Roundtable probes the politics of China's large-scale investments in Africa

When it comes to providing water, power and roads to developing countries, the rules are anything but clear, said Ryan Orr, executive director of Stanford's Collaboratory for Research on Global Projects (CRGP). In particular, China and other developing countries have begun to invest in large-scale infrastructure projects in Africa and other emerging markets, adding a new layer of complexity, Orr said.

His comments came during CRGP's third roundtable on global infrastructure investment held on campus April 27-28. The annual event brings together investors from various countries and Stanford scholars to discuss trends in international infrastructure investment.

Chinese investment in Africa has grown rapidly in recent years, and with it has come a need for the West to rethink its approach to doing business in the region, said roundtable participant Vishnu Sridharan, a Stanford law student and research assistant at the CRGP.

"It is undeniable that Western countries and other developing countries must begin to take China into account in their pursuit of economic and political objectives in the region," Sridharan said.

In 2006, Chinese contractors won a third of all public works contracts funded by the African Development Bank—eight times the number awarded to any other country. Furthermore, direct investment in Africa by China, in which Chinese financial institutions initiate and fund projects, more than quadrupled between 2001 and 2005, according to a joint study conducted by CRGP, Tsinghua University, the World Bank and the Organization for Economic Co-operation and Development. The study is slated to be released later this year.

However, not all are benefiting equally, said CRGP Director Raymond Levitt, professor of civil and environmental engineering at Stanford and a researcher in the study. Most of the money is going to oil-rich countries, with Angola, Sudan and Nigeria—Africa's top three oil producers—accounting for more than 80 percent of China's investment in the continent, Levitt said, adding that China has even adopted a strategy of often taking oil as direct payment in place of money.

Playing politics

China's close diplomatic relationship with many sub-Saharan African countries has given it an advantage over many Western nations, which have more clouded histories in Africa, Sridharan noted. China's friendship with African countries has its roots in the 1950s, when the Chinese government began fostering close ties with the continent, largely in an effort to unite against imperialism, he said. African votes eventually proved invaluable to winning China a seat on the United Nations Security Council, he said, noting that the continent also has been a powerful ally in promoting the "One China" policy, with only five African countries maintaining formal diplomatic ties with Taiwan as of 2006.

While oil may be a big driver behind China's interest in Africa today, political goals also are a factor in Sino-African policy, Sridharan said. "China is interested in having a more multi-polar, heterogeneous international order," he said. "Also, they're trying to alter the idea of development, with an emphasis on political stability and economic development over democratic institutions. China wants to promote this vision of development in Africa in lieu of more Western ideas of development."

Such goals have led China to adopt a non-interference policy toward African governments by backing their sovereignty and keeping its hands off their internal affairs, Sridharan said.

"A lot of Western loans have requirements attached to them," Orr noted. "The fact that Chinese investors are willing to lend without these standards, often with very attractive terms, makes them an obvious source of capital."

This hands-off approach, which leaves the door open for environmental, political and human rights abuses, is exactly what Western countries find most troubling, said Henry Chan, a graduate student in civil and environmental engineering and research assistant at the CRGP.

"The West wants to find more sustainable ways to develop Africa, and they see China as a country that does not have the same intention," he said. "They see this as a big step backward in the ongoing effort the West has been engaged in over the last few decades or so to set environmental, governance and human rights standards."

Equator Principles

Dozens of major banks and other financial institutions in developed countries, such as Citigroup, have begun to adopt a set of voluntary environmental and social standards called the Equator Principles, said Suellen Lazarus, a senior adviser at the Dutch bank ABN AMRO. But Chinese banks have not adopted the principles, which were created largely in response to pressure from nongovernmental organizations and the media, she added.

However, for Jianzhong Lu, vice president of the China Communications Construction Highway Engineering Co., the need to establish infrastructure, such as water treatment projects, outweighs the need to address the ensuing environmental problems. These projects can sometimes have health and environmental benefits to people far greater than their environmental impacts, he said.

"The main point here is, what is the concern of African countries and local communities?" Lu said. "Even though when you invest in any infrastructure project, sustainability should be a consideration, it becomes a problem when it interferes with the implementation of a project," he added, citing badly needed projects in Africa that have been stalled for more than a year because of World Bank requirements for environmental assessments.

Underscoring the close relationship that China has had with many African nations, Lu said that African leaders were overwhelmingly positive about Chinese investment, which has increased competition for oil and thus raised prices. "Previously, Western countries could fix prices," he said. "Now African nations can sell their oil at market prices."

Global symbiosis

"Where you have more suppliers, the African countries believe they have more of a right to choose," added Akinyele Dairo, senior program adviser at the U.N. Population Fund, who offered an African perspective on China's infrastructure investments. "That means that whatever partnership they enter into will be beneficial to both parties. If you're looking at economic empowerment of the country, there has to be a win-win partnership."

When asked about the risks of Chinese investment in Africa, Dairo said, "If infrastructure development is done the right way, there is no way that it cannot benefit the general populace. There is just the need for Chinese companies to exercise more caution."

Dairo also stressed the need to more actively engage the African parties involved.

The increased competition places a burden on investors such as the World Bank and the Asian Development Bank to reevaluate their roles and business models in developing countries, Orr added. The end objective, however, is to foster collaboration rather than competition between the various parties, he stressed.

"Our goal has been to understand how water, power and these other infrastructure projects can be delivered to developing countries," Orr said. "A better understanding of the macro trends in the world will help all of the different parties."

The roundtable was funded by CRGP's industry affiliates and co-chaired by Stanford law Professor Thomas Heller; Barry Metzger of the Chicago-based law firm Baker and McKenzie; and John Cogan of the Washington, D.C.-based law firm Akin, Gump, Strauss, Hauer and Feld.

Annie Jia is an intern at the Stanford News Service.