President Muhammadu Buhari described his recent high-profile and high-powered trip to China – six state governors and nine ministers (nearly half the cabinet) went with him – as a ‘working visit’. And, to some extent, the week-long trip lived up to its billing. Among many ‘benefits’, China offered Nigeria a $6 billion infrastructure loan that is accessible anytime Nigeria needs it. “It’s a credit that is on the table as soon as we identify the projects”, the Minister of Foreign Affairs, Geoffrey Onyema, said. At the same time, to ease pressure on the naira, Nigeria signed a currency swap deal with China, under which it would pay for imports from China using the Chinese currency, renminbi (Yuan), rather than the US dollar.
Understandably, much of the media coverage and the controversy about the trip were around the $6 billion loan and the Yuan swap deal. I said ‘understandably’ because, aside from the fact that a loan of such magnitude would increase Nigeria’s debt burden, it is always wise to look at the fine print of Chinese loan agreements and the nature of Chinese-funded projects. What’s more, the currency swap deal, while not unusual in itself, could be a disadvantage rather than a benefit. Put simply, it is a deal that would encourage Nigerians to buy more of Chinese products as they would not need to buy the scarce dollar in order to import goods from China. To simplify this further, the Chinese acted like a smart trader who knew that one of its major customers was having problems accessing bank loans to buy its goods, and decided to offer the customer loans or credit lines to tackle the liquidity problem. Nigeria imports virtually every manufactured product from China, but sells mainly raw materials to the country. It‘s not clear how the Yuan swap deal, a “cheap credit” that makes it easier to buy Chinese products, would benefit Nigeria in those circumstances.
But neither the loan nor the currency swap deal is my main concern here. For me, the big picture is the wider economic and foreign policy implication of Nigeria’s deepening relationship with China. Let’s be clear, hardly any country in the world today can ignore China’s economic clout. So, seeking to do business with the Chinese goes with the grain of current economic thinking. Thus, Nigeria is right to woo China, the world’s second largest economy, and seek its money, market and investment. Of course, China also needs Nigeria, Africa’s most populous country and largest economy. But is there more to the relationship that could draw Nigeria into the Chinese spheres of political and economic influence?
It is interesting that Nigeria readily accepted a currency swap deal with China that could increase Chinese manufactured imports into the country and condemn it to exporting only raw materials to China, but has refused, so far at least, to sign an Economic Partnership Agreement (EPA) with Europe, which some critics say would have the same effect on Nigeria’s industrial development. So, what is good for the Chinese goose is not good for the European or Western gander! Nigeria is also willing to accept a large loan, $6 billion or more, from China, but would not seek any loan from Western financial institutions simply because the Chinese won’t attach “political conditions”, while Western lenders would demand policy and institutional reforms!
The picture that is emerging here is of a country that is, wittingly or unwittingly, embracing the Chinese development paradigm, a worldview that the former foreign editor of Time magazine, Joshua Cooper Ramo, called the “Beijing Consensus”, as it counterposes the “Washington Consensus”. And, crucially, China is exporting this model to other nations using its commercial influence. In his book, “The Beijing Consensus”, Ramo argues that “China’s economic rise, which can make or break the fortunes of other trade-dependent nations, serves like a magnet working on grains of iron to align other nations’ economic interests with the Middle Kingdom’s”. But the “Beijing Consensus” is not only about economics, it has political dimensions as well. As Ramo points out, China knows the value of its economic power, and it’s using it to advance its economic interests as well as its global ambitions.
Now, to understand the nature of China’s global ambitions, it’s useful to know its history. Indeed, as David Landes points out in The Wealth and Poverty of Nations, “Anyone who wants to understand world economic history must study China”. The truth is that, as many economic historians have noted, up to the early 1700s, Chinese civilisation was more sophisticated than that of the West. For instance, it was the Chinese that invented the wheelbarrow, the compass, printing, the paper and gunpowder, among others. But China soon fell into technological regression and oblivion because it secluded itself from the outside world; it hated international trade and free market. While Britain benefitted materially from overseas commerce and colonisation, China shunned overseas expansion. Thus, from the 1770s to the 1970s, China fell behind the West. Indeed, in 1842, China suffered humiliation during the Opium War, when the British invaded the country, forcing it to cede Hong Kong to Britain. For centuries, the Chinese were scarred by this humiliation and by a lost past, and much of China’s current global ambitions can be seen in that context.
By the early 1980s, the fight-back began. China pursued aggressive industrialisation policy, with the effect that its industrial revolution is the biggest and fastest of all the industrial revolutions. But how did it do it? First, it’s worth noting that China never borrowed from Western banks to finance its industrial development; rather it funded its industrialisation largely from its own savings, and from the overseas Chinese diaspora. Of course, it attracted foreign capital, but it had enough financial clout to insist that such capital take the form of direct foreign investment, i.e. building factories, rather than portfolio investment. Surely, if there was one lesson Nigeria should have learned from China, it’s to save a high proportion of its oil windfalls and use it to finance its industrial development. Sadly, Nigeria squandered its resources and today it’s going cap-in-hand to China for loans!
But China’s industrialisation also relied on cheap and subsidised exports. To keep its exports irresistibly cheap, it devalued its currency a few times, and, more importantly, it made sure the renminbi never strengthened against the dollar by, as Niall Ferguson put it, “buying literally billions of dollars in world markets”. The truth is that China’s industrialisation was in part made possible by an insatiably spendthrift global consumer. Industrialisation is not possible without a consumer society, but the Chinese saved more than they spent, so it was the rest of the world, particularly the US consumer, which craved cheap Chinese goods, that propelled China’s industrial growth. What was more, China always ran a current account surplus, and lent heavily to the US, loans that the Americans, in turn, used to buy more Chinese goods, a situation that could result from the Yuan swap deal and Chinese loans to Nigeria. Add to all these, the fact that, despite China’s far-reaching economic reforms ahead of joining the WTO in 2001, most of its industries are state-owned and heavily subsidised.
Of course, China’s economic development model does not win it friends in the West. For instance, China is denied the market economy status (MES) at the WTO, which means it doesn’t enjoy the Most-Favoured-Nation (MFN) treatment accorded to market-based WTO members, simply because most of its major trading partners, such as the US and the EU, believe its economy lacks key elements of a free market, especially because it is mostly state-led and based on subsidised and dumped exports. For instance, China is partly blamed for the steel crisis in Europe because of its over-production of steel, which it then dumps on the world market, thereby depressing prices. As a result, there have been calls for trade defence actions against China.
But it is China’s policy in Africa, which worries some people even more, raising concerns about modern-day imperialism. Quite right, China is investing in Africa’s infrastructure, but, in return, it is capturing the continent’s commodities or natural resources, which it needs for its industrialisation, while exporting manufactures to Africa. So, the old pattern of Africa exporting raw materials and importing value-added goods is being perpetuated. Recently, it was reported that China would invest $46 billion to build a port in Pakistan, as one of the “string of pearls”, i.e. ports, that it is building across Africa and Asia to further its trading ambitions, secure resources and increase its global influence. So, securing trade routes and raw materials, an old colonial imperative, is a key part of the Chinese global strategy. Another old colonial tool was emigration. And here one of the main criticisms of China is that its infrastructure projects in Africa are mostly dominated by Chinese labour, which has caused concerns about the extent to which Chinese projects benefit the locals and transfer skills and technology.
Even more worrying is the fact that China’s economic influence comes with subtle political pressure. It is a myth to say that China does not attach “political conditions” to its loans and investment, the truth is it expects loyalty in return. For instance, in 2014, President Jacob Zuma of South Africa refused entry visa to the Dalai Lama, the Tibetan exiled leader, because letting him into South Africa would anger China. How would President Buhari respond if the Dalai Lama wants to visit Nigeria and China objects? How would Nigeria vote at the UN if China invades Taiwan?
The truth is that China doesn’t share the values of democracy, rule of law, human rights and free market that the West and most liberal democracies stand for, and that’s why any cosying up to China that is not properly delineated is worrying. At the moment, the Nigerian economy, like that of China, is not truly competitive. China’s state-led approach has created zombie companies in the same way that the cartelisation of the Nigerian economy and trade protection has resulted in a largely unproductive economy. But would Nigeria’s economic reliance on China draw it even closer to the Chinese worldview and away from Western values? In other words, would the Yuan magnet make Nigeria a fully signed-up member of the “Beijing Consensus”, with all its economic and political ramifications? Of course, Nigeria must trade with China, but not by sacrificing the economic and political values that any liberal democracy must have!
Olu Fasan
