China's Charm Offensive

WASHINGTON, DC, May 5, 2010 – What does China's "charm offensive" mean for the rest of the world? Panelists who convened at the Woodrow Wilson Center for International Scholars to discuss the implications of China's overseas investment in Africa, Latin America, and Australia, suggested that a canny mixture of direct investment, aid, and cultural diplomacy is helping Beijing secure access to energy and raw materials for years to come.

Derek Scissors of the Heritage Foundation laid out a few numbers at the beginning of his talk, explaining that in 2008 "There was [a] total of $175 billion of Chinese non-bond investment.. about $70 billion in energy, metals about $60 billion, finance about $30 billion."

Deborah Brautigam of American University shared insights from her new book The Dragon's Gift: The Real Story of China in Africa. For years, she said, China and Africa have enjoyed a fair balance of trade, with Chinese exports matching Africa's. Trade between the continent and China soared from $10 billion in 2000 to $106 billion in 2008, making China the second largest trading partner with Africa after the United States.

A key player in China's "going global" is China's Export-Import Bank (Eximbank) which promotes development projects in Africa. Unlike traditional development agencies that funnel aid to governments, Brautigam explained, Eximbank provides resource-backed infrastructure credit or loans in the form of market rate lines of export buyers' credit.

"The Eximbank is tied to infrastructure projects," noted Brautigam, and in Angola "the first tronche of $1 billion dollars... financed 33 projects... over the first three years of credit," including irrigation systems, polytechnical colleges, secondary schools, and health centers. The loans are not concessional and provide advantages over Standard Chartered Banks in Africa, such as a grace period for repayments and lower interest rates of 1.5 percent (compared to Standard Chartered's 2.5 percent).

"It is clear that China's top priority in the Western hemisphere has been and will remain the United States," said Francisco Gonzalez of the Johns Hopkins School of Advanced International Studies (SAIS). "In order for China to have reliable open access to Latin America, the goodwill of the United States matters." But beyond tiptoeing around US interests, China has maintained a charm offensive in order to build "south-south solidarity" and forge cultural relationships with the region.

Consequently, a handful of Confucius Cultural Centers have now sprung up in Mexico, and Mexico sends about 150 students annually to study in China. In addition, China's need for resources strengthens fiscal policy in many Latin American countries such as Argentina, which exports 40 percent of their soybeans to China, earning between $600-700 million annually from export taxes.

Patrick Fazzone, a partner at the law firm Butzel Long Tighe Patton, indicated he sees tremendous growth in Chinese investment in resource-rich Australia. "Chinese companies, primarily state-owned enterprises (SOEs), have stepped up their investment activity in Australia dramatically. In the last 18 months the Rudd government... has approved $34 billion in new Chinese investment." Despite China's having become Australia's third-ranked source of new foreign investment in the last 18 months, public concerns have been voiced over the investment from Chinese SOEs in key Australian resource sectors. Nevertheless, the vast majority of Chinese investments get approved by the Australian government, and China has shown a willingness to address concerns with local Australian authorities as they arise.

Reported by Aditya Banerjee, Asia Society Washington Center