China Defense: China’s African Angle?

Sunday, November 5, 2006 3:10
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The past week in Beijing has been a very public one for China’s Africa angle.
After inviting 48 African leaders to Beijing for a discussion on future cooperation, an announcement was made that 1.9 billion USD in contracts had been signed. During this time, China has worked to solidify cooperative agreements that would provide the raw materials necessary to help sustain China’s growth and build channels that will become conduits for Chinese products.
No doubt, U.S. and E.U. governments were paying close attention to the developments of these meetings. The last two years have seen a lot of Chinese activity in Africa: Wen Jiaobao has lead delegations, Sinopec has invested in oil fields, and all along the way, the western press has focused on the importance of these trips being solely economic rather than political.

while maybe not a front burner issue for many western companies, Africa is an issue that could quickly become one should ties with China become more important to Africa than they are with the West. For companies buying raw materials in Africa, companies may see an increase in price or more competition for supply. For companies selling products in Africa, Chinese manufacturers will soon be competing in a number of categories that span from agriculture to construction equipment

Many African countries have for years looked for financial assistance without political ties, and with the Chinese government beginning to provide that, many Chinese companies stand to benefit… at the cost of someone else. The message here is that companies around the world need to pay attention and evaluate the potential threat that Chinese companies could pose in Africa for raw materials or sale of goods.

To understand the level of risk on poses, there are several critical questions:
1) What is your exposure to Africa in terms of supply chain and/ or global sales?
2) Is your supply chain for raw materials at risk in the face of Chinese competitors?
3) What is the activity of Chinese companies in your industry? If they are not ready to sell into U.S/ E.U. market, are they able to sell into the African market?
4) What advantages do you have in China? Would those advantages be sustainable in the face of a competitor able to offer a product at a 20% price reduction?
5) What is the quality/ price gap between African markets and your home market?

For China, Africa is more than a mineral bank. It is the next step for many industries as Chinese companies look to sell their products outside of the borders. for many products that are manufactured at a quality level more suitable to China, or not up to standard in the U.S./ E.U., China is one of several potentially large markets for distribution.

With many companies focused on the primary risk, Chinese products made in China, many are not analyzing the effect of Chinese business in tertiary markets for either raw materials or as a destination for competitive products. As Chinese companies look to build new markets or solidify supply chains, western companies will begin seeing more and more competition in these markets.

To learn more about the meetings go to: All Africa, Business Day, People’s Daily, IHT, PINR

To learn more about the economic impact of the relations between Africa and China visit: Heritage Foundation (PDF), U.S. China Economic and Security Commission(PDF), World Economic Forum, and Brookings Institute

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