In October 2013 the Chancellor George Osborne announced that two Chinese state-owned companies would take a 30-40% stake in the £16bn Hinkley Point nuclear power plant to be built in Somerset by France’s EDF. Osborne also said that the British government would make it easier for Chinese banks to operate in the City of London by reducing their capital requirements. US financiers accused Britain of seeking to attract Chinese banks by recklessly removing regulations. To emphasise the welcome being extended to China, visa procedures for Chinese tourists wishing to visit Europe will be simplified. The City and the British government intend to benefit from China’s increasing international presence. Trevor Rayne reports.
Overseas investments
Foreign Direct Investment* (FDI) is a small part of the international flow of capital, however, the stock of Britain’s FDI in 2012 was $1.8 trillion (exceeding that of any other European Union country), that of the US was $5.2 trillion. China’s stock was $0.51 trillion – about half that of the Netherlands. In 2010 the stock of FDI in China was twice that of the stock of Chinese investments abroad. The UK’s flow of FDI overseas in 2006-2011 was $710bn, while that of China combined with Hong Kong was $684bn. The British stock of FDI in the US in 2010 was $497.5bn, but that of China was just $11.6bn. British assets held in the US exceed those of any other country by over $240bn. However, Chinese investment in the US is accelerating with over $12bn invested in the first nine months of 2013, three quarters of this originating from private firms. While China’s overseas investments lag behind those of the US and Britain; the City of London can see change is coming: in 2012 China’s FDI flow reached $87.8bn, making China one of the world’s three biggest overseas investors, behind the US and Japan, but ahead of Britain with $71.4bn.
Africa
‘Africa is China’s success story. Where the Americans bring drones, the Chinese build roads, bridges and dams. What the Chinese want is resources, especially fossil fuels. NATO’s bombing of Libya drove out 30,000 Chinese oil industry workers. More than jihadism or Iran, China is now Washington’s obsession in Africa and beyond. This is a “policy” known as the “pivot to Asia”, whose threat of world war may be as great as any in the modern era.’
John Pilger, Counterpunch, 11-13 October 2013.
Figures provided by AidData state that Chinese official and unofficial investment projects in Africa were worth $260bn between 2000 and 2011. In 2011 China invested some $34.8bn in African projects; this was 43.5% of total FDI in Africa for that year. In 2010 British FDI in Africa was £7.8bn. British companies made a net negative investment in Africa in 2011, withdrawing money. Chinese capital is competing successfully with that of Europe and the US in Africa.
China set up the China–Africa Development Fund and the China–Africa Economic and Trade Cooperation Zone, encouraging Chinese businesses to set up in Africa. Africa has 54 sovereign states and China has invested in 50 of them. China finances more infrastructure projects in Africa than the World Bank. Chinese funded factories have been set up in Ethiopia, Egypt and Nigeria. China’s biggest bank, the Industrial and Commercial Bank of China (ICBC), has joined with Standard Chartered of South Africa to build a coal-fired power station in Botswana.
Given US and European rivalry with China for access to resources in Africa, there are critics of China’s role from within the African bourgeoisie. The governor of the Central Bank of Nigeria, Lamido Sanusi, wrote, ‘So China takes our primary goods and sells us manufactured ones. This was also the essence of colonialism. The British went to Africa and India to secure raw materials and markets. Africa is now willingly opening itself up to a new form of imperialism … China is no longer a fellow under-developed economy – it is the world’s second-biggest, capable of the same forms of exploitation as the west. It is a significant contributor to Africa’s deindustrialisation and underdevelopment…’ (Financial Times, 12 March 2013).
With the US and former European colonial powers currently fighting to control Africa’s territory and resources, deploying their military forces and marshalling local armies, the governor’s comment is misleading. Imperialism is characterised not just by investment abroad but by the use of military force to control territories, populations, resources and markets. British armed forces have intervened in Africa on over 30 separate occasions since the end of the Second World War, the most recent interventions being in Libya, Somalia and Mali. China has not committed its armed forces to battle in Africa, although it did send peacekeeping forces to the UN mission to Darfur.
China’s policy of ‘non-intervention’ in the politics of other countries, not imposing conditions other than commercial ones, in exchange for loans and investments, has provided competition forcing US and European multinational corporations to offer better terms. An Angolan government minister explained, ‘Our relations with China not only allowed us to obtain loans, but most importantly it forced the West to treat us with more respect and in a less patronising way. For that we are grateful.’
Banking
China provides more subsidised loans to Africa than the World Bank. The ICBC is currently working in partnership with Standard Bank of South Africa on over 60 projects in Africa. In 2007 the ICBC bought up 20% of Standard Bank of South Africa and has increased its holding. In 2013, of the world’s ten biggest banks, measured by market value, four are Chinese.
In July 2012 Bank of China director Xiao Gang said, ‘There is good reason to believe that the Chinese economy has reached a point where its status as the biggest country will lead it to become the biggest in outbound direct investment. This new model not only requires Chinese enterprises to expand their global businesses, but also China’s banking sector to accelerate its internationalisation.’ That month the ICBC bought the Bank of East Asia US branch; the first time a Chinese financial institution took control of any US bank. ICBC took over AIG Finance (Hong Kong). ICBC has opened branches in the Middle East, including in Saudi Arabia and Kuwait. It bought Indonesia’s Bank of Halam in 2006. Between 2002 and 2011 Chinese banks completed 38 merger and acquisition deals worth a total of $20.4bn. Standard & Poor’s estimate that Chinese banks currently use just 10% of their assets in overseas operations; they have considerable potential to ‘internationalise’ and threaten their US and British rivals.
The China Exim Bank offers loans in exchange for Chinese access to African resources. An example of a ‘resource for infrastructure swap’ was the Democratic Republic of the Congo’s (DRC) agreement in 2008 to Chinese construction of cobalt and copper mines along with railways, roads, schools, clinics, hospitals and two new universities. The total value reached $6bn, about half the DRC’s GDP; in return China can extract 12m tons of copper and cobalt over 25 years. China has overtaken France to become the second largest lender to Kenya after Japan. Kenya’s debt to China rose by 50% to $750m to the year ended June 2013. Kenya’s debt to Britain, the US, Netherlands and Italy remained at less than $100m each. Chinese loans are offered at favourable rates over long repayment periods.
Oil and gas
In 2012, of the world’s 25 biggest oil and gas companies measured by output, two are British and Anglo-Dutch (BP and Shell) and two are Chinese. China buys almost half its oil from the Middle East and about a third from Africa. China is Iran’s biggest oil customer and is set to become Iraq’s in 2014. Chinese oil imports from Saudi Arabia almost match those of the US. China has overtaken the US as the world’s biggest oil importer and consequently it is vulnerable to oil price rises and to US and European closure of its fuel supplies – the imperialist aggression in the Middle East and scramble for Africa threatens China. Will China be forced to become more politically involved with the Middle East oil producers to protect its supplies?
Up until 2011 China imported oil from Angola, Sudan, DRC, Equatorial Guinea, Nigeria, Gabon, Algeria, Chad and Libya. Prior to the overthrow of the Gaddafi-led state in Libya, China invested over $20bn in the country. 75 Chinese companies employed over 30,000 staff working on 50 projects including oil services, road and railway construction and house building. China imported 150,000 barrels of oil a day from Libya, one tenth of Libya’s oil exports. These investments and oil supplies have been ended by the US, British and French-led war on the Libyan government and people. Will China see this as a portent of what is to come?
Currency
Chancellor Osborne said that 62% of Chinese renminbi payments outside of China and Hong Kong take place in London; much of this is conducted through the British HSBC and Standard Chartered banks. The renminbi is not a rival to the US dollar. According to the IMF, 62% of all central bank reserves are held in US dollars. The dollar remains the world’s dominant currency, confirming the US role as the world’s leading power. When the US government delayed agreement on a budget in October 2013 the Chinese Xin-Hua news agency called for ‘building a de-Americanised world’, challenging the US dollar’s role. China accounts for 10.4% of the world’s merchandise exports and 9.4% of its imports compared with the US’s 8% of world exports and 12.3% of imports. However, only 10% of Chinese companies’ imports and exports are settled in renminbi. The renminbi accounts for 1.49% of foreign exchange deals, compared to the US dollar 40.1%.
For the renminbi to compete with the US dollar internationally would require China to liberalise its capital controls so that Chinese businesses can invest abroad whenever they like. This may follow from decisions taken by the recent Third Plenary Session of the 18th Chinese Communist Party Central Committee. As Mark Carney, Governor of the Bank of England, anticipated, ‘Helping the internationalisation of the renminbi is a global good, consistent with London’s historic role.’
Investing in Britain
Chancellor Osborne’s and Mayor of London Boris Johnson’s trip to China in October was intended to draw Chinese investment to Britain, rather than to other European countries. Chinese investment in Europe has almost doubled in recent years but still accounts for less than 1% of the €3 trillion stock of foreign investment. This is changing fast. ‘Beijing wants to create multinational companies as part of a shift from basic manufacturing to sophisticated, higher margin sectors that will underpin a broader strategy of reshaping the economy towards smooth, more sustainable growth.’ (Jonathan Fenby, Financial Times, 19-20 October 2013). Along with the proposed investment in Hinkley Point, the China Investment Corporation has bought a share of Thames Water and Heathrow airport, Chinese business has invested in BT’s infrastructure, bought the Lloyds building in the City, a business district for development at Manchester airport, MG Rover, black cab maker Manganese Bronze, and Chinese businesses have deals to develop London’s South Bank and the Albert Dock in London’s docklands.
Since 2005 China has invested $17.8bn in Britain but $58bn in Australia. British trade with China amounts to $63bn, with a British deficit of $30bn, while Germany/China trade amounts to $200bn. By kowtowing to China’s banks and easing regulations for them to operate in the City, the government is desperate to preserve the City’s international financial status and to take a larger share of Chinese overseas investments and markets.
A future issue of FRFI will examine the military consequences of the US ‘pivot to Asia’ and growing tensions between Japan and China.
*Foreign Direct Investment (FDI) refers to investment made to acquire a lasting interest in enterprises operating outside the economy of the investor, in order to gain an effective voice in the management of the enterprise. Typical forms of investment are equity capital (shares), reinvestment of earnings and long and short-term loans. An equity stake of 10% or more of ordinary shares or voting power is considered the threshold for control of assets. FDI can be an investment in agriculture, industry or finance, including banks.
Fight Racism! Fight Imperialism! 236 December 2013/January 2014
