability to define and pursue its strategic interests in the international political and
economic system. In this sense the state can, for analytical simplicity, be regarded as a
‘unitary’ actor pursuing its strategic interests in the international system by means of its
actions within the system. Despite of these actions being shaped via complex internal
processes between the various actors ‘within’ the state, the analytical approach applied in
this thesis does not include these internal processes but solely focuses on the ‘outcomes’ in
terms of the actions which the state takes in order to pursue its strategic interest.
More concrete knowledge on the actions of the state vis-à-vis FDI and the couplings
between FDI and the state’s strategic interests was provided by the literatures on the
developmental state and the ETNCs. These previous studies of FDI stemming from
emerging economy contexts contribute to the analytical approach by exemplifying how the
state has previously been able to drive, facilitate, and regulate FDI by means of policy-
making, via state institutions, via a state-owned banking system, and via direct state-
ownership of firms. Through these studies the attentiveness is strengthened towards the
ways in which the home-country state is able to influence the competitive advantages of
domestic firms and how the state in this way wields influence at the firm-specific level.
The research focus, the objectives as well as the methodological and theoretical frameworks
which guide this research have now been presented over the past three chapters. The next
three chapters constitutes the analytical part of the thesis and herein it is analysed how the
Chinese state influences Chinese FDI at the different levels of aggregation.
23
4. Emergence of Chinese FDI
This chapter will look at how the Chinese home-country context, its economic features, and
more importantly the policies of the Chinese state, have influenced and facilitated the
emergence of Chinese FDI, a general development of which the FDI to Zambia is part.
The first section (4.1) of the chapter will focus on the factors related to Chinese economic
growth, but also on some of the policy-initiatives which directs economic surplus into
facilitative schemes for Chinese FDI. The second section (4.2) illustrates the crucial
influence of the policies of the Chinese state upon FDI flows, and shows how the policy
regime has changed towards a more facilitative regime. Furthermore it delivers an account
of the current policy regime of the so-called “Go Out” policy, which is the overall governing
framework of Chinese FDI today.
4.1 Economic growth factors Various factors in the Chinese economy is said to have contributed to the rise in FDI. The
most aggregate economic factor is the general level of economic development, which in
itself is emphasised as a causal dynamic for rising FDI flows by a wide range of scholars
inspired by Dunning’s IDP hypothesis (as described above in chapter 3.2)10.
China’s economic development has been stable and fast since the political and economic
reforms of the “open door policy” were initiated under Deng Xiaoping in the end-1970s
(Cai 1999). Especially the past two decades have seen exorbitantly strong and stable
economic growth rates in excess of 9 per cent per year on average (Pan 2006). Besides the
well documented significant statistical correlation between economic growth and rising
levels of FDI (which, in itself, does not prove a direct causal relation) a range of more
specific economic conditions which have encouraging effects on FDI can be pointed out.
10 See e.g. Liu et al (2005: 106) for a list of empirical studies showing the correlation between the level of economic development and FDI flows.
24
One such condition is that the returns-to-investments ratio in the Chinese economy has
dwindled as a result of the increasingly fierce competition in the domestic market.
Therefore Chinese investors are now increasingly searching for new external markets in
order to achieve larger potential returns to investments (Wu 2005; UNCTAD 2003; Chen
and Lin 2006).
This tendency is further enhanced by the strong growth of the Chinese economy which,
together with a high savings rate and a large and stable trade surplus over the past three
decades has generated a considerable accumulation of capital reserves in China (by
October 2007 the total reserve of foreign exchange surmounted US$1.33 trillion). This
massive stock of financial reserves has predominantly been invested in United States (US)
government debt, but a growing fraction of it is now being ‘pumped’ into the Chinese state-
owned banking system in order for these banks to invest them on behalf of the Chinese
state11. This strategy has in part been adopted by China as a result of the low returns on US
government bonds combined with the high risk and ‘opportunity cost’ of maintaining a
gigantic and idle accumulated stock of foreign currency (UNCTAD 2006: 55).
From the state-owned banks the money is, amongst other things, used to finance the FDI
activities of Chinese firms through the provision of loans at below market interest rates
(IHT, October 1, 2007; Orr 2007). An example of this policy in action was the recent
establishment of a US$200 billion state fund managed by a range of Chinese state-owned
banks, with the combined purpose of investing in the world market, and funding overseas
investment activities of Chinese firms. Due to this policy the Chinese companies have
increasingly found themselves in a situation of low financial constraint due to abundance of
cheap financial resources provided by the Chinese state, through the state-owned banking
system. The low cost of financial capital causes the Chinese companies to be less risk
sensitive, and to be willing to operate at below profit rates in the medium- to long-term
timeframe (Orr 2007: 51). The Chinese companies, because of their advantageous financial
situation, gain a competitive advantage and consequentially the propensity for the
companies to undertake FDI activities has risen (Buckley et al 2007; Orr 2007).
On top of this the Chinese currency, the Renminbi, has been appreciating and is expected
to continue to appreciate gradually over the coming years in accordance with the Chinese
11 The state-owned banking system revolves mainly around the ‘Four Big Banks’: Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank, which constitutes the core of the state-owned banking system. Besides these large banks a range of so-called ‘policy banks’ exists which provide loans at below market rates, in accordance with Chinese government policies. Policy banks of importance to Chinese outwards FDI policies are the China Development Bank, the China Agriculture Development Bank, and the China Eximbank (Orr 2007: 50).
25
monetary policy. The appreciation of the Renminbi has increased the purchasing power of
Chinese companies in foreign economies and is therefore likely to increase the propensity
amongst Chinese companies to undertake FDI (similar to the dynamic effects seen on
Japanese FDI after the Plaza Accord in 198512) (Wu 2005; Buckley et al 2007).
4.2 The policy regime – a change from restrictive to facilitative The paragraphs above described a range of economic circumstances, and supportive
financial policy-schemes, which all have contributed to the emergence and growth of
Chinese FDI. These factors, however, does not stand alone. The policy regime which the
Chinese state put in place to govern the Chinese FDI activities has played, and still plays, a
significant role for FDI.
Chinese FDI originates in a home-economy context with a high degree of political control,
and with a long tradition of central planning. According to Yeung (1999: 24) the role of the
state is particularly significant in the case of China. The role of the state as both a
constraint and as an enabling force vis-à-vis the internationalisation processes of domestic
firms is clear in the case of the developmental states of the Asian NIEs, but according to
Wang (2002: 194): “In the case of overseas investments from mainland China, the role of
the state is even more crucial”. It is thus of vital importance to take a closer look at how the
Chinese state governs Chinese FDI, and how the policy approach towards FDI has changed
over time.
Figure 1 on the following page, shows a graph of the development of Chinese FDI in the
period 1979 to 200613. This figure can help illustrate the substantial influence which the
FDI-policies of the Chinese state have had on the flows of FDI. Over the depicted period,
12 The Plaza Accord is a monetary agreement signed in 1985 between the United States, the United Kingdom, France, (then) West Germany, and Japan, which amongst other things involved a forced revaluation of the Japanese yen vis-à-vis the US dollar, a revaluation which significantly increased the purchasing power of the Japanese currency in most external economies and which in turn contributed to a dramatic increase in Japanese FDI. 13 Figure 1 is compiled using data from various sources. Two different estimates are indicated for the year 2005. This illustrates the discrepancy that exists when dealing with Chinese FDI figures. According to Xinhua (2007), the 2006 figure is an official figure from the Chinese Ministry of Commerce (MOFCOM). Nevertheless, extreme care should be taken with regards to Chinese FDI figures (Goldstein, 2007). Different Chinese institutions release different figures. MOFCOM provides approved FDI data while the State Administration of Foreign Exchange (SAFE) includes FDI from e.g. Taiwan, Hong Kong, and Singapore ‘round-tripping’ to China. Hence, figure 1 should be seen as an indicator of a growth tendency rather than as a representation of precise FDI figures.
26
the policy regime has gradually (with small exceptions) become increasingly more
encouraging and facilitative towards FDI.
As seen in the figure 1, the reforms initiated in the end-1970s did not lead to immediate
growth in FDI. Rather, Chinese FDI, being limited to certain types of companies, was an
insignificant foreign economic activity for many years. Only from the mid-1980s when the
government embarked on further liberalisations and allowed a broader range of SOEs to
invest overseas, while also gradually moving away from the slow ‘case-by-case’ approval
procedures, Chinese FDI took off (Chen and Lin 2006).
In 1992, the internationalisation process of Chinese enterprises was incorporated as a
priority issue in the national economic policy and subsequently also private Chinese
enterprises began to invest overseas (Buckley et al. 2007; Wu and Chen 2001). This
resulted in an immediate rise in FDI as depicted in figure 1. In this period most Chinese
FDI went to Hong Kong where Chinese investors speculated in the real estate and stock
markets. This outflow of ‘speculative’ Chinese capital was not seen as beneficial for China’s
economic growth and this led the Chinese state rein in the outward capital flows by again
0
2
4
6
8
10
12
14
16
18
1979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006
$US
billi
on
Zhang (2005) MOFCOM in Lunding (2006)UNCTAD (2006) MOFCOM in Xinhua (2007)
Figure 1: Yearly Chinese FDI flows 1979-2006. (Sources: Zhang 2005; UNCTAD 2006; Lunding 2006 and Xinhua 2007)
27
tightening up the screening and approval procedures for FDI – which had to be for
‘genuinely productive purposes’ (Zhang 2005).
Figure 1 also shows the effects of the 1997-Asian financial crisis which resulted in a general
slow-down of Chinese FDI. Then in 2002, with the official approval of the Go Out policy14,
this tendency was reversed and Chinese FDI has since grown considerably (the Go Out
policy-framework will be scrutinised in greater detail below in this section).
The last half decade depicted in figure 1 indicates that China is now on a course of rapidly
growing FDI flows and moving towards a position amongst the most significant source-
countries in the world. If the latest (and highest) figure reported by Xinhua (January 22,
2007) is to be believed, China had an estimated flow of US$16.1 billion in the year 2006
and a total stock of US$73.3 billion, placing China as the world’s 13th largest investor in
2006. Amongst the emerging economies China is expected to reach a top four position in
2008, moving up from an eighths place in 2004 (UNCTAD 2005b). China has thus
emerged as a significant source of FDI, a process which throughout the period, has been
significantly influenced by the policies of the Chinese state, and which today is governed by
the Go Out policy framework.
The “Go Out” policy
The implementation of the Go Out policy, marks the most significant turn in the Chinese
state’s policy-approach to FDI, and it is this policy-regime which currently governs all
Chinese FDI activities, including the investments in Africa.
The Go Out policy is the first policy which directly encourages Chinese companies to
undertake investments in external markets. The policy has significantly reduced the
barriers of undertaking FDI by making application and approval procedures simpler and
faster, and by changing the role of the state institutions to a more proactive, supervising,
and even servicing role. Besides the much reformed approval procedures, the policy further
promotes FDI by selectively providing access to cheap state-guaranteed loans (as described
above in section 4.1) for investment projects matching certain criteria (Zhang 2005; Hong
and Sun 2004). For example by serving one of the purposes of: contributing to resource
supply security; boosting exports of Chinese products, technology or labour; fostering the
transfer of advanced technology and knowledge to China; or providing improved strategic
14 This policy framework is referred to with a number of slightly different names which all stem from differences in the translation of the Chinese name. Other common translations are: “Step Out”; “Going Out”; “Going Abroad”; and “Going Global”.
28
market positions for Chinese companies in external markets (Zhang 2005; Deng 2004;
Wang 2002).
Other means of support embedded in the Go Out policy-framework are tax incentives,
direct or indirect subsidies, and options for insurance of investment assets abroad. Large
investment projects of strategic value to China (as for example investments meeting any of
the four criteria mentioned above) are often supported by the Chinese state institutions
and through China’s foreign policy, which is used in different ways to persuade host-
countries (especially in emerging economy contexts) to accept Chinese investment deals
(Aykut and Ratha 2004: 169; Lyman 2005).
By means of the Go Out policy, and the various supportive and restrictive means which are
applied under the auspices of this framework, the Chinese state is able to selectively create
advantages and disadvantages for different FDI activities. Thereby the Chinese state wields
a large degree of influence and control with these activities in order to assure that they are
undertaken in accordance with the strategic interests of the state. Another way for the state
to wield influence is through direct ownership – i.e. by the establishment of SOEs.
The state-owned enterprises
Aggarwal & Agmon (1990) claim that a special and close relationship exists between the
state and firms in China. Through the SOEs the state wields some degree of direct control
with FDI activities, the majority of which are undertaken by SOEs (Woo & Zhang 2006; Wu
& Chen 2001; Orr 2007). By far the most large-scale enterprises are state-owned, and
according to Deng (2004: 14) only one out of the top-500 Chinese enterprises is private.
The SOEs are often employed by the Chinese state as instruments of foreign policy and
their FDI activities to a large extent reflect the strategic interests of the Chinese state
(Buckley et al. 2007; Deng 2004). A list of around 150 of the largest Chinese SOEs have
been pointed out to be so-called “global champion” companies. The objective with these
companies is to create a range of globally competitive companies representing China’s
strategic interests on a world-wide scale. The FDI undertaken by these companies receives
particular attention and support from the Chinese state (CCS 2007; Lunding 2006).
4.3 Summary The emergence and growth of Chinese FDI which has happened over the past three decades
is influenced by a wide range of interrelated economic and political factors in the China.
29
The gradual change of the Chinese state’s political approach to FDI, and the
implementation of increasingly more facilitative and supportive policies, is a vital
constituent of this development and has created the basic conditions for FDI to grow. The
strong economic development which China has experienced during the same period has
been used to underpin this development. The large capital surplus accumulated in China
has by the Chinese state been used actively as a means to facilitate Chinese FDI through the
provision of concessional loans provided through the state-owned banks. These loans are
politically conditioned and are primarily awarded to FDI projects which serve China’s
interests. The gradual changes in political and economic conditions described above have
caused a general surge in Chinese FDI. The Chinese FDI in Africa constitutes part of this
surge, and it is this part of the FDI which is the centre of attention in the next chapter.
30
5. China’s engagement in Africa
While the preceding chapter delivered a background understanding of the some of the
central economic and political factors which have caused Chinese FDI to emerge and grow,
this chapter narrows down the focus and turns the attention towards the Chinese
engagement in Africa. The chapter commences with a review of the set of strategic
interests which China has in Africa, and how the Chinese investments in Africa are related
to these interests. The chapter also scrutinises by what means the Chinese state governs
and supports the investments to African countries, in order to fulfil these interests.
After the review of China’s strategic interests in section 5.1 the next section (5.2) presents
an overview of the scale and sectoral distribution of Chinese FDI in Africa, based on the
piecemeal information available. Moreover, in this section the relations between different
types of investments and the different strategic interests is also clarified. In section 5.3, the
policy framework which governs the Chinese engagement is analysed and it is shown how
the formulation of China’s official Africa policy is strongly influenced by, and clearly
reflects, the Chinese strategic interests in Africa. Furthermore in the end of section 5.3 the
means by which the Chinese state supports Chinese investors in Africa, are scrutinised.
5.1 China’s strategic interests in Africa China’s strategic interests in Africa has here been separated into three main categories15
namely:
• China’s interests in African natural resources.
• China’s interests in access to the African markets. 15 The three ‘categories’ should not be seen as perfectly separable as the areas of strategic interest are indeed very interrelated. The categorisation is used here because it facilitates understanding and overview. Other ways of categorizing the interests have also been made; Chris Alden (2005) for example uses four categories in stead of three, but altogether these different groupings encompass the same sum of strategic interests.
31
• China’s interests in Africa relating to the sphere of international politics and the
structure of the international political system.
China’s interests in African natural resources
Supply of natural resources from Africa has become a key strategic concern for China. The
economic growth of the past three decades has dramatically increased China’s
consumption of practically all types of natural resources. To continue the high growth rate
the Chinese economy is dependent on a steady supply of natural resources from external
sources. As a result of the increasing demand for various resources China has been forced
to move away from the previous focus on self-sufficiency, and in stead adopt an ‘outward
looking’ resource-supply strategy (Pan 2006). In order to secure its needs, China is seeking
to diversify supply-sources on a worldwide scale, and in this diversification-strategy the
resource-rich nations of Africa have become central players (Trinh et al 2006).
Securing supply of natural resources is seen by many analysts as China’s primary short
term interest in Africa at present, with oil being the most vital resource (Taylor 2006b). In
1993 China became net-importer of oil and has since reached the position as the world’s
second largest consumer of oil (Alden 2005). Oil dominates the Chinese imports from
Africa and accounted for more than 70 per cent of these in 2006 (TRALAC 2007). African
oil-producing countries have come to hold a very central position suppliers of oil to China,
providing an increasingly significant share of China’s oil imports, a share which was
around 25.2 per cent in 2003, but which passed 30 per cent in 2005 (Tull 2006; Peoples
Daily, October 19, 2006).
Besides oil, China is now the world’s largest consumer of almost all metals, and African
countries have become important suppliers for China in this area as well. Natural resources
like iron ore, diamonds, wood, platinum, copper, cobalt and manganese are topping the list
of Chinese imports from African countries (TRALAC 2007). The percentage share of total
Chinese imports from Africa made up by the five most significant import-products,
between 1996 and 2006, can be seen in figure 2 below. Here the dominance of natural
resources, and particularly oil, is clearly reflected.
32
China Imports from Africa % Share
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
D1996 D1998 D2000 D2002 D2004 D2006
Year
%
logs
Diamonds
Cotton
Iron ore
Oil
Figure 2: Chinese top-5 import products from Africa between 1996 and 2006. Notice the overwhelming predominance of natural resources. The only non-natural resource product within the top-5 imports is cotton. Not surprisingly for any African exports-graph; all the indicated product groups are primary products. (Source: TRALAC 2007).
Securing the supply of natural resources is a precondition for keeping the roaring Chinese
engine of growth running, and maintaining growth is a strategic interest with domestic
political connotations. Growth, it is argued, is a crucial (or even according to some
scholars; the only) provider of legitimacy for China’s government. Sustaining growth is
therefore a political objective of utmost importance for the political elite in order for it to
retain its legitimacy (Taylor 2006a). Thus to secure a stable supply of natural resources
from Africa is a central strategic interest with regards to the Chinese engagement in Africa.
Chinese interests in access to African markets
“Made in China” is a very common label on almost any type of manufactured consumer
goods today. China has become a significant node in the structure of the world’s industrial
production chain, and Chinese economic growth is intimately connected to the Chinese
exports. Maintaining and expanding exports is therefore a strategic interest of the Chinese
state in order to ensure continued growth.
The African markets, with a sum of more than 900 million people, offer good conditions
for export of cheap Chinese manufactures. Although the purchasing power of a large
majority of the African population is severely limited, the Chinese manufactured products
appeal to a much larger proportion of the population than do products of western origin.
33
The Chinese products have a competitive advantage in these markets, mainly due to their
relative low prices, but also in terms of their low, and thus fitting, technological level. Trade
statistics show that virtually all exports from China to Africa are manufactured goods;
predominantly textiles and clothing, electronic devises, machinery, and household utensils
(Van de Looy 2006; Edwards & Jenkins 2006).
The demand for Chinese products in Africa is considerable when viewed on an African
scale, but more importantly – it is growing. The Chinese state and the Chinese companies
believe in the long term potential of the African markets (Tull 2006). To gain a foothold on
these markets already now is therefore a strategic interest with long-term connotations in
terms of securing a lead position on what is perceived to be increasingly lucrative ‘emerging
markets’. Furthermore the level of competition in the domestic Chinese market has become
very high which causes profit-margins to drop considerably which in turn makes external
markets, like the African, more attractive for investments.
Chinese interests with relation to the international political system
The African states are seen by China as important players in the pursuit of China’s
ambition of establishing a more ‘just’ political and economic ‘new world order’, opposed to
American hegemony16 and the economic dominance of the ‘Western world’ (Alden 2005;
Van de Looy 2006). In this regard China needs support from states that share the Chinese
scepticism with regards to the current power-structure of the international political system.
At the same time China regards itself as a leading nation within the community of
developing nations, and as a promoter of their common interests in the international
political system (Davies 2007; Alden 2007). The Chinese engagement in Africa is therefore
partly driven by a long-term ambition of reforming the structure of the international
political system and increasing the footprint of The Middle Kingdom to its ‘rightful’ size
(Taylor 2006a).
Intimately related to this ambition is the struggle of which ‘value-system’ that shall govern
the activities of international relations. The ‘westernized’ value-system that is currently
pressing forward concepts of human rights and democracy on a world-wide scale, does not
suit the Chinese political leadership well. China is a non-democratic state which does not
adhere to the western concept or version of human rights. This ‘western’ value-system is
seen as damaging to China in the long term and it is therefore in China’s interest to garner
16 Whether the current structure of the international political system is actually one of ‘American hegemony’ is widely disputed amongst political scientists, but it is generally accepted that America wields an exceptional and unprecedented powerful position in the international political system (Hansen 2003).
34
support amongst African states for a different value-system to govern the activities of
international relations.
The system that China is advancing revolves around the so-called “Five Principles of
Peaceful Coexistence” wherein the two central principles are those of sovereignty and non-
interference. These central principles render interference by one state in the internal
affairs of another state illegitimate and are thus proposing a framework that is useful for
China in order to counter external criticism. The non-interference principle is intimately
related to China’s historical experience of internal interference by foreign colonial powers,
as well as to the international debacles about the status of Taiwan and Tibet – problems
which China also sees as ‘internal affairs’. The principles of non-interference and mutual
respect are also withheld in relation to external critique of China’s human rights record and
the lack of democratic reform. These criticisms must be countered because they are
perceived as a threat to the legitimacy of the current political regime and therefore could
have destabilising effects on the existing political order in China (Taylor 2006a, Alden
2005).
The Chinese state also has a strategic interest in garnering support for more concrete
issues, as for example the “Taiwan issue”. First of all it is important for China to impede
Taiwanese political influence in the international political system and minimise
international support for the cause of Taiwan’s separation from Mainland China. Here the
strategic interest with regards to Africa is to win support amongst African nations for the
irredentist “One China Policy”. On this objective China has been very successful, and a total
of four African nations have shifted allegiance from Taiwan to China since 2000. With the
shift of Malawi late last year, Africa remains with only four countries maintaining official
diplomatic ties with Taiwan (AFP 26 January 2008).
On a more ‘practical’ level the African states, because of their sheer number, constitute a
valuable ‘voting bloc’ in various international institutions, most significantly in the United
Nations (UN) system. This voting bloc can serve China well in cases where African states
can be convinced that their interests coincide with the Chinese. The African votes have for
example been valuable to China in a vote about a censure of Chinese human rights abuses
in the UN Commission on Human Rights in 2002. As a result of the African votes the
censure was downcast (UNHCHR 2004). Likewise the support of African countries was
important during China’s accession in the World Trade Organisation (WTO) in 2001.
Another future point of interest for China, where African votes can be valuable to China, is
in countering the ascension of Japan into a reformed UN Security Council (CCS 2007).
35
The set of strategic interests which China has in Africa have now been presented. Now it is
time to look more specifically at Chinese FDI in Africa, and the ways in which the strategic
interests just described are related to the various types of Chinese investment in Africa.
5.2 Chinese FDI in Africa and the relation between FDI and strategic interests Chinese FDI in Africa is growing and table 1 below illustrates this trend. The quality of
existing data on Chinese FDI in Africa is unfortunately very poor, and therefore the figures
below, should be regarded more as indicators of trends, rather than as absolute figures
(Chen et al 2006).
1988 1992 1995 1998 2000 2001 2002 2003 2004 2006
Number of
companies >80 N/A N/A N/A 499 N/A 585 >600 674 900
FDI stock
(US$ million) N/A 54 91 259 990 607 N/A 872 N/A 1,250
Table 1: Number of Chinese companies and stocks of Chinese FDI in Africa, 1988-2006. (Source: Kragelund 2007)
As seen in the table, the estimated number of Chinese enterprises in Africa has risen eleven
times between 1988 and 2006, while the estimated total stock of Chinese FDI has increased
twenty-three times between 1992 and 2006. These figures are likely to be underestimated
which will be noticed when comparing them to the examples of individual investment-
figures presented in the text below.
According to Wong and Chan (2003), Africa received 4 per cent of China’s FDI 1991, but
this share had increased to 16 per cent in 2001. A glance at individual countries reflects this
tendency: In Zambia, China has recently become the third largest investor, while China late
last year became the largest investor in Zimbabwe, with a total investment-stock of more
than US$600 million (CCS 2007). In the oil-rich countries, China has also become a very
significant source of investments, especially in countries such as: Angola, Sudan, Nigeria,
Congo-Brazzaville, Equatorial Guinea and Gabon. In Sudan, for example, total investment
36
was estimated at US$4 billion in 200617 (Taylor 2006b). Despite the primary domination
of oil-countries, and secondarily of other resource-rich countries, China is actually
investing all over Africa, and the common trend is clear – African countries are becoming
increasingly significant receivers of Chinese FDI (Kragelund 2007).
Investments in natural resources account for the overwhelming majority of Chinese FDI to
Africa, and some of the largest Chinese investments in Africa falls within this sector18.
These investments reflect the most central Chinese strategic interest in Africa – namely
securing access to African natural resources (Kragelund 2007; Goldstein 2oo6). These
investments are almost exclusively undertaken by large Chinese SOEs, which have a
commercial ambition of securing control of natural resources abroad – an ambition which
is strongly amplified through the influence of the Chinese state and driven forward by
Chinese state support19 (UNCTAD 2006: 130; Chen et al. 2006).
The strategic interest of increasing market access and positions in the emerging African
markets, is pursued by investments in a wide range of sectors. The most significant being:
construction, agriculture, manufacturing, telecommunications, banking and trading. The
investments in these sectors indicate that the Chinese engagement in Africa is about far
more than resources, and amongst other, also about market shares (Broadman 2007;
Kragelund 2007).
In the construction sector Chinese companies, predominantly large SOEs, but also small
scale private construction companies, are investing in practically all African economies.
The Chinese construction companies are very competitive in the African markets and win
many tenders due to their ability to underbid competitors because of their comparatively
low operation costs20. The low cost levels stems from, amongst other things; access to
cheap Chinese machinery, access to concessional loans from the Chinese state, and in some
cases access to cheap labour in terms of imported Chinese labour. Simultaneously the
market for construction is expanding all over Africa, due to higher growth rates in many
African countries as well as the increased refocusing upon infrastructure-development
17 A figure which on its own is far above the FDI stock reported in table 1, and which illustrates the discrepancies which characterise the available data about Chinese FDI in Africa. 18 Some of the largest investments to date being the US$2.3 billion purchase of a stake in a Nigerian oil and gas field, and the US$1.7 billion majority share in an oil joint-venture with the Sudanese government. 19 Private investments exist as well, but they are small scale and constitute a small fraction of the investments in this highly strategic and state-governed sector of investment. In the oil-sector all Chinese investments are undertaken by SOEs (CCS 2008) 20 For example in Ethiopia Chinese construction companies control between 50 to 60 per cent of the road construction sector (CCS 2008).
37
within the donor community (CCS 2006). The market for construction is growing and the
Chinese companies have the potential of becoming dominating actors.
Investments within the agricultural sector are rising. The investments in the agricultural
sector first and foremost seek the many African markets wherein the agricultural
production is too low to meet domestic demands, and where prices are consequentially
high. In these markets Chinese agricultural companies set up large-scale farms with
intensive production methods which can produce competitively low-priced products to the
African consumers (Xinhua, September 28, 2002). Another, more long-term strategic
interest for China with regards to agricultural investments in Africa, relates to the problem
of future food-supply security in China. Alongside China’s rapid population growth, China
has been able to increase its food-supply by increasing the number and efficiency of its
farms. Nevertheless, an upper limit as to how much China can increase its food supply may
be rapidly approaching. According to Kane & Serewicz (2001) and Muekalia (2004)
Chinese food-supply faces the double problem of industrialisation and economic growth.
The rapidly growing industrial sector in China puts pressure on arable land, and at the
same time rising economic prosperity amongst the Chinese population causes the diet to
shift towards more meat. Producing meat requires more land than growing crops for direct
human consumption. Therefore, the Chinese food supply system has come under pressure
and China is no longer ‘food independent’ and the African agricultural sector is therefore
becoming an area of strategic interest for China (Hazelhurst 2007).
In the manufacturing sector, much of the investments are in the supply-industries to
primarily the natural resource sectors and the construction sector. Other of these
investments are in the production of consumer goods to the African markets and thus serve
the purpose of increasing the market share of Chinese companies within the African
markets (Lyman 2005).
In telecommunications China is seeking to establish a lead position in the growing African
markets for new communication infrastructure, with the global champion companies
Huawei and Zhongxing Telecommunications Equipment as spearheads (CCS 2007).
In the banking sector only two Chinese investors exist; the state-owned Bank of China
(BOC), which was the first Chinese investor in the banking sector, and the state-owned
Industrial and Commercial Bank of China (ICBC). BOC has put up three African branches,
the first of these in Zambia in 1997. ICBC recently (end-2007) made the largest Chinese
investment in Africa so far, with the US$5.6 billion purchase of a 20 per cent stake in the
largest bank in Africa, the Standard Bank Group. From this platform the state-owned bank
is able to assure better support for Chinese investors through the Standard Bank’s 240
38
branches allocated in 18 African countries (Business Daily, 25th October 2007). The
investments by BOC and ICBC thus serve the political purpose of facilitating the flow of
Chinese investments to Africa by providing the Chinese investors with more ‘familiar’
Chinese banking services.
Another central element of the Chinese economic engagement of Africa which serves to
strengthen China’s market access is the numerous investments of various small scale
Chinese businesses in the trading sector. These companies are set up within African
countries to import Chinese goods to be sold through local shops, shops which themselves
are increasingly becoming objects of Chinese investment as well. This sector of investment
is very unregulated, and the Chinese state does not have much direct control or influence
upon these investments. However, the investments serve the crucial strategic interest of
increasing China’s exports (Van de Looy 2006; Bräutigam 2003).
With regards to the set of Chinese interests relating to the international political system,
the relation to Chinese FDI in Africa may not seem immediately intelligible. However, all
Chinese FDI serve this interest, in the sense that the ever-increasing number of
investments create closer political and economic interdependencies between China and the
African nations. Therefore Chinese FDI per se, together with the Chinese diplomatic efforts
and Chinese development assistance, constitute a central element in China’s strategy of
forging closer political ties with African governments – a strategy which in turn
strengthens the basis for cooperation in the international political arena.
5.3 Governing the engagement - Chinese state-support for Chinese investors in Africa This section describes the ways in which the Chinese state influences and governs the
Chinese engagement in Africa. The Chinese Africa policy framework is scrutinised through
a review of essential policy documents, and the concrete means and methods by which the
Chinese state influences and supports Chinese investors in Africa are identified and
scrutinised. The section illustrates how the Chinese state support forms an interrelated
matrix where the means of support i.e. diplomacy, development assistance, and
concessional loans are used in close coordination to facilitate Chinese FDI in Africa.
39
The Africa-policy framework
China’s political approach towards Africa is formulated in various political documents,
statements and speeches that materialize from various Sino-African political interactions.
Some of the most central documents are the white paper of the official Chinese “African
Policy” from 2006, and the joint declarations of the Forum of China-Africa Cooperation
(FOCAC) summits. These papers clearly state the Five Principles of Peaceful Coexistence
(described in section 5.1 above) as the central guiding principles for all relations between
China and the African countries and for their cooperation in the international political
arena. Clearly reflecting China’s interests with regards to the international political system,
the policy papers manifest intentions of greater cooperation and coordination of
standpoints in international forums, particularly in the UN and the WTO (FOCAC 2006b).
Also, with regards to the “One China Policy” the African nations are thanked for, and
encouraged to continue, their support (FOCAC 2006a). The policy papers also calls for an
increase in the frequency of high level political exchanges and dialogue, which constitute
central platforms for coordinating and cooperating on international political issues
(FOCAC 2003; FMPRC 2006).
With regards to investments in general, the Chinese government pledges that it will
support Chinese investments in African countries through the provision of preferential
loans. Furthermore intentions of strengthening various institutions and forums which
facilitate mutual investment activities, and intentions of simplifying the approval
procedures for incoming investments are emphasised (FMPRC 2006; FOCAC 2003,
2006b). Specific sectors are accentuated as priority areas for ‘cooperation’ (which in
essence means Chinese investments), these are; natural-resource extraction,
infrastructure-development, agriculture, and finance.
In the natural resource-sector the Chinese government (FMPRC 2006: 7): “(…) encourages
and supports competent Chinese enterprises to cooperate with African nations (…) to
develop and exploit rationally their resources (…)”. And the policy papers in different ways
pledges state support for this type of investment activities.
In the field of infrastructural development Chinese enterprises are encouraged to
participate in the effort to improve African infrastructure. China pledges to actively support
Chinese companies taking part in this development, and the African countries on their side
pledges to provide the Chinese construction companies with the necessary support within
the African markets (FOCAC 2006b).
40
In 2002, China’s then Vice-Minister of Foreign Affairs, Li Zhaoxing declared agriculture
centrepiece in the Chinese Africa-policy: “China will make agricultural cooperation with
Africa a key area of cooperation in the coming years” (Peoples Daily, September 28,
2002). Chinese investors are encouraged to invest in this sector in order to increase the
agricultural production capacity, and thereby contribute to the food security of both the
African countries themselves, as well China (FOCAC 2003, 2006b).
In the financial sector the Chinese state has pledged to encourage Chinese financial
institutions to set up more branches in Africa, and the African countries pledges to assist
this process within their respective countries (FOCAC 2003, 2006b).
The above illustrates some of the main declarations with regards to investments which can
be found within the official documents of China’s Africa policy. It is nothing more than
declarations of intentions, however, these declarations deliver important pointers for
understanding the central themes in the Chinese political approach to Africa. Themes
which reflect the strategic interests which were outlined in the first section of this chapter.
Besides the official declarations of intentions above, the Chinese Africa policy, also
contains more concrete policy initiatives. The four most significant being the following:
Firstly; China has pledged to set up the China-Africa Development Fund of US$5 billion,
with the sole purpose of supporting and facilitating investments by Chinese companies in
Africa. The fund was launched in June 2007, with the state-owned policy bank China
Development Bank appointed as coordinator (China Daily, 27th June 2007). Secondly;
China has vowed to encourage and assist a number of large scale Chinese SOEs to set up
three to five Economic and Trade Cooperation Zones in African countries before the end of
2009 (the first of which has already begun taking shape in Zambia, and which will be
described further in the Zambian case-study in chapter 6 below) (FOCAC 2006b). Thirdly;
China has made the promise of doubling of its development assistance before the end of
2009 (from the 2006 level). And finally; China has announced that it will provide a total of
US$5 billion in concessional state-to-state loans for African states over the period 2007-
2009.
The relation between the first two of the initiatives above and Chinese FDI in Africa is
direct and thus immediately intelligible, because the fund will provide loans directly to
Chinese investors and the economic zones will create advantageous investment
environments for Chinese investors in various African contexts. However, for the last two
initiatives mentioned the support provided for Chinese investors through development
assistance and state-to-state loans is not as obvious and direct and therefore demands a
41
little more clarification. This clarification will be provided within the next sub-section,
which examines the means which the Chinese state uses to support Chinese investments in
Africa.
Means of Chinese state-support
Diplomacy is the most central means of support in terms of its governing and coordinating
role vis-à-vis the other means of Chinese state-support. Chinese diplomacy is primarily
used to further the understanding, cooperation and support for China’s economic
engagement in Africa amongst African leaders and political elites. The Chinese diplomacy
towards the African states is most frequently played out in the form of official state visits by
high-level political leaders or within the framework of the FOCAC. A significant number of
African political leaders and business people have visited China, but more significantly a
wide range of Chinese political dignitaries have visited Africa and, especially over the past
decade, the frequency as well as the significance of the visits have been on the increase. The
most recent and significant examples are the ‘African tours’ undertaken by the absolute top
of the Chinese political leadership; firstly by premier Wen Jaibao visiting seven countries
in June 2006, and subsequently by president Hu Jintao visiting eight countries in February
2007.
State visits like these are used to negotiate and finalise large ‘bundled’ deals on Chinese
development assistance, concessional loans, and dept relief – deals which also often
include large Chinese investment projects (Pan 2006). Also, during the FOCAC meetings,
the Chinese government creates a facilitative environment for a range of government-
selected Chinese companies. Here the Chinese government pre-arranges meetings between
these companies and a range of potential ‘customers’ in terms of African ministers of e.g.
communication, transportation and finance.
With regards to concessional loans the Chinese state supports Chinese investors through
two different types of loans, namely; loans provided directly to the investing company, and
loans provided on a state-to-state basis to the African host-country state.
The state-to-state loans typically include a wide range of projects to be undertaken for the
money provided in the loan. The list of projects is negotiated on a government to
government basis, and typical projects agreed upon are; construction of e.g. roads,
railways, electrical networks, hydro-electric dams, bridges, harbours, or
telecommunications networks. These projects are then assigned to Chinese companies in
Africa, while a pre-fixed amount of the inputs for the projects is to be purchased from
China. This constitutes a typical ‘tied aid’ structure, but these loan-packages does not only
42
serve as a means of support for Chinese companies through the indirect ‘subsidies’ that is
provided through the ‘tied’ contracts provided to Chinese companies. The loan-agreements
namely often also involve deals on Chinese investments in natural resources, for example
in terms of national oil or mining concessions offered to Chinese SOEs at favourable terms.
Furthermore the production from these resource-extraction activities are in some instances
used as collateral, or as part of the repayment of the loan (Taylor 2006b; Alden 2007; CCS
2007).
The other type of state guaranteed loan is the cheap loans provided to Chinese investors
through the Chinese state-owned banks (as was described above in chapter 4). These loans
allegedly makes the Chinese investors less risk averse than their competitors from other
countries, and enables investments which are not immediately profitable in the short term,
but which serve the long-term interests of the Chinese state (Chen et al. 2006).
Chinese development assistance is used to provide state-support for investors in Africa
through the same ‘tied aid’ dynamic as described above in the case of the state-to-state
loans. The most typical example being the construction of e.g. a school or a hospital
contracted directly to a Chinese construction company. Other typical projects are the so-
called ‘prestige projects’ as e.g. national stadiums, parliaments and other government
buildings, funded by Chinese development assistance and exclusively contracted to Chinese
companies. The Chinese development assistance in this way forms a ‘closed investment
circuit’ between the Chinese state and the Chinese construction companies in Africa (CFR
2006; Chen et al 2006). The Chinese companies in the telecommunications sector enjoys
the same kind of indirect state subsidies through ‘tied’ development assistance funds, and
the same support, although in a much lesser degree, also befalls Chinese investors in the
agricultural sector (CCS 2008).
Altogether the Chinese diplomacy, development assistance, and state loans serve the
purpose of creating stronger understanding and support for the Chinese engagement in
Africa amongst African political elites and strengthen the political and economic
interdependencies between China and the African governments. Such strengthened
relations may namely, according to CCS (2006), spur easier access for Chinese investors to
African resources through increased Chinese political leverage within the African host-
country contexts, as well as it strengthens the basis for cooperation in the international
political system. The ‘interrelated matrix’ of state-support combining diplomacy,
development assistance, government-to-government loans, as well as loans directly to the
companies, allows Chinese companies to gain competitive advantages in many African
economies, and especially in the resource-rich countries, where the engagement of the
Chinese state is particularly strong.
43
5.4 Summary The strategic interests of the Chinese state in Africa constitute a set of rationales for the
Chinese state to seek influence on Chinese investment activities on the continent because
the investments in different ways serve these interests.
The strategic interest of obtaining supply-security in vital natural resources in order to
maintain high economic growth rates is served through the investments in African natural
resources. By means of these investments direct control over resources is achieved. The
other main strategic interest in increasing China’s access to, and shares within, various
markets in the emerging African economies is served by investments in practically all other
sectors than the resource-sector. For examples the markets within the construction and
telecommunication sectors holds great business-potentials. Simultaneously the
investments in these sectors also contribute to the strengthening of the leverage of the
Chinese state vis-à-vis African host-country governments by means of ‘prestige projects’
carried out by these investors and financed by Chinese development assistance or state-to-
state loans.
The agricultural sector investments may serve the same purposes, however, more
commonly the investments in this sector are market-seeking investments which seek access
and shares in the African markets with deficient food production and high prices. On a
more long-term scale the agricultural investments may also, according to some observers,
serve to enhance China’s food-supply security. In the manufacturing sector, the Chinese
investments constitute the most varied range of activities. Some investments are in the
supply-industries for the resource-extraction and construction sectors. Other investments
focus on the production of consumer-products for the African consumers and thus enhance
the market share of Chinese companies in Africa. Enhancing market-shares and boosting
Chinese sales in African markets are also the investments in the trading sector. These
investments serve to build up an increasingly large network of small-scale local outlets
which sell Chinese goods to the African consumers. This is a very efficient way of increasing
exports, and in this regard the sector serves the interests of the Chinese state. The
investments undertaken in the banking sector may be serving the interest of increasing
Chinese shares in this market on a long-term scale. The primary purpose of these
investments now however is to support and facilitate the general flow of Chinese
investments to Africa in terms of providing the Chinese investors with Chinese financial
services within the African markets.
44
Collectively the Chinese investments in Africa all serve to strengthen the economic and
political interdependencies between China and the African nations. This enhancement of
interdependencies ultimately serves China’s strategic interests with regards to the
international political system because it strengthens the base for closer cooperation and
coordination with the recipient African nations in the system.
The Chinese engagement in Africa is governed by the Chinese state’s official Africa policy
framework. This framework clearly reflects China’s strategic interests in Africa. China’s
foreign policy towards Africa and the diplomatic efforts undertaken at the FOCAC meetings
and at the official state visits, actively underpin Chinese investments in Africa. This state-
support for investments is not only carried out through this ‘diplomatic channel’, but also
by means of development assistance, concessional loans for African states, and
concessional loans directly for the Chinese investors.
The development assistance and concessional loans provided to African states work much
in the same way. The Chinese investors in construction, telecommunication and, to a lesser
degree, agriculture benefit through the ‘indirect’ subsidies which are provided to them in
terms of contracts on projects funded by China. At the same time these projects, as
described above, serve to increase the political leverage of the Chinese state within African
host-country contexts, which in turn can be utilised to facilitate negotiations with African
governments about investments in natural resource concessions. The final means of
support, the loans provided directly to Chinese investors through the state-owned banking
system, is provided to practically all types of investments in all sectors, however the loans
are predominantly awarded to SOEs.
This chapter has analysed what strategic interests the Chinese state has in Africa and how
these interests relate to Chinese investments in African countries. It was furthermore
outlined how the Chinese state by means of its foreign policy towards Africa, as well as by
more concrete means of support, seeks to govern and influence the investment activities of
Chinese companies in Africa in order for these to contribute to the fulfilment of China’s
strategic interests on the continent. In the next chapter focus will be upon a concrete
example of how the Chinese state supports Chinese investments in one particular African
host-country context – namely in the Zambian context.
45
6. Chinese investments in Zambia and the role of the Chinese state
China has invested in Zambia since the country, established diplomatic ties with China
immediately after independence was achieved in 1964. The first Chinese investments in
Zambia were not ‘real’ FDI but materialized solely in the form of ‘goodwill projects’ funded
by Chinese development assistance, with the purpose of strengthening the political ties to
this new socialist nation – China’s first political and ideological ally in then ‘White’
Southern Africa (Taylor 2006a).
The Chinese engagement in Zambia has undergone significant change since then, and
especially over the past decade. The predominance of goodwill investments, has been
replaced by an increasingly more intense and diversified flow of Chinese FDI, serving a
broader array of strategic interests than the sole traditional interest of strengthening the
political friendship. The interests of attaining access to natural resources, as well as in
enhancing market shares, have become increasingly central in the Chinese engagement in
Zambia, while the maintenance and strengthening of the political ties remains an
important interest as well.
This chapter commences with an account of how, and by what means, the Chinese state
supports the Chinese investors within the host-country context of Zambia. Hereunder
especially the facilitative institutional framework which the Chinese state has established
in Zambia is scrutinised. Section 6.2 focuses on the actual Chinese FDI in Zambia and
provides an overview of the size and distribution of the Chinese investments in the country.
Thereafter, in section 6.3 a number of investment-cases in the mining, construction,
agriculture, and telecommunication sectors, and how these investments have benefited
from Chinese state-support will be scrutinised.
46
6.1 Chinese state-support within the Zambian host-country context As described in chapter 5.3, the Chinese state today supports Chinese investors in Africa by
a variety of different means, spanning from diplomatic support at the highest political
level, to the more concrete means of development assistance and concessional loans. These
means are all utilised in the Zambian context. At the diplomatic level the FOCAC meetings
as well as the official state visits of Chinese political leaders, constitute essential platforms
for Chinese state’s support. The most renowned visit of a Chinese diplomat to Zambia was
the recent visit of president Hu Jintao in February 2007, but a number of other Chinese
state dignitaries have visited Zambia in recent years, e.g. Vice Premier Zhu Rongji (1995),
Premier Li Peng (1997), Foreign Minister Tang Jiaxuan (1999), plus a wide range of
representatives from various Chinese ministries and state institutions (FMPRC 2003). The
frequency of official state visits between China and Zambia, have increased significantly in
recent years. The current relationship between the respective political elites is close and
China openly supports the ruling Zambian party; Movement for Multi-party Democracy
(MMD), both financially and rhetorically (CCS 2007). During the 2006 election in Zambia,
the Chinese community in Zambia publicly supported the MMD campaign, while the
Chinese ambassador to Zambia threatened publicly that China would withdraw all its
activities from Zambia if the main opposition candidate Michael Sata, and his Patriotic
Front party, won the election21. According to a member of parliament for Patriotic Front,
this support invariably puts the MMD party in ‘payback’ position to China22.
The political friendship between China and Zambia, underpinned by the personalised
linkages between their respective political elites, enhances the political leverage of the
Chinese state vis-à-vis the Zambian state, which in turn can be used by the Chinese state to
facilitate Chinese investments in the country, by for example utilising this leverage in the
negotiation of investment deals23. Besides the support provided through this ‘diplomatic
channel’ the Chinese state also supports investors through the facilitative institutional
21 Interview with lecturer at the Department of Development Studies, University of Zambia, 21 June 2007 and interview with political commentator and political scientist, 13 June 2007, Lusaka. 22 Interview with Member of Parliament for Patriotic Front, 22 June 2007, Lusaka. 23 Interview with lecturer at the Department of Development Studies, University of Zambia, 21 June 2007.
47
framework comprising a number of Chinese institutions established within the Zambian
context.
The Facilitative Institutional Framework
A total of five Chinese institutions, which in different ways provide support for Chinese
investors, have been established in Zambia. The five institutions are: the Chinese Embassy
(most importantly the Economic Councillor’s Office; ECO); the Association of Chinese
Corporations in Zambia (ACCZ), the Chinese Centre for Investment Promotion and Trade
(CCIPT), the Zambian branch of Bank of China (BOC), and finally the Zambia-China
Economic and Trade Cooperation Zone (ZCCZ).
The Economic Counsellor’s Office (ECO), under the Chinese Embassy, is the most
important institution for Chinese investors in Zambia. Here, investors get advice on
investment options and crucial support to establish contacts with Zambian authorities and
the Zambian political and business elites. The Embassy is the daily representation of the
Chinese political leadership in Zambia and it therefore undertakes negotiations about e.g.
development assistance and loan packages with the Zambian state, and other stakeholders,
on behalf of the central government in Beijing. The embassy also manages various
supportive instruments on behalf of the Chinese Ministry of Commerce (MOFCOM), for
example the possibility of sending local Zambian employees on free education-courses in
China, paid by the state (as part of China’s Africa policy)24.
The ACCZ, established in 2005, functions as the Chinese chamber of commerce in Zambia
with around 60 Chinese member companies. ACCZ is established by political decree of
MOFCOM (which also funds it) as part of the implementation of the Go Out policy
framework. The organisation falls directly under the authority of the ECO (with the
Economic Counsellor himself presiding the organisation and hand-picking the members of
the board amongst the senior management staff of the larger Chinese companies in
Zambia). ACCZ takes care of the interests of the Chinese companies both vis-à-vis the
Zambian public and the Zambian authorities, communicating and promoting the cause of
the Chinese investors through the public Zambian media, and directly to local authorities.
ACCZ also educates its members in the rules and regulations of Zambia and handles
immigration and labour cases for Chinese companies on behalf of the Chinese embassy25.
24 Interview with Managing Director of Huawei Zambia, 26 June 2007 and interview with Deputy CEO of Sino-Metals Leach Zambia Ltd, 28 June 2007. 25 Interview with Secretary of ACCZ, 12 June 2007.
48
The CCIPT is a parastatal organisation established in 2002 and is, like the ACCZ,
established upon the request of MOFCOM26. The primary function of CCIPT is to identify
suitable investment options; provide practical support (in the form of accommodation;
transport; and communication); and facilitate contacts with relevant Zambian authorities
for newly arrived potential Chinese investors27.
The Zambian branch of BOC, is different from the other institutions as it is not, in essence,
a political organisation or institution, but a state-owned commercial bank. However, the
establishment of the Zambian branch is strictly politically induced, and has as such so far
been an entirely unprofitable investment. The Zambian branch was the first branch of a
Chinese bank established in Sub-Saharan Africa, and it was established by political decree
of then vice-premier Zhu Rongji in 1997 (after he promised Zambia a Chinese bank under
his state visit in 1995). The prime purpose of the bank is to facilitate the banking-
operations of Chinese investors in Zambia. According to, the manager of BOC Zambia,
practically all Chinese investors in Zambia use the BOC for their banking-operations and
for transferring money to and from China28. BOC is thus a facilitative government-induced
investment that considerably reduces the difficulties for Chinese investors to manage their
banking affairs in a foreign context.
Common to the four institutions described above is that they are all in place in Zambia due
to initiatives from the Chinese state. Obviously the embassy is a state-driven institution,
but what is more interesting and indicates the omnipresence of Chinese state-influence, is
that the two institutions the ACCZ and the CCIPT, which at first glance seem to be non-
governmental member-controlled institutions, are actually established on government
initiative and are both influenced by the Chinese state, through MOFCOM and the officials
from the ECO who are members of their boards. In fact, in the words of the acting
president of the ACCZ, the organisation is basically: “(…) an attachment to the embassy”29.
The BOC Zambia at first glance seems like an investment undertaken by a commercial
company in order to realise a potential profit. However this investment has taken place
only because it serves the political objective of supporting Chinese investors. The
investment thus forms part of the state-driven facilitative institutional framework,
established to support the influx of Chinese investments to Zambia.
26 Similar Chinese investment centres have been established in ten other African countries. 27 Interview with Board Secretary of CCIPT, 13 June 2007. 28 Interview with Manager at BOC Zambia, 13 June 2007. 29 Interview with Acting President of ACCZ, 12 June 2007.
49
Another concrete example of the Chinese state’s efforts to facilitate Chinese FDI within the
Zambian context is the establishment of the economic zone, the ZCCZ. This zone is the first
of three to five Chinese economic zones which, according to the Beijing Action Plan 2007-
2009, are to be created in Africa before 2010 (FOCAC 2006b). The zone, which is centred
around the Chinese owned Chambishi copper mine in the Copperbelt region, was officially
inaugurated by Hu Jintao’s during his state visit in February 2007. The Chinese
government will strongly support Chinese investments, into this zone, via cheap loan
packages, and through the institutions listed above, as well as by using Chinese
development assistance to fund the construction of necessary infrastructure within the
zone. Some of the construction work will also be funded through Chinese state loan-
packages provided to the Zambian state. Hu Jintao, during his visit, pledged a total of
US$800 million in investments in the zone in the first three years of its existence and,
according to Zambian president Levy Mwanawaza, these investments will predominantly
go into mining, manufacturing and agriculture (BBC, February 3, 2007).
The primary objective of creating the zone is to establish a ‘low tax - low regulation’ zone
for exporting copper and copper products from the Chambishi mine to China. Another
objective is to build an export-hub for locally produced Chinese goods to the Southern
African region, by establishing a range of different Chinese production companies within
the zone. The zone, in the long term also serves to ensure a stable and secure environment
for Chinese investors within Zambia. The zone, as described above, provides a set of
advantageous investment conditions for Chinese investors who invest within this zone, an
arrangement which might in turn enhance the flow of Chinese investments to Zambia. The
economic zone represents a complete picture of how all the instances of Chinese state
support, i.e. diplomacy, development- and other types of financial assistance, and Chinese
institutions in Zambia, work together to create results which support Chinese investors in
Zambia. Results which serve the strategic interests of the Chinese state in terms of securing
natural resources, expanding Chinese market access and shares, as well as solidifying the
political partnership between the two states. Altogether this ‘interrelated matrix’ of Chinese
state support working within the Zambia context can be illustrated as seen in figure 3 on
the next page.
50
THE CHINESE STATE
THE ZAMBIAN STATE
CHINESE INVESTOR
ECO ECON.
ZONE
BOCCCIPTACCZ
Facilitative Institutional Framework
Information Facilitation of contacts with Zambian authorities
Management of public relations Information Network of Chinese investors
Investment-friendly environment
Banking operations Practical support for new investors
Concessional loans for investors
Development assistance
Contracts for Chinese funded projects
Investment deals
Concessional state-to-state loans
”Diplomacy”
THE ZAMBIAN CONTEXT
Figure 3: The interrelated matrix of Chinese state-support. The Chinese state provides support for Chinese investors within the Zambian context by means of its diplomatic efforts vis-à-vis the Zambian state, and its development assistance and concessional loans for Zambia, which in turn instigates contracts and investment deals for Chinese companies in Zambia. Furthermore the Chinese state provides support for Chinese investors in Zambia through the facilitative institutional framework established within the Zambian context., and through concessional loans directly for investors.
51
210
0
5
10
15
20
25
30
35
40
45
50
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
$US
mill
ion
6.2 Chinese FDI in Zambia – an overview Chinese investors are investing in practically all sectors of the Zambian economy.
According to the CCIPT, the total stock of Chinese investments in Zambia reached more
than US$570 million by the end of 2006, distributed amongst more than 200 Chinese
companies30. Figure 4 below illustrates the development of Chinese FDI flows to Zambia
from 1993 to 2006.
30 Interview with Board Secretary of CCIPT, 13 June 2007.
Figure 4: Chinese FDI in Zambia registered in approved investment licences by ZIC in the years 1993 to 2006 (depicted in the grey columns), plus the US$150 million investment in the Chambishi mine over the period 1998-2003 (indicated in red outline above the grey columns). (Sources: Zambia Investment Centre, investment data; and Interview with Secretary of Administration, NFC Africa, 28 June 2007.)
52
The numbers in the figure are not the actual invested amounts, but the amounts registered
in investment licenses with the Zambia Investment Centre (ZIC)31. Therefore they only
provide an approximation to the real invested amounts, which actually can be either higher
or lower than amounts depicted in the graph. The most significant investment which is not
included in the original data from ZIC, the US$150 million investment in the Chambishi
copper mine, has been incorporated in figure 4 (depicted in red outline, and distributed
equally over the years 1998-2003 in which the investment was spent on purchasing and
rehabilitating the mine). As seen in figure 4, the total registered amount for 2006 reached
US$210 million, and is therefore not depicted fully within the frame of figure 4. This
comparatively high amount is caused by the largest Chinese investment in Zambia ever;
namely the US$200 million investment in the Chambishi Copper Smelter, currently under
construction few kilometres from the Chambishi mine.
In figure 5 on the next page, the sectoral distribution of Chinese FDI, as well as the major
dominance of copper-related32 investments within this distribution is illustrated (the share
represented by copper-related investments is demarked by the red and the blue areas
collectively in figure 5). Even though the largest amounts of investments are registered in
the manufacturing sector by ZIC, more than two thirds of the value registered here is
directly related to mining. The copper smelter, together with the US$20 million investment
in a leaching plant; the Sino-Metals Leach Plant, together account for close to 70 per cent
of the total manufacturing sector investments (the share is indicated by the blue area in the
manufacturing sector column in figure 5). These two investments, together with the
US$150 million Chambishi mine investment (indicated by the red area in the mining sector
column in figure 5), make up almost 65 per cent of the total stock of Chinese FDI in
Zambia, as estimated by CCIPT. These three investors are all subsidiaries of the same
Chinese state-owned corporation; China Nonferrous Metal Mining (Group) Co., Ltd.
(CNMC) (which was also chosen to govern the economic zone described in section 6.1).
There are six other Chinese mining investments in Zambia registered with the ZIC, but
31 The data from ZIC does not show actual FDI, but only investment licenses. Despite the obtained license, an actual investment might never take place, or the amount invested might be different to the amount registered on the license. Another problem with the data is that the licensing procedure has not been centralised with ZIC, which means that not all investments are registered here. Various ministries can provide investment licenses on their own, as well as can local governments. An especially large ‘hole’ in the ZIC figures is created by investments in the mining sector, where large scale investments are predominantly approved and registered with the Ministry of Mines and Minerals Development, and does therefore not appear in the ZIC data. Another ‘hole’ in the data is formed by the unknown number of small-scale private Chinese investments, which never become registered. Nevertheless, according to the US Department of State (2006), the data from ZIC are the only FDI data available for Zambia (interview with Manager of Research and Policy Analysis at ZIC, 15 June 2007 and interview with Secretary of Administration at NFC Africa, 28 June 2007). 32 “Copper-related” referring to either actual mining activities, or related copper-processing activities.
53
40
315
13,510
160
0
50
100
150
200
250
300
350
Manufacturing Mining Construction Agriculture Other
US$
Mill
ion
220
150
these are all considerably smaller, altogether making up a total of US$10 million in
investments33.
6.3 Chinese investment cases The mining sector case, is constituted by the three investments controlled by CNMC. These
investments have been selected because they constitute such a significant share of the total
Chinese investment portfolio in Zambia, and because these investments represent an ideal
case to illustrate the close cooperation between the Chinese state and a Chinese SOE in
order to secure control of the, for China, so vital natural resource of copper.
In the construction sector the case is formed by the two companies China Jiangxi
Corporation (CJC), which is an SOE, and the smaller privately owned company, Zamchin
Construction (ZC). CJC is one of the three largest Chinese construction companies in
33 More investments may be registered with the Ministry of Mines and Minerals Development, but I was not able to obtain information about this during the fieldwork. Therefore mining sector investments are probably underestimated here. However, the amounts registered with the ministry are not likely to change the overall picture considerably, as these investments will be much smaller than the investment in the Chambishi mine.
Figure 5: Sectoral distribution of Chinese investments registered with ZIC between 1993 and 2006 plus the US$150 million investment in the Chambishi mine registered with the Ministry of Mines and Minerals Development. (Sources: Zambia Investment Centre, investment data; and Interview with Secretary of Administration, NFC Africa, 28 June 2007)
54
Zambia and has invested a total of US$6 million since 1995, while the ZC, founded in 1998,
made an initial investment of around US$400,000. Together the investments of these two
companies make up 16 per cent of the total Chinese investment in the Zambian
construction sector. These two companies reflect some of the differences in state-support
between the small-scale private investors and the larger SOEs in the construction sector.
In the agricultural sector the case is constituted by the investments of the largest Chinese
player in this sector, namely the SOE; China State Farms Agribusiness Corporation
(Group) Co., Ltd (CSFAC). CSFAC owns three farms in Zambia, the China-Zambia
Friendship Farm, the Jhonken Friendship Farm, and Jhonken Estates. The total
investment of CSFAC amount to US$2.9 million, constituting 29 per cent of the total
US$10 million invested by Chinese companies in the agricultural sector of Zambia.
In the telecommunication sector the investment-case is constituted by the Chinese
telecommunications company Huawei. The investment of Huawei is not reported in the
ZIC data, and the manager did not recall the total invested amount. However, Huawei is a
significant Chinese investor within this market and the company has the attention of the
Chinese state because it is pointed out as one of the 150 Chinese global champion
companies.
The mining sector case
For China, the investments in the Zambian copper mines are investments of immense
strategic importance. China is far from self-sufficient in copper, and moreover there is a
huge and growing demand. Today China is the world’s largest copper consumer – in 2005,
it accounted for more than one fourth of the worlds total consumption. Zambia, on the
other hand, is Africa’s leading copper producer, and Zambia has become one of China’s two
most important source-countries34 (Chen et al 2006; Trinh et al 2006; Streifel, 2006). A
combination of growing world demand for copper, falling stocks, and the effect of closures
when prices were low, has caused international copper prices to rise rapidly reaching
record nominal highs in 2006 (ARBEFT 2006). This situation on the copper market has
caused the Chinese state to concentrate more on securing copper-supply by means direct
control with resources, obtained by means of Chinese FDI. The investments of CNMC in
Zambia is a direct result of this strategy.
The privatisation of the Zambian mining sector in the 1990s, set in motion by the
international financial institutions, rendered these investments possible. Among the mines
34 Chile being the other key supplier.
55
that were privatised was the Chambishi mine. A 85 per cent share of this, almost dormant,
mine was bought by NFC Africa (a subsidiary of CNMC) in 1998. The Chambishi mine is
the first and largest Chinese owned nonferrous metal mine outside China. A total of
US$150 million was invested between 1998 and 2003 to put the mine back into production.
This investment now gives the Chinese SOE control over considerable copper resources.
Even though the mine now only produces between 5 and 10 per cent of Zambia’s total
annual output of copper concentrates, production is prospected to almost double, over the
next couple of years, as another US$100 million will be invested in opening a new section
of the mine35.
By investing in the two copper-related production facilities; the copper smelter and the
Sino-Metals leach plant36, CNMC is releasing itself from its current dependence on a South
African smelting company, which currently purchases more than 70 per cent of the
Chambishi mine’s copper concentrates. Today, the last 30 per cent are sold directly to
China, but when the copper smelter comes into operation in end-2008, CNMC and its
partners will have control of the full production chain, and will begin exporting the refined
copper directly to China from within the economic zone37.
CNMC has received substantial support from the Chinese state, and according to the
Secretary of Administration of NFC Africa, CNMC would most likely not have invested in
the Chambishi mine without the support of the Chinese government. CNMC benefits from
various incentives from the Go Out policy, and the advantages gained here spills over to the
branch NFC Africa in Zambia. Among the most important benefits are the loans provided
to CNMC at favourable interest rates through China Exim Bank and China Development
Bank. Also, the company benefited from the support at the bilateral diplomatic level where
the Chinese state played an immense role in for example the negotiation and establishment
of the economic zone. This zone will provide CNMC, with favourable tax regulations and
good infrastructure. The strategy for CNMC is to use the zone as a base for diversifying its
economic activities, in order to hedge for the future risk of falling copper prices38. In
relation to the actual purchase of the Chambishi mine, the Chinese diplomatic support
played a defining role as well. According to the NFC Africa secretary: “Chinese government
officials paid a lot of attention to buying this mine. A lot of government officials where 35 Interview with Secretary of Administration at NFC Africa, 28 June 2007. 36 The Chambishi Copper Smelter is jointly owned by CNMC with a 60 per cent share and the Yunnan Copper Industrial Group (another SOE) with a 40 per cent share. In the Sino-Metals leach plant CNMC holds a 70 per cent share, while the state-owned China Hainan Sino-Africa Mining Investment Ltd holds the remaining 30 per cent share. 37 Interview with Vice Director of Administration at Chambishi Copper Smelter, 28 June 2007 and interview with Secretary of Administration at NFC Africa, 28 June 2007. 38Interview with Secretary of Administration at NFC Africa, 28 June 2007, and interview with Deputy CEO of Sino-Metals Leach Zambia Ltd, 28 June 2007, Chambishi.
56
involved (…) The decision [to invest] was made in the CNMC headquarters in China in
cooperation with the Chinese government (…) I do not think CNMC would have invested
in the Chambishi mine without the support from the Chinese government”. The support of
the Chinese state is thus seen as a very central factor in the realisation of this investment.
The construction sector case
The Chinese construction business in Zambia is closely related to Chinese development
assistance, and contracts for construction tenders funded by development assistance is
exclusively offered to Chinese construction companies, and predominantly to the
parastatals39 (CCS 2006). For example China Jiangxi Corporation (CJC) was appointed to
build the Economic Councillor’s Office building for the Chinese embassy and the building
currently hosting the CCIPT offices40.
Besides serving the interest of strengthening political ties, the investments in this sector
facilitates access to a growing Zambian market for construction. A market where Chinese
companies have a competitive edge due to their comparatively low costs. Therefore these
companies are winning an increasingly large share of tenders in Zambia41.
The investments in the construction sector are far from the size of the mining and the
mining-related manufacturing sectors. However this sector is the third largest sector for
Chinese investments in Zambia, and it is a quite dynamic sector for Chinese investors, and
a sector currently in growth. A total of twenty Chinese companies were operating in the
Zambian construction sector in 2006; all of them established in the past ten to fifteen
years. Until recently, most of them were state-owned, but the rise of private companies in
China has influenced ownership configurations overseas. Thus, Centre for Chinese Studies
(2006: 55ff) asserts that half of the Chinese construction companies in Zambia in 2006
were privately owned.
The SOE; CJC, invested in Zambia because its parent company in China saw investment
and profit possibilities in Zambia. Via a combination of the company’s own financial
resources and concessional loans from Chinese state-owned banks, the company
established a branch in Zambia in 1995. Thereby, it became one of the first Chinese
39 Interview with Managing Director of Zamchin Construction, 26 June 2007. 40 Interview with Managing Director of China Jiangxi Corporation, 15 June 2007. 41 This tendency is not only confined to Zambia. China seems to win a lion’s share of the current tenders in the construction sector throughout Africa. According to Singh (2006), Chinese companies won US$ 6,34 billion worth of contracts in 2005. This is the result of a deliberate Chinese strategy. In Mozambique, for instance, Bosten (2006) reports that the Chinese embassy in Maputo actively informs Chinese construction companies about upcoming international tenders.
57
construction companies in Zambia. In the beginning the company did mainly construction
projects financed by the Chinese state, but today CJC’s main customers in Zambia are the
Zambian government, the World Bank, and the African Development Bank. However the
company still does projects for the Chinese government. The competition in the Zambian
market is increasing and since the establishment of the branch, profit margins have
dropped from an astonishing 50 per cent to approximately 10 per cent, but according to
CJC’s managing director the Zambian market is still very attractive for Chinese
construction companies and: “(…) the market in Zambia is still better than the market is
now in China”42. Simultaneously the Zambian market for construction is growing, and the
Chinese companies are winning more and more contracts. Therefore expectations amongst
Chinese investors in this sector are high.
Favourable market conditions also led to the establishment of the private Zamchin
Construction (ZC) company in the Zambian market. In contrast to CJC, the owner and
managing director of ZC could not obtain state guaranteed loans from the Chinese state to
finance his investment. Instead, he had to raise capital through family and other personal
networks in China. The main customer of ZC is the Zambian government. According to the
managing director, his company cannot take part in projects financed by Chinese
development assistance: “(…) we don’t have much chance for that as a private company
(…) I think they just give it to the parastatals”.
Even though the company is not closely associated with the Chinese state through finance
and development projects, it is still a product of the Chinese state’s engagement in Zambia,
because the managing director previously worked for several years in a Chinese state-
owned construction company in undertaking Chinese state-funded projects in Zambia. Via
the parastatal he achieved the sufficient experience and knowledge about the Zambian
market which enabled him to start his own business. Thus this company is in essence a
result of the Chinese state’s previous politically induced engagement in Zambia with
development assistance financed construction projects. Without this previous engagement
of the Chinese state, ZC would most likely not have existed in Zambia today43.
The agricultural sector case
Chinese investments in Zambia’s agricultural sector started off as development assistance
projects demonstrating Chinese agricultural practises to Zambian farmers. However, today
the sector is targeted by market-seeking Chinese investors which are strongly supported by
a facilitative Chinese policy on agricultural investments in Africa. The Zambian agricultural
42 Interview with Managing Director of China Jiangxi Construction, 18 June 2007, Lusaka. 43 Interview with Managing Director of Zamchin Construction, 25 June 2007.
58
sector is attractive to Chinese investors because Zambia does not currently produce enough
agricultural foodstuffs to be self-sufficient. The prices are therefore high and as a result
there is business potential in intensive large scale agricultural production44.
The most renowned of CSFAC’s farms is the China-Zambia Friendship Farm. The farm has
been on Chinese hands since 1988, and is the oldest Chinese farm in Zambia. The farm was
initially set up as a Chinese funded development project, but it was not economically viable
and CSFAC ‘saved’ the loss-making farm by buying it in 1991, under the instruction of the
Chinese Ministry of Agriculture45. Since then the parastatal has purchased another two
farms in Zambia: the Jhonken Estates, and the Jhonken Friendship Farm. The farms
produce only for sale in the local Zambian market. None of the farms export any products,
which according to the managers of the Friendship Farm and Jhonken Estates is because
Zambia has a deficient agricultural production. They both estimate that this situation will
keep them from exporting anything for another five to ten years, due to the Zambian
market conditions. When asked directly about the prospects for exporting to China, the
answer from the managing director of Jhonken Estates was: ‘It is not possible to export to
China, mainly because it is too far away and the agriculture there is doing very fine so
there is no market’. The argument that China is investing in African agriculture in order to
secure food supply does therefore not apply on a short term basis in the case of the largest
state-owned Chinese agricultural investor in Zambia, but it may still be a long term
political objective for China.
The Chinese Ministry of Agriculture is central to the investments of CSFAC. The three
investments were all financed by loans obtained by the CSFAC headquarter through the
Ministry of Agriculture in China. CSFAC’s relations to the Ministry of Agriculture are very
close since CSFAC previously was an integrated department of the Ministry. The CSFAC
farms are very likely to benefit from development assistance from the Chinese state in the
form of the declared establishment of a large-scale agricultural demonstration centre (one
of ten to be created in Africa according to the Beijing Action Plan 2007-2009). The
Ministry of Agriculture is furthermore pushing for more Chinese investments in the
agricultural sector. Recently, it sent a large delegation to Zambia to visit the existing
CSFAC farms and identify new suitable locations for future investments. The support from
the Chinese state is of paramount importance for the existence of Chinese agriculture in
Zambia, and of crucial importance for its further progress. The assistant general manager
at the China-Zambia Friendship Farm formulates it this way: “Some [agricultural]
44 Interviews with Assistant General Manager of China-Zambia Friendship Farm, 20 June 2007, and Managing Director of Jhonken Estates, 21 June 2007. 45 Interview with Assistant General Manager, Zambia-China Friendship Farm, 20 June 2007.
59
companies would be facing a very difficult and tough situation without the help from the
Chinese government (…) if the government does nothing, these farms will go …may go
bankrupt – it’s quite possible. They would be in very big problems. (…) The government
has to give us support otherwise we would be facing very difficult times”.
The telecommunication sector case
In the Zambian telecommunications sector, the Chinese interest primarily rests upon the
success of one flagship company namely; Huawei. The purpose with regards to the
company’s investments in Zambia is to expand and solidify this company’s share in the
Zambian market, as well as in the markets of some of the neighbouring African states.
Huawei is one of the top enterprises on the list of Chinese companies which the Chinese
state sees as future global champions (Lunding 2006). Huawei has invested in more than
30 countries in Africa, and reached a second place in sales in the Sub-Saharan region in
2006. Huawei is thus becoming an increasingly significant provider of new
telecommunications infrastructure on the continent. In the Zambian market, as in many
other African markets, Huawei won a deal to establish the main optical fibre network, the
backbone of Zambia’s future internet infrastructure.
According to the Managing Director Huawei is a private company. However, according to
Chen and Lin (2006: 42), the ownership structure is not quite clear, and close relations to
the Chinese army; the Peoples Liberation Army, have been suggested. What remains clear,
however, is that Huawei maintains close relations to the Chinese government as one of the
global champion companies and therefore receives support at the highest political level.
For example during the last FOCAC meeting, the Chinese Minister of Commerce and the
Minister of Foreign Affairs helped Huawei’s president to set up private meetings with 20
African presidents during the 2006 FOCAC summit46.
Huawei has also been supported by the Chinese government within the Zambian context.
During the recent visit of President Hu Jintao, a concessional loan of more than US$100
million, was promised to the Zambian government (as part of the total US$800 million of
promised investments over the three year period 2007-2009). This loan is to be spent on
various projects undertaken by Chinese companies in Zambia. The Zambian government
has made a list of requested projects and delivered the list to the Chinese embassy, which
then, in cooperation with the Chinese central government, approves the projects and puts
them in the basket of projects to be funded by the loan. Huawei’s internet infrastructure
46 Interview with Managing Director of Huawei Zambia, 26 June 2007.
60
project was on the Zambian governments list of requested projects, and Huawei thus won
the contract47.
Huawei also gets support from the Chinese institutions in Zambia. For example the
Chinese embassy and the ECO facilitates communication between the company and
relevant Zambian authorities. According to the managing director: “The embassy and the
economic councillor’s office (…) will help you and introduce you to particular
departments of the Zambian government, and (…) they will help you to invite customers,
especially from the [Zambian] government, because for them [i.e. the embassy] it is
government to government, but for the companies it is difficult [i.e. to establish these
contacts]”. The embassy as well as the ACCZ (of which Huawei is a member) are also
valuable in terms of providing information about various practical issues about doing
business in Zambia as well as about possible future business opportunities. The ECO is also
assisting Huawei in sending ten of their local Zambian staff on training courses in China.
Another facilitative element of China’s African policy is the implementation of tax
exemptions on Huawei’s imports from China. According to the managing director: “(…) the
government just want to create the good environment for Chinese companies to invest in
Africa, but then the companies have to make it on their own”. Huawei and other
companies benefit from the support coming from the Chinese Go Out policy as well as from
the Africa policy framework, and simultaneously the company is seeking lucrative markets
outside the increasingly competitive Chinese market. The investment in Zambia is driven
by a mix of political encouragement and facilitation from the Chinese state, and the search
for potentially very lucrative business opportunities in Zambia. According to the manager:
“Huawei is a Chinese company – we just follow the instructions of the Chinese
government (…) but Africa is also a big market (…) Africa is another high-light market
for telecommunications [i.e. after Europe, US and Asia] (…) and last year Huawei was
number two in sales in the Sub-Saharan region”48.
6.4 Summary The political and economic relationship between China and Zambia has undergone
significant change. Especially in the past decade the Chinese engagement in Zambia has
become more diverse as the ideological-political interest-base, upon which the engagement
47 Interview with Managing Director of Huawei Zambia, 26 June 2007. 48 Interview with Managing Director of Huawei Zambia, 26 June 2007.
61
previously rested, has been replaced by a much broader range of both political and
economic interests reflecting China’s strategic interests on the continent.
The political friendship between China and Zambia constitutes a fundamental basis for the
Chinese state’s ability to support its investors in Zambia. Besides the support enabled
through this ‘diplomatic basis’, the Chinese state’s support for Chinese investors is also
manifested through the means described in chapter 5, namely those of; development
assistance, state-to-state loans, and state guaranteed loans directly to the Chinese
investors. The case-study has also shown that the influence and support of the Chinese
state is also manifested within the Zambian context via the facilitative institutional
framework established in Zambia.
It has been shown how the investment-cases from the mining, construction, agricultural,
and telecommunication sectors in different ways serve the strategic interests outlined in
chapter 5, how the investments, in various ways and to various degrees, have benefited
from the Chinese state’s support. The most common means of state-support amongst the
interviewed investors is the concessional loans provided through the state-owned banks,
but also various forms of assistance at the diplomatic level, concessional state-to-state
loans, and development assistance projects benefits the investors.
The next chapter will review the findings of the entire analytical part of the thesis (i.e. the
chapters 4, 5 and 6) and looks at how the Chinese state-influence upon Chinese
investments to Zambia is manifested at the different ‘levels of aggregation’. Furthermore
the chapter will discuss these findings in relation to the theoretical approaches which were
presented and discussed in chapter 3.
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FDI to Zambia
China’s general political approach to FDI
China’s Africa policy
State-influence in the Zambian context
7. Three levels of Chinese state-influence
The influence of the Chinese state upon the terms and dynamics of Chinese FDI in Zambia has
in this thesis been regarded as operating at three different ‘levels of aggregation’. How the state-
influence operates at each of these levels has been analysed successively in the chapters 4, 5 and
6, starting from the highest level of aggregation and ending at the context-specific level of
Zambia. The levels of aggregation upon which the Chinese state influence manifests itself is
illustrated in figure 6 below.
Figure 6: Three levels of Chinese state-influence upon Chinese FDI in Zambia
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As accentuated in both the eclectic paradigm, as well as in the relational turn literature the
role of the locational context, and more specifically the home-country context is of great
importance in shaping the characteristics of FDI flows. In chapter 4 it was shown how
Chinese FDI is influenced by a mix of economic and political factors within the Chinese
home-country context. While the eclectic paradigm lays emphasis on the role of general
economic development, the relational turn literature lays more specific emphasis on the
role of the home-country state in shaping the terms and dynamics for FDI.
As it was shown in chapter 4, the rapid economic growth which China has experienced over
the past three decades has spurred a dramatic increase in China’s capital reserves, together
with an upward pressure on the Chinese currency, a dramatically increased demand for
natural resources, and an increasingly more intense level of competition in the domestic
market. All these conditions has increased the ‘push’ on domestic firms to undertake
investments in foreign markets.
While the general economic development in China has created some of the basic
preconditions for Chinese FDI to emerge, it was also shown in chapter 4 that the Chinese
state has controlled and governed this emergence by means of its changing FDI-policies.
These policies have become increasingly more facilitative towards FDI and the gradual
change in the Chinese state’s approach to FDI is clearly reflected in the development of
Chinese FDI flows. As part of the increasing political support for FDI, the Chinese state has
used some of the conditions brought about by economic growth as means of support for
Chinese FDI. The most significant example hereof is the use of the huge accumulated
surplus of capital reserves to finance loans on concessional terms for Chinese investors.
Another important outcome of the more facilitative political approach is the gradual
implementation of less restrictive approval procedures for FDI, which has broadened the
range of Chinese investors which are able undertake FDI.
As has been exemplified in the literature on the developmental state and on the Emerging
Economy TNCs, the state is able to wield significant influence upon domestic firms and
their FDI activities. The approach of the Chinese state towards FDI in Africa reflect some of
the characteristics of the developmental state’s approach to FDI. The Chinese state
facilitates, regulates and controls FDI by means of policy-making, via the state-owned
banking system, and through the widespread state-ownership structure amongst Chinese
companies undertaking FDI. Chinese FDI is therefore, at all times, influenced by the
prevailing political approach of the Chinese state towards FDI. The Chinese state therefore
plays a central role in enabling the development of China into a significant source-country
of FDI – a development which is currently taking place and of which the Chinese FDI to
Africa and to Zambia is part.
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Besides being influenced by the Chinese state by being a part of a state-induced general
development of emerging Chinese FDI, the Chinese investments in Zambia are also
influenced by the Chinese state’s approach to the engagement in Africa. As it was seen in
chapter 5, the Chinese state-influence at this ‘second’ level of aggregation is manifested
through China’s Africa policy framework as well as through the concrete means of state-
support provided for Chinese investors in Africa. However, before delving into the
manifestations of Chinese state-influence at this ‘African level’, it is important to seek an
understanding of why the Chinese state actively seeks influence upon the Chinese
investment activities in Africa. A better understanding of the rationales for, or the causal
dynamics behind, the Chinese state’s involvement can, as demonstrated in chapter 5, be
obtained through the study of the set of strategic interests which China has in Africa.
According to the literature on the competitive state, the state can be regarded as having a
fundamental interest in maximising economic growth as a means for maintaining its
position vis-à-vis the other states in the international political and economic system, and
as a means for maintaining internal order and social cohesion. Furthermore the
competitive state is considered able to identify and actively pursue its strategic interests
within the international system. In order to maximise economic growth the state needs to
secure and stable supply of natural resources, and a maximise its shares in the world
market. These, according to the literature, fundamental interests of the state are all
reflected in China’s strategic interests in Africa. The Chinese state, as it has been shown,
demonstrates resolve to actively pursue these interests by means of supporting Chinese
FDI which serves China’s strategic interests in Africa.
The majority of African countries are rich in natural resources, the purchasing power
within African markets is growing, and the states of Africa constitute a valuable source of
support for Chinese interest in the international political system. Therefore achieving
control with African natural resources, and access to African markets are central interest-
areas for China in Africa. The Chinese state needs to guarantee a stable resource-supply to
ensure continued economic growth. With regards to the African markets, the Chinese state
as well as the Chinese investors believe in the future potential of these markets. Gaining
access now is therefore of strategic importance in order to maximise future exports and
thus future growth – a growth which is also a significant source of legitimacy for the
Chinese government. With regards to the international political system China needs
support from African states on intricate matters such as countering US and Western
hegemony in the system, as well as more concrete issues as the “One China Policy” and
other concrete cases where China has a great interest in securing African votes in the UN
and other international institutions.
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These strategic interests are intimately related to the Chinese investments in African
countries. When looking at the overall structure of Chinese FDI to Africa the overwhelming
dominance of investments in natural resource-extraction illustrates the strong focus upon
the strategic interest in African natural resources. However, Chinese FDI goes into
practically all sectors of the African economies. The investments serve the strategic interest
of expanding China’s access to and share of emerging African markets. The most significant
sectors of investment are the construction, agriculture, manufacturing, telecommunication,
banking and trading sectors, which are all growth or potential growth sectors in Africa.
However, the investments in these sectors does not solely serve the interest of increasing
Chinese market shares in Africa. The construction, telecommunication, and to a lesser
degree agricultural investments, are also closely related to the development assistance
efforts of the Chinese state. These efforts serve the interest of strengthening the political
ties to African states and the political leverage of the Chinese state vis-à-vis the African
governments and political elites, and thus to strengthen the basis for the cooperation with
African nations on issues of Chinese interest in the international political system.
In essence all Chinese FDI activities in Africa contribute to the strengthening of the basis
for cooperation because all the investments, to various degrees, increase the political and
economic interdependencies between China and the African recipient states. The political
leverage which in this way is gained vis-à-vis African governments and political elites is,
besides serving China’s interests in the international political system, also used to serve the
interest in natural resources in terms of enhancing the clout of the Chinese state in
negotiations with African governments about Chinese investments in state-owned natural
resources. The strategic interests which China has in Africa are thus in various ways served
by the Chinese FDI and herein lies an incentive for the Chinese state to support Chinese
FDI in Africa.
The support which the Chinese state provides for Chinese investments in Africa is governed
by China’s Africa policy framework and the diplomatic actions undertaken vis-à-vis African
countries for example in terms of high-level state visits. Besides the support provided in
terms of bilateral diplomacy, the Chinese state also influences and supports Chinese
investors in Africa by means of development assistance, concessional state-to-state loans,
and concessional loans for Chinese investors. As described above Chinese development
assistance and concessional state-to-state loans are used as an integrated part of China’s
diplomatic efforts to increase the understanding and ‘goodwill’ vis-à-vis the Chinese
engagement in Africa amongst African governments and political elites. Simultaneously
these means are functioning as indirect subsidies for Chinese companies in terms of
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awarded contracts. Development assistance and state-to-state loans are also used actively
as part of bilateral negotiations about Chinese investments in African natural resources,
where pledges for assistance or loans are offered ‘in exchange’ for natural resource
concessions.
Within the specific context of Zambia the Chinese state supports Chinese investors by the
same means as described above. Again diplomacy, in terms of the political ties between
China’s political leadership and Zambia’s political elite of the MMD government,
constitutes a central platform for the Chinese state’s influence and support for the Chinese
investors within this specific context. Another central platform of support which operates
within the Zambian context, and which has not previously been described in the literature
about the Chinese engagement in Africa, is the facilitative institutional framework which
provides a wide range of supportive measures for the Chinese investors. As it was shown in
chapter 6 these institutions at first glance seem to be independent institutions, but when
scrutinised more closely the strong linkages to the Chinese state becomes evident and it
becomes clear that it is in fact the Chinese state which is the definitive entrepreneur behind
all these institutions.
The investment-cases studied were all, in different ways, supported or influenced by the
Chinese state, and all the investments also, in different ways, serve some of China’s
strategic interests in Africa. The investments in copper mining and the related activities
provides China with better control over its resource-supply by means of direct ownership of
resources. Furthermore, with the establishment of processing industries, China will achieve
full control of the entire copper-processing chain. The Chinese state supported these
investments by for example playing an active role in the negotiations for the purchase of
the mine. Moreover the mining-investments of CNMC now enjoy the benefits of the
economic zone, a deal negotiated by the Chinese state on behalf of the Chinese investors
who will benefit from the zone in the future. Furthermore the CNMC investments all
received support in the form of loans on concessional terms provided through the state-
owned banking system.
In the construction sector the state-owned company (CJC) has received support in terms of
loans and contracts for Chinese state-funded projects. While the private investor (ZC) did
not receive any direct support from the Chinese state, the investment is still influenced by
the Chinese state and is in essence a ‘product’ of previous engagements of the Chinese
state in Zambia in terms of Chinese development assistance-funded construction projects.
In the agricultural sector the investment cases studied all received support in terms of
concessional loans approved through the Chinese ministry of agriculture. Furthermore
CSFAC may receive benefits of Chinese development assistance if one of its farms becomes
67
appointed as partner in the development of a Chinese funded agricultural demonstration
centre. Huawei, the telecommunication investor, was given diplomatic support from the
Chinese political leadership during the last FOCAC forum to set up meetings with high-
level representatives from potential African customer-states. In Zambia the Chinese
embassy helps Huawei to establish contacts to various Zambian authorities and potential
customers. Huawei also benefited from a Chinese loan to the Zambian state which will,
amongst other, be used to finance Huawei’s large internet infrastructure project in Zambia.
As the Zambian case-study illustrates, the Chinese home-country state is actually ‘present’
within the Zambian host-country context and is, via its diplomatic channels and through
the facilitative institutions established there, able to influence and support Chinese
investors here. Besides the influence wielded within the Zambian context the Chinese state
also, as it has been shown above, wields influence at more aggregate levels in terms of its
political approach to the Chinese engagement in Africa and through its general FDI policy
regime. By means of its FDI policy, the state-owned banks, and via state institutions in the
Chinese home-country context, as well as through the Africa policy framework and by
diplomatic efforts vis-à-vis African states combined with development assistance and
concessional state-to-state loans, and finally via the facilitative institutional framework
established within Zambia, the Chinese state significantly influences Chinese investments
in Zambia at different levels of aggregation.
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8. Conclusions
The Chinese engagement in Africa constitutes a highly significant component in the
political and economic structure of contemporary Africa, and the current rate at which the
engagement intensifies points at an even more significant role of this phenomenon in the
future. Therefore it is relevant and important to study this phenomenon. While many
studies have already provided ‘general analysis’, seeking to encompass all aspects of the
engagement in order to deliver ‘comprehensive’ evaluations of its causes and consequences,
there is still a considerable lack of studies which scrutinise particular aspects of the
engagement in greater detail.
This thesis has focussed on the specific aspect of Chinese state-influence upon Chinese
investments in Africa. This aspect has been analysed by answering two research questions:
The exploratory question of how Chinese investments in Zambia are being influenced by
the Chinese state? And the explanatory question of why the Chinese state seeks to
influence Chinese investments in Africa?
It has been shown how the Chinese investments in Zambia are influenced by the Chinese
state at three levels of aggregation. Firstly; the investments are influenced by the general
political approach which the Chinese state has adopted towards all Chinese FDI
independent of its destination. Secondly; these investments are influenced by the political
and diplomatic approach which the Chinese state has adopted towards the engagement in
Africa. Thirdly; the investments in Zambia are influenced by the Chinese state’s influence
wielded within this specific African context.
At the most general level of aggregation the Chinese state influences Chinese FDI by means
of the general FDI policy framework and the gradual change towards a more facilitative
framework. Moreover the Chinese state has used the surplus of capital which has been
generated by economic growth to support Chinese FDI, by providing investors with loans at
concessional rates. At this level the Chinese state has created the fundamental conditions
for Chinese FDI to Zambia to occur.
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At the second level of aggregation the Chinese state influences the Chinese investors in
Africa through the Africa policy framework and the actions of diplomacy and foreign policy
which are undertaken vis-à-vis the African states. The state-influence at this level is also
manifested by the support provided for investors via Chinese development assistance,
concessional loans for African states, as well as via loans directly for investors.
Within the Zambian context the Chinese state is able to enhance the competitive
advantages for Chinese companies investing within the Zambian context by means of the
facilitative institutional framework and through its diplomatic leverage vis-à-vis the
Zambian political elite combined with concessional loans for both the Zambian state and
for the Chinese investors, and Chinese development assistance.
With regards to the explanatory question of identifying underlying causes for the Chinese
state’s active involvement in Chinese investment activities in Africa, explanations was
sought within the set of strategic interests which China has in Africa. These strategic
interests provide a set of rationales for the Chinese state to facilitate various types of
investments in Africa. The Chinese state needs natural resources, it needs to maximise its
exports and market shares in external markets, and it needs leverage in the international
political system and in various international bodies. The investments undertaken by
Chinese companies in African countries have significant potentials for contributing to the
achievement of these strategic interests. Investments in natural resources increase supply-
security of resources, while investments in practically all other sectors serve to enhance
Chinese market access and shares in African markets. Furthermore all the investments
simultaneously serve to strengthen the political and economic interrelationships between
China and the recipient African countries, interrelationships which constitutes a base for
increased cooperation in the international political system.
This study has shown that the Chinese state plays a significant role as regulator and
facilitator of Chinese investments in Zambia and that the state-influence wielded by the
Chinese state is manifested in different ways at different levels of aggregation. At the same
time the study has shown how China’s strategic interests in Africa constitutes a central set
of rationales behind the Chinese state’s involvement in Chinese investment activities in
Africa. In this way, by deliberately focussing on one particular aspect of the Chinese
engagement in Africa and by employing a fieldwork-based case-study of this particular
aspect in the Zambian context, this thesis has contributed to the development of the
currently very meagre knowledge-base on the substantial and complex issue of the Chinese
engagement in Africa.
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9. Perspectives
The findings of this study mainly serve to provide insights into the functioning of Chinese
state-influence upon Chinese investments in the Zambian context i.e. the findings are
ideographic in nature. However, the relevance of these findings extent broader than the
specific Zambian context and the study provides information which to some degree is
usable in other African contexts where Chinese investments occur. The manifestations of
Chinese state-influence are similar and shared between Chinese investments in all African
contexts. On an Africa-wide level the Chinese state supports Chinese investors by similar
means and under the same Africa policy framework. The general Chinese FDI policy also
influences all Chinese FDI to Africa independent of the specific host-country context. The
findings from the case-study of the Chinese state-support in the Zambian context, although
only valid for this specific context, still provides ideas as to how the Chinese state-support
could operating within other African contexts. These ideas can help to increase the
understanding and awareness of the manifestations of Chinese state-influence upon
Chinese investments when these are studied in other African contexts.
The thesis, through the Zambian case-study, has revealed that the Chinese state, apart from
influencing Chinese FDI at the more aggregate levels, also influences FDI within the host-
country context. That the home-country state influences the FDI activities of domestic
companies inside the host-country context is not an issue which have so far attracted much
attention within the theoretical literature on FDI. While this study points attention towards
the great relevance of applying theoretical approaches to the study of Chinese FDI in Africa
which fosters an analytical focus on the role of the home-country context and especially the
home-country state, it furthermore argues for analytical attentiveness to the influence of
the home-country state within the host-country context.
Such analytical approach is essential because the Chinese state and its policy-actions vis-à-
vis Chinese investors and African states constitutes a substantial dynamic force compelling
Chinese investors to invest in Africa. The influence of the Chinese state should thus not be
overlooked as a central factor in future studies of Chinese FDI in Africa.
71
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Appendix A
Interview guide: Chinese investors
Interview structure:
1. Introduction
2. Company profile
3. FDI history in Zambia
4. Sales markets
5. Financing
6. Practical and political support for investments
7. Competition
8. Timeframe, future perspectives and profitability
9. Decision making and governance structures
10. Factors influencing investment decisions
a. Host-country factors
b. Home-country factors
c. Other factors
11. Interests of the Chinese state
12. Questions pertaining to specific investment-cases/sectors
a. Natural resource extraction sector
b. Agricultural sector
c. Construction sector
d. (Manufacturing)
e. (Banking sector)
f. (Telecommunication sector)
g. (Health sector)
1. Introduction
1.1.) What is your name?
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1.2.) What is your professional title in this company?
1.3) How long have you been working for this company in Zambia? (elsewhere?)
2. Company Profile
2.1) What is the formal name of your company? (If not known already)
2.2) How is the organisation structure of your company?
(Do you have any kind of organisation chart that I could have?)
2.2.1) could you draw a sketch of the ownership structure? (identify if SOE…?)
2.3) Does your company have investments in other African countries?
2.3.1) If yes; which countries?
2.3.2) in what?
2.3.3) how much (in $)?
2.3.4) if no; why not?
3. ‘Investment history’ in Zambia
3.1) When did you invest the first time? (how much (in $)?; in what?; why?)
3.2) What investments have been done subsequently by your company in Zambia? (how much
(in $)?; in what?; why?)
(Do you have a report in English on your investment activities that I could have?)
4. Sales markets
4.1) Besides (main product of company) what else do you produce/construct/do?
4.2) Where do you sell your products?
4.2.1) Zambian market?
4.2.1.1) If yes; how much of total sales (% and $?) in Zambian
market?
4.2.2) Regional market?
4.2.2.1) If yes; define region?
4.2.2.2) How much of total sales (% and $?) to regional market?
4.2.3) Export to Chinese market?
4.2.3.1) If yes; how much of total sales (% and $?) to China?
4.2.3.2) Do your exports fall under the ‘preferential’ access of
African export items to China?
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4.2.3.3.1) If yes; how do these regulations work?
4.2.4) Export to other overseas market?
4.2.4.1) If yes; which market?
4.2.4.2) How much of total sales (% and $?) to overseas market?
4.2.4.3) Does Zambia serve as an ‘export platform’ in order to
avoid trade barriers?
4.3) Have your sales-markets changed over time? (e.g. from domestic to export, other)
4.3.1) If yes; how and why
5. Finance of investments
(Run through the above investment history to find out how each investment was financed)
5.1) Did you obtain loans in order to finance the investments?
5.1.1) If yes; for each case of investment (from above); how much of the invested
amount was financed by loans (in % or $)?
5.2.) Which banks (or other institution?) provided the loans? (for each investment instance
described above)
5.2.1) Any Chinese state-owned banks? (e.g. BOC, China Exim Bank,
Agricultural Bank, others?)
5.2.2) Where any of the loans state-guaranteed (in the sense that the state helped
you to obtain favourable loan-conditions)?
5.2.3) Do you think the conditions of these loans where better than what you
could have obtained from other sources (non-Chinese, non-SOE-banks)? (i.e.
low interest rate and long repayment period compared to a private bank)?
5.3) Have any of your investments been partly financed by Chinese development assistance?
5.3.1) If yes; which investments?
5.3.2) How much of each investment (in % or in $) was financed by development
assistance?
5.3.3) Has the Chinese state provided development assistance or loans to the
Zambian state for which your company was assigned to carry out a project?
5.4) Have you company undertaken Chinese development assistance projects/activities?
6. Practical and political support for investments
6.1.) Is the Chinese state of assistance to you with regards to practical information and
knowledge about how to invest in Zambia (or Africa)?
6.1.1) If yes; which types of practical support is provided (law, tax,
other advise)
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6.1.2) Who provides this support? (CCIPT, Embassy, other
institution? - in China or in Zambia?)
6.2) Is the Chinese state of assistance to you with regards to any form of ‘promotion’ of Chinese
investors in Zambia? (trade fairs, or commercials etc. )
6.2.1) if yes; how is this promotion done?
6.3) Have your company experienced any situations where the Chinese state (represented by
e.g. embassy or state representatives) helped you in order to resolve any issues with the
Zambian authorities?
6.3.1) If yes; which kind of issue?
6.3.2) How could the relevant Chinese political institution be of assistance to
you?
6.4) Are the large investment-deals by Chinese companies like yours being discussed or
negotiated at high-level political meetings? (e.g. like at the recent visit by President Hu Jintao
in February or at FOCAC in November)
6.4.1.) If yes; have cases of investment from your company been discussed or
negotiated at high-level political meetings?
6.4.1.1.) If yes; do you think any such talks have helped your
company to achieve investment-deals?
6.4.1.1.1.) If yes; in relation to which investments
and how did it help?
6.5) Has the Chinese embassy in Zambia been of any assistance to you with regards to your
investments in Zambia?
6.5.1) If yes; how have the embassy been of assistance to you?
6.6) Does the Chinese state help your company in Zambia in any other way that has not been
mentioned here?
7. Competition
7.1) Do you remember if your company had investment-competition for the projects/objects
you wanted to invest in?
7.1.1) If yes; who where the main competitors?
7.1.2) why do you think they where interested in the same investment
project/object?
7.1.3.) how was your company able to beat the competition and win the
investment-bid? (higher price, diplomatic/political assistance, development
assistance, other?)
7.1.3.1) If higher price; why where you willing to pay a higher price
than your competitors? - and how was it possible?
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7.2) Who do you see as your main competitors in sales markets? (in the market(s) of relevance)
7.2.1) In the Zambian market?
7.2.2) In the regional market?
7.2.3) In an overseas market?
7.2.4) On an international/global scale?
7.3*) Did you invest in order to manage better in the competition with any of these rival
investors/companies?
7.3.1) If yes; which rivals in which markets?
8. Timeframe, future perspectives and profitability
8.1) How many years do you think you will keep your operations in Zambia?
8.2) What are your ideas about the future for of your company’s operations in Zambia? (new
investments; expected market growth in relevant market; disinvestments in x-years; other)
8.2.1) Do you have any plans of future investments here in Zambia? (if not
confidential…)
8.2.2.1) If yes; which plans (amount, when and in what?)
8.2.2) When do you think you will withdraw from Zambia – do you have an exit
strategy?
8.3.) Are your investments profitable already now – or does it take longer time before they
become profitable?
8.2.1) If not profitable – why not?
8.3.2.) If longer perspective; how long?
8.3.2.) where do you expect the major part of future profits will come from?
(which activity)
8.3.4) If profits now; which activity does the major part of your profits stem
from? (which activity)
8.4) Do you think the investments of your company are more ‘long-term’-oriented (i.e. not
focussed on short-term profitability) than the investments from other investors in the same
sector as you? (e.g. compared to private Chinese investors or Western investors)
8.4.1) if yes; why do you think so?
8.4.2) if no; why not? (why equal/shorther?)
9. Decision making and governance structures
9.1) How is the decisions made in your company when it comes to the big investment-choices
e.g. to
invest here in Zambia – who makes the choices?
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9.2) how is your company related to the Chinese state? (e.g. through state-institutions (e.g.
ministries MOFTEC, MFA, MAG or SASAC) which participate in the investment decision
process)?
9.2.1) which institutions?
9.2.2) Does these institutions have influence on your investment decisions? (as
part of your advisory board/or board of directors, through different policy-
incentives, other?)
9.2.3) Does the Chinese state have influence upon the investments decisions of
your company in other ways than through these institutions?
(MOFTEC = Ministry. of Foreign Trade and Economic Cooperation; MFA= Min of Foreign
Affairs; MAG = Min of Agriculture; SASAC = State-owned Assets Supervision and
Administration Commission)
9.3) Can you describe what it means that your company is ‘state-owned’ – what does ‘state-
owned’ imply? (for governance structures and decision-making, ownership structures, other?)
10. Factors influencing investment decisions
Now I would like to talk about what factors that made you decide to invest in Zambia.
10.1) What do you think is the main reason for your investment in Zambia?
10a. Host-country factors
10a.1) Did you seek any form of human resource when you invested in Zambia?
10a.1.1) Cheap labour?
10a.1.1.1) If yes; why was cheap labour important for your
investment decision?
10a.1.2) Skilled labour?
10a.1.2.1) If yes; what kind of skilled labour and why was it
important for your investment decision?
10a.2) Did you seek any form of natural resource when you invested in Zambia? (if relevant)
10a.2.1) If yes; which? – and why this particular resource?
10a.3) Did you seek access to a specific market by investing in Zambia? (relevant market see
question 4.2)
10a.3.1) If yes; why did you seek access to that specific market? (market
potential in relevant market; overcome trade barriers to relevant market, take
advantage of preferential trade regulations towards China, other?)
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10a.3.1.1) If overcome barriers; which market and what barrier or
exploit which preferential regulation?
10a.4) Did you seek to acquire or gain access to any kind of attractive technology or know-how
by your investment in Zambia?
10a.4.1) If yes; which technology? – and why this particular technology?
10a.5) Did you seek access to infrastructure and thereby lower transportation costs when you
invested in Zambia?
10a.6) Do you find the tax-system in Zambia attractive to your investment?
10a.6.1) If yes; what particular tax-incentives/regulations are attractive to your
investment/company? (taxation of profits, labour tax, import of inputs and
machinery)
10a.7) Are there any limits to foreign ownership in the investment-sector you are investing in?
10a.7.1) If yes; what are the limitations and how have they affected your
investments?
10a.8) Are there any restrictions on capital repatriation?
10a.8.1) If yes; which restrictions? – and how do they affect your company?
10a.9) Do you perceive the Zambian economy as secure and stable economy? (including
political stability)
10a.10.1) If yes; why do you perceive it as stable?
10a.10.2) If not; why do you not perceive it as stable?
10b. Home-country factors
Now I would like to talk about the factors in China that could have affected your decision to
invest in Zambia
10b.1) What do you think made your company look for investment-opportunities outside
China?
10b.2) Did your company experience increasing competition in the Chinese home-market?
10b.3) Did your company experience decreasing profits/returns to investments in China?
10b.4) How do you think the accumulated surplus of foreign capital (mostly $) in China affected
your decision to invest outside China?
10b4.1) Did it make it easier for you to obtain loans (e.g. in $) to invest abroad?
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10b.5) How has the Chinese “going out”/”go out” policy for overseas foreign direct investment
(OFDI) affected your company?
10b.5.1) Has this policy made it easier in any way for you to invest in Zambia?
10b.5.1.1) If yes; do you have any concrete examples of how?
10b.6) Do you think the need for (company’s product) in China has caused political incentives
for your company to invest in that here in Zambia
10c. Other factors
Did the close political ties between China and Zambia influence your choice to invest in Zambia
positively or did it have no influence?
Do you think that the fact that you are a state-owned company affects your investment
decision?
Do you invest differently compared to ‘private’ Chinese companies investing in
the same sector?
Do you have access to different loan packages than private Chinese investors?
(better loans?)
(if experience) Do you think your company’s experience from other African countries made the
company more confident to invest in Zambia?
11. Interests of the Chinese state
11.1) What does your company provide China with – how do you benefit China?
11.2) Why do you think the Chinese state supports your activities?
11.3) Do you see you investment activities as closely related to any interests of the Chinese
state?
12. Questions pertaining to specific investment-cases/sectors –
if any?
a. Mining-sector case
b. Agricultural-sector case
Is there a growing need for agricultural imports in China?
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If yes; did this influence your decision to invest? (…e.g. do you hope to export to
China in the future?)
Does the investment in Zambia help your company to gain a better market position in the
international market for agricultural products? – or are you not interested in the international
market? (if only selling to domestically or to China…)
(If company is exporting to other markets than China) Export platform (to EU and US
markets)?
c. Contruction-sector case
d. Banking-sector case
e. Manufacturing-sector case
f. telecommunication-sector case
other cases…?
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Interview guide: Association of Chinese Corporations in Zambia (ACCZ)
1. Introduction
What is your name?
What is your profession at the ACCZ?
How long have you been in Zambia? / working at ACCZ?
2. History of ACCZ
When was the ACCZ established in Zambia?
Are there other associations like this in other countries in Africa?
2.2.1) how many?
2.3.2) where?
2.4.3) when where they established?)
Who created ACCZ?/who finances ACCZ?
Which institution/ministry has the authority over X?
Why do you think the X was created here in Zambia?
3. Functions of the ACCZ
*What are the functions of the ACCZ?
…
Is every Chinese company in Zambia a member of ACCZ?
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Do you provide services for all kinds of Chinese investors in Zambia?
Do the investors pay for the services provided by X or are they free?
does the ACCZ have to earn an income in order to survive – or is it paid for by
someone?
4. Other institutions/organisations
What other institutions/organisations are there in Zambia that has to do with Chinese
companies/investors in Zambia? (CCIPT, Association of Chinese Citizens in Zambia, Zambia-
China Business Association, others?)
List names and contacts
Can you tell me more about what the individual institutions/organisations does?
5. Questions pertaining to the Chinese state
Are you familiar with the Chinese “Going Overseas” policy – can you tell me more about how it
works/what it does?
Are there other initiatives by which the Chinese govt./state is supporting Chinese investors or
companies to go to Africa?
If yes; which and can you tell me more about each initiative?
Why do you think the Chinese govt./state wants to help Chinese companies to invest in Africa?
How does the Chinese embassy support Chinese investors in Zambia?
6. Chinese companies/investors in Zambia
In my research I am trying to focus on some particular companies – can you tell me more about
each of them?
China State Farm Agribusiness Corporation (CSFAC)
China National Overseas Engineering Corp. (CNOEC)
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China Nonferrous Metal Mining (Group) Co. (CNMC)
Bank of China (BOC)
… I am also very interested in:
A big manufacturing company
A big cotton company or maybe (Zambia China Mulungushi Textiles Ltd.)
(ZCMT)
Are any of the companies on this list affiliated with these companies?
Which owns which?
7. Overview of Chinese investments in Zambia
Do you have any data about the Chinese companies in Zambia in English print that I can
have?
Contacts
List of potential contact persons whom speak English and which may be good for me to talk to
(Chinese companies?, Embassy/Economic Councillor’s Office?, other institutions?)
Can you help me establish the contacts? (introduce me?, help to establish trust?)
Which institutions and companies are present in this building apart from ACCZ?
Is there anyone in this building which I could maybe interview today or meet in
order to arrange meetings later? Can you introduce me to someone here?
Can I have your contact details (telephone and e-mail) and is it possible that I can contact you
again later if I should have further questions at a later state?
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Interview guide: Chinese Centre for Investment Promotion and Trade (CCIPT)
1. Introduction
1.1) what is your name?
1.2) what is your profession at the Centre?
1.3) how long have you been in Zambia? / working at this centre?
2. History of CCIPT
2.1) when was the Centre established in Zambia?
2.2) are there other CCIPT Centres in Africa?
2.2.1) how many?
2.3.2) where?
2.4.3) when where they established?
2.3) are you represented in China as well?
2.3.1) if yes; why? (e.g. in order to promote investments in Africa)
2.4) who creates the Centres?/who finances the centres?
2.5) which institution/ministry has the authority over the centres?
2.6) why do you think the centre was created here in Zambia?
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3. Functions of the Centre
3.1) as it says in the title of the Centre you obviously work with investments and trade – do you
have other responsibilities than these? (e.g. provide information about Chinese culture;
other?)
3.2) with regards to trade which services do you mainly provide?
3.3) with regards to investments services do you provide?
3.3.1) do you recommend feasible investment-sectors/projects to Chinese
investors?
3.3.1.1) if yes; which sectors/projects do you recommend mostly?
3.3.1.2) how do you select which sectors/projects to recommend?
3.3.1.3) do you cooperate with the Chinese state (authority from
above) in order to identify recommendable projects?
3.3.2) support Chinese investors in their contact/communication with Zambian
authorities?
3.3.3) provide legal advice?
3.3.3.1) if yes; what kinds of legal advise? (Zambian tax, labour,
import and export laws, Chinese laws?)
3.3.4) help with finding finance?
3.3.4.1) does the Centre itself provide finance?
3.3.4.2) does the centre mediate between Chinese banks and
Chinese investors?
3.3.5) other services which has not been mentioned?
3.4) with regards to investments who is using the Centre – which types of investors do you
recieve?
3.4.1) only Chinese investors?
3.4.2) do both private and state-owned Chinese companies use the Centre?
3.4.3) is it mostly small investments – or do the big investors use the Centre as
well?
3.4.4) is there some sectors in which the Chinese invest more than others?
3.4.5) Do the different types of investors (big, small, state-owned, private)
request the same services?
3.4.6) what does the SOEs use the Centre for?
3.5) Do the investors use the Centre during their further operations in Zambia – or only at first
during the start-up of their investment?
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3.6) How big a share of the total number of Chinese investments entering Zambia would you
estimate goes through the Centre?
3.6.1) % (if possible, otherwise most/half/fewer than half/very few)
3.7) Do the investors pay for the services provided at the Centre or are they free?
3.7.1) does the Centre earn money or is it financed by the Chinese state?
4. Chinese investments in Zambia
4.1) which sectors do you think are the most attractive to Chinese investors in Zambia (and in
Africa in general)?
4.1.1) why are these/this sector(s) most attractive?
4.1.2) what factors do you think is the most important for attracting Chinese
investments to Zambia?
4.2) are there any differences in the sectors that Chinese SOEs invest in compared to the sectors
private Chinese companies invest in?
4.3) who of the private or the state-owned companies are investing the most in Zambia – which
‘group’ is doing the largest investments and which is doing the largest sum of investments?
4.3) which sectors receive the most investments/highest amount of investment from Chinese
SOEs?
5. Chinese state interests
5.1) why do you think the Chinese state wants to help Chinese companies to invest in Africa?
5.2) what types of investments do you think the Chinese state is most interested in?
5.2.1) why?
FDI statistics – overview of Chinese investments in Zambia
Do you have any statistical data about Chinese FDI in Zambia?
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FDI/year/sector/state-owned private owned (number of companies, number of
investments, amounts, average amount/inv)
Do you have a list of Chinese companies that are currently active in Zambia?
Is it possible to identify which of these are state-owned (do you know which?)
Final practical issues
Do you have any contacts to Chinese companies that I could use in order to get in contact with
them in order to interview them?
Could you help me establish contact?
Do you have any contact to the Chinese Embassy and is there someone at the embassy that
you think I should talk to?
Could you help establish contact to the Chinese Embassy in order to arrange a
meeting?
Do you have contacts to other institutions/persons that it could be relevant for me to
interview?
Do you know e.g. Zambia-China Business Association?
Can I have your contact details (telephone and e-mail) and is it possible that I can contact you
again later if I should have further questions at a later state?
Would it be possible eventually to arrange another meeting at a later stage if I
have further questions?
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Appendix B
List of interviewees
Chinese company representatives:
• Managing Director of China Jiangxi Corporation. Interviewed 15 June 2007 in Lusaka.
• Assistant General Manager of China-Zambia Friendship Farm, owned by China State
Farms Agribusiness Corporation (CSFAC). Interviewed 20 June 2007 in Lusaka.
• Managing Director of Jhonken Estates Ltd, owned by CSFAC. Interviewed 21 June 2oo7
in Chisamba.
• Managing Director of Huawei Zambia. Interviewed 26 June 2007 in Lusaka.
• Managing Director of Zamchin Construction. Interviewed 26 June 2007 in Lusaka.
• Secretary of Administration at NFC Africa, subsidiary of China Nonferrous Metal
Mining (Group) Co., Ltd. (CNMC). Interviewed 28 June 2007 in Chambishi.
• Vice Director of Administration of Chambishi Copper Smelter Ltd (subsidiary of
CNMC). Interviewed 28 June 2007 in Chambishi.
• Deputy CEO of Sino-Metals Leach Zambia Ltd (subsidiary of CNMC). Interviewed 28
June 2007 in Chambishi.
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Representatives from Chinese institutions:
• Secretary of the Association of Chinese Corporations in Zambia (ACCZ). Interviewed 12
June 2007 in Lusaka.
• Acting president of ACCZ. Interviewed 12 June 2007 in Lusaka.
• Board Secretary of Chinese Centre for Investment Promotion and Trade. Interviewed 13
June 2007 in Lusaka.
• Manager of Bank of China’s branch in Zambia. Interviewed 13 June 2oo7 in Lusaka.
Zambian nationals:
• Manager of Research and Policy Analysis of Zambia Investment Centre. Interviewed 15
June 2007 in Lusaka.
• CEO of Zambia Association of Chambers of Commerce and Industry. Interviewed 12
June 2007 in Lusaka.
• Political commentator and political scientist. Interviewed 13 June 2007 in Lusaka.
• Chairman of Zambia-China Business Association. Interviewed 18 June 2007 in Lusaka.
• Lecturer at Department of Development Studies, University of Zambia. Interviewed 21
June 2007 in Lusaka.
• President of Zambia Congress of Trade Unions. Interviewed 21 June 2007 in Lusaka.
• Member of Parliament for Patriotic Front. Interviewed 22 June 2007 in Lusaka.
• Dr. Kenneth Kaunda, First President of Zambia. Interviewed 30 June 2oo7 in Lusaka.
