The economic diplomacy of China

Juan Carlos Martínez Lázaro. Professor. IE Business School

27 February 2007

China’s growing leadership in the world economy has led it to adopt a pragmatic foreign policy: Be commercial friends with everyone.

Making headway into Latin America

Recently we have seen how China has made diplomatic efforts to increase its trade and economic relations with regions that have traditionally been outside its sphere of influence. What is exciting about this process for Spain is China’s growing interest in Latin America, where we enjoy a growing corporate role.

It is only recently that China and Latin America have sought to strengthen their economic relations. Governments of countries such as Brazil, Argentina, and Chile are happy to tighten their bonds with the Asian giant. The United States has also loosened its hold on its southern neighbours after becoming increasingly embroiled in Middle East conflicts.

For China, Latin America is an extraordinary source of raw materials, as well as a potential market for its products. Latin America also has found a new and growing market with which it can reduce its commercial dependence on the United States. In 2004, bilateral trade totalled more than $40 billion and is expected to continue expanding at healthy rates in coming years.

The Asian giant has become the second biggest commercial partner for Peru and the third largest for Brazil and Chile, with whom it signed a free trade agreement in 2005. China is also an important investor in the region, especially in sectors related to the mining of raw materials and infrastructure. The enthusiasm that China arouses in many countries in the region became patent during President Hu Yintao’s visit to the area in 2004, especially when he announced investments totalling $100 billion by 2015.

No worries for democracy or human rights

At the beginning of November, Peking hosted the Chinese-African co-operation summit, which was attended by 48 of the 54 African leaders. What is China´s interest in Africa? Their interest is the same as in Latin America; the supply of raw materials. For example, 30% of the oil China imports comes from African countries, and Angola is now its main supplier, surpassing Saudi Arabia. China also buys copper, wood, iron, cobalt and foodstuffs. What is more, Chinese companies are very active and Peking has been awarding subsidies, and financing projects and infrastructure in the region for years.

More than 800 Chinese companies are estimated to operate in Africa, with investments there now totalling more than $6 billion. Chinese products, whose low prices make them accessible to a low-income population, are carving out market share on the continent. With trade volumes now exceeding $50 billion a year, China is now Africa´s third most important commercial partner.

Furthermore, China does not provoke the same sense of rejection that Europe and the United States often do. Europe gets the cold shoulder because of its colonial past and the U.S. is rebuffed because of its interventionist policies during the Cold War. While Chinese interest in Africa during the 1960s and the 1970s was based largely on doctrine and revolutionary ideologies, its interest today is strictly economic. This is true to such an extent that China maintains close political and commercial relations with governments that are shunned by the international community because of their undemocratic practices or human rights abuses.

Although China has been much criticized for these relations, it also has enjoyed the support of many African governments. After China granted a $2 billion loan to Equatorial Guinea at the Peking summit, the president of the African country, Teodoro Obiang, said: "China was a friend even before the discovery of oil, when we faced hardship. That is when you find out who your real friends are. Its help and cooperation are sincere and it does not lay down pre-conditions concerning democracy or human rights."

Leaving History in the Past

However, Chinese diplomacy does not focus only on supplying its vast industry with raw materials. A few days ago, President Hu visited India and Pakistan. With New Delhi, the main aim was to normalise bilateral relations that have been historically hampered by border disputes, one of which escalated to an armed conflict in 1962. While India, on the other hand, is the refuge of the Dalai Lama and of more than 100,000 Tibetan exiles who refuse to accept Peking´s annexation of Tibet in 1959.

But economic interests also played an underlying role in the relationship with India: Whereas bilateral trade totalled only $3 billion in 2000, it is expected to exceed $20 billion this year, and the aim is to double that figure by 2010. China has surpassed the United States to become India´s main supplier, and it is the third-ranking destination for Indian exports. In addition, New Delhi would welcome Chinese investment to help improve its disastrous infrastructure. China and India both believe that partnership is better than rivalry as they race towards economic world leadership.

In short, China implements an almost unheard-of pragmatic foreign policy. It can be an excellent ally for countries that traditionally have been enemies, such as India and Pakistan. It can charm the countries of Africa and become an essential trade partner for many economies in Latin America. Within its area of influence, China maintains important commercial relations with Japan, despite clashing views of their shared history, and also with Taiwan, despite the political blockade it imposed on "its rebel province". China wants to be friends with everyone; today, it appears no one can afford not to be friends with China.


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