While China?s economic diplomacy is manifestly directed towards maximising export markets and scooping up enormous trade surpluses from partner nations, a parallel assertiveness is surfacing through Chinese foreign direct investment (FDI) in far-flung regions of the world. The primarily state-owned manufacturing, infrastructure and energy companies that have helped China amass foreign exchange reserves worth $2.7 trillion are dipping into their war chests to acquire foreign assets and set up production outlets in distant corners, spreading Chinese influence in ever newer terrains.
According to the official China Daily, the country is now the fifth-biggest investing nation worldwide and the leader in this category among developing nations. Although the bulk of outbound Chinese FDI stays within fast-growing parts of Asia, it was in Africa that Beijing first made a strategic push for political traction via a combination of investments, aid grants, loans, trade pacts.
China had to set aside barely 2.6% of its global outbound FDI to become the second-most valuable foreign investor in Africa after South Africa. A corollary shift in power dynamics on the continent followed, as China displaced the US to become Africa?s pre-eminent external patron. Brazil and, belatedly, India have realised the worth of Africa and have been left playing perpetual catch-up with China by increasing their own respective outward FDIs.
One peculiarity of China?s dedicated thrust into Africa, followed by a similar storming of Latin America through mega investments in Brazil, Argentina and Venezuela, is that the state has decided investment priorities and destinations rather than private Chinese entrepreneurs. Foreign policy planners in Beijing have motives and goals that are grafted on to plain economic common-sense calculations about return on investment and risks of pumping money into a specific market.
In the process, it is quite likely that some decisions about Chinese FDI in parts of Africa and Latin America do not lead to the most efficient allocation of resources, but the overall outcome is one of consolidation of Chinese presence and clout in continent-sized land masses. What we are seeing in China?s all-smothering FDI methodology is an externalisation of the ?giantism? and domestic high modernisation, which British economist EF Schumacher found so distasteful in the 1970s. It involves a ?whole or nothing? mindset, whereby FDI is akin to financial carpet bombing that leaves no patch untouched in a chosen target range.
If one thought the Chinese investment juggernaut would exhaust itself in the limitless possibilities of Africa and Latin America, a new turf has appeared on the horizon in the last few years. The poorer and weaker economies of central and eastern Europe are now finding themselves the newest willing recipients of China?s capital barrage. As in the case of Africa and Latin America, Beijing is not improvising on the go but arriving with a predetermined blueprint to invest in manufacturing, real estate and infrastructure sectors of an entire patch of Europe?s less advanced economies like Albania, Moldova, Hungary, Poland, Belarus, Latvia, Lithuania, Romania, Bulgaria, Czech Republic, Slovenia and Slovakia.
In July, these European featherweights held a promotional event called Sino-Europe Investment Day at the Shanghai World Expo and parroted that since they were capital-starved, as much Chinese investment as Beijing would deign to give was welcome. Although we have not yet seen an official Russian expression of concern over China?s financial train rolling into Moscow?s backyard, the net geopolitical effect of Beijing?s enlarging investment footprint in Africa and Latin America has been one of balancing or replacing pre-existing great powers. So, as China presses on in central and eastern European gateways to the far more lucrative west European market, the political question will rear its head in the Kremlin as to how far this can be allowed in what Russia considers to be its ?near abroad?.
China?s global rise through economic instruments appears peaceful on paper but arouses presentiments and reorders existing balances of power in different regions. Dragonomics can be a threat to resident powers who took their domination of various regions for granted. Chinese grand strategy is rousing the complacent out of the wrong sides of their beds.
?The author is associate professor of world politics at the OP Jindal Global University