[Senate Hearing 112-203]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-203
 
          CHINA'S ROLE IN AFRICA: IMPLICATIONS FOR U.S. POLICY

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON AFRICAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 1, 2011

                               __________

       Printed for the use of the Committee on Foreign Relations


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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
               William C. Danvers, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                         ------------          

                SUBCOMMITTEE ON AFRICAN AFFAIRS        

            CHRISTOPHER A. COONS, Delaware, Chairman        

BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
RICHARD J. DURBIN, Illinois          MIKE LEE, Utah
TOM UDALL, New Mexico                BOB CORKER, Tennessee

                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Brautigam, Deborah, Ph.D., professor, American University and 
  senior research fellow, International Food Policy Research 
  Institute, Washington, DC......................................    13
    Prepared statement...........................................    15
Coons, Hon. Christopher A., U.S. Senator from Delaware, opening 
  statement......................................................     1
Durbin, Hon. Richard J., U.S. Senator from Illinois, opening 
  statement......................................................     5
Hayes, Stephen, president and CEO, The Corporate Council on 
  Africa, Washington, DC.........................................    24
    Prepared statement...........................................    26
Isakson, Hon. Johnny, U.S. Senator from Georgia, opening 
  statement......................................................     3
Shinn, Hon. David, adjunct professor, George Washington 
  University, Washington, DC.....................................     5
    Prepared statement...........................................     7

                                 (iii)

  


          CHINA'S ROLE IN AFRICA: IMPLICATIONS FOR U.S. POLICY

                              ----------                              


                       TUESDAY, NOVEMBER 1, 2011

                               U.S. Senate,
                   Subcommittee on African Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:17 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Christopher 
A. Coons, chairman of the subcommittee, presiding.
    Present: Senators Coons, Cardin, Durbin, Udall, Lugar, and 
Isakson.

        OPENING STATEMENT OF HON. CHRISTOPHER A. COONS,
                   U.S. SENATOR FROM DELAWARE

    Senator Coons. I am pleased to convene today's hearing of 
the African Affairs Subcommittee, and I am honored to be joined 
with my friend and partner, the ranking minority member of the 
subcommittee, Senator Isakson, and the ranking minority member 
of the full committee, Senator Lugar.
    I thank them both for joining me today. I would also like 
to thank our distinguished witnesses, Ambassador David Shinn, 
adjunct professor at George Washington University and former 
U.S. Ambassador to both Ethiopia and Burkina Faso; Professor 
Deborah Brautigam, professor at American University and senior 
fellow at the International Food Policy Research Institute; and 
Mr. Stephen Hayes, president and CEO of the Corporate Council 
on Africa.
    Today's hearing will take a hard look at China's rapidly 
expanding role on the African Continent and consider how it is 
affecting American interests. In my view, the United States 
isn't just ceding its potential economic leadership in Africa 
to China, it may be ceding its political and moral leadership 
there as well.
    We will discuss today whether China's expanded reach should 
serve as a wakeup call for enhanced United States trade and 
investment, and we will take a close look at whether China's 
growing influence in Africa may counter or even possibly 
undermine United States development, diplomacy, and other 
values-driven goals in the region.
    Finally, we will also consider areas of common interest 
between the United States and China in Africa that could 
provide the basis for enhanced bilateral and multilateral 
cooperation.
    China's reach in Africa has grown dramatically in the past 
decade, and the rate of increased Chinese trade and investment 
in Africa is truly staggering. Between 2000 and 2010, trade 
between China and African nations grew by more than 1,000 
percent.
    As you can see in our first chart here today, U.S. trade 
with Africa grew during this period as well, partly due to the 
passage of the Africa Growth and Opportunity Act, or AGOA. But 
the average rate of growth in China's trade with Africa 
outpaced that of the United States by 100 percent.
    China clearly sees Africa for what it is, a continent of 
immense opportunity. Africa is home to 6 of the world's 10 
fastest-growing economies over the past decade. Increased rates 
of return on foreign investment, vast natural resources, and a 
rapidly growing middle class have all made Africa an 
increasingly important player in the global economy.
    But as the continent has grown economically, it has 
continued to also have significant development needs. The 
United States and China are both investing in that development, 
but doing so in very different ways. While we share some common 
interests in Africa that are at times complementary we should 
be clear-eyed about the very different nature of our 
engagement.
    First, our structures of government spending are different. 
The United States clearly distinguishes between Government 
assistance and private investment, while the line between 
public and private sectors in China is often blurred and 
involves many state-owned enterprises.
    The Chinese Government can offer financing and 
concessionary loans to African governments to build large 
infrastructure projects, in some cases with no interest 
required for up to 20 years and, at the same time, negotiate 
contracts with those same governments for mineral and oil 
extraction.
    While the United States invests diplomatic capital in the 
promotion of democracy, freedom of expression, and human 
rights, our leverage on African officials and governments is 
significantly weakened when those regimes can simply turn to 
China for support with essentially no value strings attached.
    If there is one message I wish to convey in this hearing, 
it is that the long-term American objective of promoting open 
societies in Africa--countries that embrace transparency and 
democracy, respect the environment, and protect human rights--
is being challenged in some ways by China's approach to Africa. 
By offering an alternative source of investment and 
development, China offers African regimes economic opportunity 
at times at the expense of government reform and in a manner 
that may not directly benefit the average African.
    This highlights a second key distinction. In my view, the 
U.S. Government has been investing in the people of Africa, 
while the Chinese Government has been investing in the 
infrastructure of Africa. It is tough to say precisely, given a 
real lack of transparency, but experts estimate roughly 70 
percent of Chinese assistance to Africa comes in the form of 
financing for roads, stadiums, and government buildings, often 
built with Chinese materials and often by Chinese laborers.
    China is rarely transferring significant technology to 
Africa, nor employing many Africans. In contrast, more than 70 
percent, as this chart shows, of U.S. Government spending is 
directed toward investment in the African people, primarily 
through health programs to combat HIV/AIDS, malaria, 
tuberculosis, and other diseases. These programs build upon the 
strong legacy of U.S. investment in global health established 
by former Presidents Clinton and Bush.
    America's extensive public sector investments in Africa are 
often not as visible as those of China. Many Africans can point 
proudly to Chinese-built roads, buildings, or hospitals in 
their capital without realizing that many of the doctors or 
nurses there have been trained by Americans, medical supplies 
were provided by the U.S. Government, and that many rural 
health clinics that are lowering maternal mortality rates, 
vaccinating children, and donating mosquito nets across Africa 
are, in fact, often United States funded. We may be, in sum, 
winning the war on disease while losing the battle for hearts 
and minds.
    As we think about next steps for United States public and 
private sectors, we must gain, I believe, a better 
understanding of China's role and motives and take steps to 
ensure the United States is not missing out on critical 
opportunities in Africa.
    Senator Durbin, who I am pleased has joined us here today, 
is proposing legislation to do just that. It aims to create 
jobs in America by increasing United States exports to Africa 
by at least 200 percent in the next 10 years. This is 
absolutely critical because China has outpaced the United 
States in growth of exports over the last decade by nearly 3-
to-1, as shown by our last chart.
    I want to thank Senator Durbin for initiating this 
legislation. I believe we need a comprehensive United States 
trade strategy for Africa, and we must work with existing 
resources--with the Ex-Im Bank, with OPIC, and USTR--to find 
ways to expand bilateral, regional, and multilateral trade 
opportunities. More United States companies selling their goods 
in Africa translates to more American jobs.
    There are many tools by which we can and should take a more 
assertive approach to expanding the scope of United States 
investment in Africa, and in my view, the U.S. Government must 
pursue an assertive strategy that aims to capitalize on the 
vast array of opportunities in Africa. We cannot simply afford 
to lose out to China in the private sector, while in the public 
sector we must ensure our values are not undermined by an 
expansive political and economic agenda by China.
    I look forward to hearing from our distinguished witnesses 
how the United States can achieve these objectives, but first, 
I would like to turn to Senator Isakson for his opening 
statement.
    Senator Isakson.

           OPENING STATEMENT OF HON. JOHNNY ISAKSON,
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. Well, thanks, Chairman Coons, for calling 
this hearing, particularly with regard to the role of China in 
Africa.
    I had the pleasure of traveling with Senator Coons to West 
Africa earlier this year, where we went to Ghana, Benin, and 
Nigeria and saw firsthand the benefits of United States 
investment and the Millennium Challenge Compact in particular 
in Ghana, where we actually saw the execution of that compact.
    They will be coming back for a second compact. And as 
President Mills told us in his office that the focus on lack of 
corruption, the focus on better governance, the focus on 
democracy, which was a quid pro quo for the Millennium 
Challenge investment, has, in fact, made Ghana a better 
country.
    And I commend President Mills on his movement toward 
democracy. I hope Goodluck Jonathan in Nigeria, who is the 
first successfully democratically elected Nigerian President 
with somewhat minimal violence taking place, will follow the 
role of President Mills and President Yayi in Cotonou. Benin is 
also moving forward. Their port project, which is also an MCC 
compact, is in its final year, and it has been an excellent 
example of the MCC challenge investment in Africa.
    But there is no question that the Chinese have a 
significant role in Africa, and I think the chairman has done a 
good job of outlining the role that they are taking, which is 
more in their own self-interest than in the interest of the 
African people.
    And while their investment level may be higher in dollars, 
I think our investment level in the rights, the health, and the 
safety and security of the African people is greater. And it is 
my hope that over time that will win the hearts of the African 
Continent because I do think Africa is the continent of the 
21st century for the United States of America.
    They could be a great energy partner, a great consumer of 
our goods and services, and we could have a great partnership 
to grow and prosper together. Hopefully, what was started out 
in the Bush administration in terms of PEPFAR and MCC compacts 
will continue, and I certainly intend to support both of them, 
as I have in the past.
    As well as I want to acknowledge what the chairman referred 
to obliquely, and that is the private sector investment by 
Americans compassionately in the continent of Africa. Malaria 
now doesn't exist on Zanzibar. And even though it is an island, 
it is a little easier to control, thanks to the Rotary Clubs 
International and the investment they are making in bed nets 
throughout that continent, it is amazing the effect we are 
having on that.
    The same thing is true with measles and polio. The same 
thing is also true in many other areas. Kiwanis International 
has adopted as its No. 1 national project the eradication of 
tetanus in Africa, which is also critically important.
    And the Coca-Cola Company--that is a hometown company of 
mine, so I will brag about the home front for a second--is 
investing $30 million a year in clean water projects. And 
Senator Coons and I drank clean water out of a Coca-Cola-
provided treatment facility in a village that had never had 
clean water before.
    And the great thing they are doing is they are charging 
them 7 cents a day for 5 gallons of water to teach them that it 
takes money to keep the plant running. They are going to turn 
the plant over for nothing to the African people, but they will 
pay for its continued maintenance and upkeep by their paying 
for the water they get every day.
    So a lot of the basic principles of our competitive free 
enterprise system and the compassion of the American people are 
paying great benefits. But it should not go unnoted that some 
African leaders prefer no-strings-attached investment, and they 
like China for that reason.
    There is no question that China is abusing some of its 
interests. And this week, Human Rights Watch will issue a 
report that alleges the Chinese routinely bribe or threaten 
miners to keep them from reporting accidents and problems in 
Zambian-operated mines, which is just one example of how they 
are looking the other way on the best interests of the human 
rights of those people.
    I think, in the end, our investment in the health, safety, 
and welfare of folks is important and can win the hearts of the 
Africans over, but we cannot allow China to buy away that 
friendship from the United States.
    Thank you, Mr. Chairman.
    Senator Coons. Thank you, Senator Isakson.
    Senator Lugar, did you want to make an opening statement?
    Senator Lugar. No.
    Senator Coons. Senator Durbin.

          OPENING STATEMENT OF HON. RICHARD J. DURBIN,
                   U.S. SENATOR FROM ILLINOIS

    Senator Durbin. Thank you for this hearing.
    And I want to thank the witnesses who are here, and many of 
them have worked with our office on this issue. And I think 
that we are finally identifying in the Foreign Relations 
Committee an issue which could have grave consequences in the 
future.
    I believe Africa is an emerging continent with an emerging 
middle class and holds great economic significance in the 21st 
century. China obviously discovered that quite a few years ago. 
And the question now is what we will do as a nation to compete 
on the continent of Africa, and I know that there will be some 
discussion here about particulars.
    And I thank you, Mr. Chairman, for bringing us together.
    Senator Coons. Thank you.
    We will now turn to our witnesses, starting with Ambassador 
Shinn, followed by Dr. Brautigam, and finally by Mr. Hayes.
    I would appreciate it if you could condense your remarks to 
no more than 5 minutes. Your full testimony will be placed in 
the record where it will be available to other members of the 
committee, and in the record.
    So, if you would, please, Ambassador Shinn.

   STATEMENT OF HON. DAVID SHINN, ADJUNCT PROFESSOR, GEORGE 
             WASHINGTON UNIVERSITY, WASHINGTON, DC

    Ambassador Shinn. Thank you very much, Chairman Coons, for 
inviting me, and I also thank the committee.
    China has essentially four hard interests in Africa. First 
is maintaining or increasing access to energy, minerals, 
timber, and agricultural products; second, developing good 
relations with all African countries so that China can count on 
their support in regional and international forums; third, 
increasing significantly China's exports to Africa; and last, 
ending Taiwan's official diplomatic presence in Africa and 
replacing it with recognition of Beijing.
    The magnitude of China's involvement in Africa since the 
mid 1990s has grown exponentially. China has diplomatic 
relations with 50 of the 54 African countries today. Beijing 
has an Embassy in every one of those countries except one, 
Somalia.
    China has particularly developed an effective state-to-
state relationship with African leaders. Hu Jintao has made six 
trips to multiple African countries--two as Vice President, 
four as President.
    Each year since 1991, China's Foreign Minister has made his 
first visit abroad anywhere in the world, usually in January, 
to an African country. China has a layer of high-level contact, 
the Communist Party of China, that frequently interacts with 
African officials. This is a layer, of course, the United 
States doesn't have a counterpart for.
    China has no military bases in Africa but has some security 
interaction with all 50 countries on the continent with which 
it has diplomatic relations. China has passed the United States 
and has become Africa's most important trade partner since 
2009. China imports about one-third of all of its oil imports 
from Africa. China also imports huge quantities of cobalt, 
manganese, tantalum, copper, iron ore, and other minerals.
    There is a lot of confusion surrounding China's investment 
in Africa in terms of the numbers and in terms of the 
definition. Suffice it to say that it is probably somewhere in 
the vicinity of almost $40 billion. It is possible that today 
China is investing more in Africa than any other single 
country.
    Large Chinese loans, often with concessionary terms, are 
grabbing a lot of the headlines about China-Africa interaction. 
In the case of Angola, China has signed about 14.5 billion 
dollars' worth of these concessionary loans. With Ghana, 
recently $13 billion. China has also stepped up its efforts on 
soft power in Africa.
    Now what are the implications for the United States? I 
think the heightened engagement in Africa by China since the 
mid-1990s has very important implications for the United 
States.
    Certainly, if you look at relationships with countries like 
Zimbabwe and Sudan, it provides a real option for China that 
did not previously exist. But even countries that have good 
relations with the United States find themselves in a position 
where they can be a lot more selective in terms of the advice 
that they accept from the United States because they might be 
able to obtain support from China.
    On the commercial side, a company like Boeing continues to 
do well in Africa. It also has no Chinese competition. On the 
other hand, electronic giants like Hewlett-Packard, Motorola, 
Siemens, and Ericsson are increasingly losing business to 
Chinese companies such as Huawei and ZTE.
    The easy financing offered by Chinese state banks, lower 
bids on projects by Chinese state-controlled construction 
companies, and the fact that these companies have a ubiquitous 
presence on the African Continent make it difficult for 
American and Western companies to compete.
    China's growing interest in African raw materials should 
not pose a problem for the United States, except to the extent 
that Chinese demand pushes up global commodity prices.
    China's growing use of soft power in Africa should prod the 
United States to do better. For the time being, China poses no 
security threat to the United States in Africa and probably 
will not do so for at least the next 5 years.
    Other emerging powers are also playing a great role in 
Africa, and attention needs to be given to them. There has been 
the return of Russia. India is becoming a significant 
competitor of China on the continent. But Brazil, Iran, Turkey, 
Saudi Arabia, United Arab Emirates, Vietnam, Thailand, 
Indonesia, Malaysia, Singapore, and Cuba are all returning or 
engaging for the first time in a major way.
    Areas for cooperation with China include the health sector, 
particularly, antimalarial programs, also neglected tropical 
diseases like hookworm and schistosomiasis; the agricultural 
sector; and U.N. peacekeeping operations.
    In terms of coordinated diplomatic engagement, I think 
there are areas where the two countries can collaborate and in 
even controversial places like South Sudan and Sudan, where 
there today are some mutual interests. While the United States 
and China will continue to have important differences in their 
approach to Africa, it is in the interest of both governments 
to seek out those areas where they can cooperate.
    I thank you very much for your time, Mr. Chairman.
    [The prepared statement of Ambassador Shinn follows:]

               Prepared Statement of Hon. David H. Shinn

    I thank Chairman Kerry of the Senate Foreign Relations Committee 
and Chairman Coons of the Subcommittee on African Affairs for inviting 
me to participate in this hearing. I have been researching China-Africa 
relations intensively over the past 5 years in connection with a book 
scheduled for publication next spring. Unless noted otherwise, the 
statistics and analysis contained in this testimony refer to all 54 
countries in Africa. China tends not to make a distinction between sub-
Saharan Africa and North Africa as the U.S. Government often does.

                      CHINA'S INTERESTS IN AFRICA

    China generally does not discuss its ``hard'' interests in Africa. 
Rather, it emphasizes several general themes such as respect for 
African countries' sovereignty and development policies, support for 
African development, cooperation with Africa in the United Nations and 
multilateral forums, and learning from each other. China also urges 
African countries to accept the ``one China'' principle by recognizing 
Beijing.
    Based on my analysis, China has four ``hard'' interests in Africa:

   Maintaining or increasing access to energy, minerals, 
        timber, and agricultural products.
   Developing good relations with all African countries so that 
        China can count on their support in regional and international 
        forums.
   Increasing significantly China's exports to Africa, 
        especially as the economies of African states become more 
        robust and Africans increase their disposable income.
   Ending Taiwan's official diplomatic presence in Africa and 
        replacing it with recognition of Beijing.

    I should point out that you can substitute the United States for 
China in each of the first three interests; they apply as much to the 
United States as they do to China. I would argue that the United States 
has several additional interests that do not yet apply in a meaningful 
way to China. First, the United States has an interest in military 
aircraft over flight and landing in African countries and access to 
their ports by U.S. naval vessels. Second, the United States puts a 
high priority on countering a series of issues--terrorism, piracy, drug 
trafficking, money laundering, etc.--that pose a threat to American 
interests. While these issues may eventually become important Chinese 
interests, they have not yet reached that level.

           CURRENT DIMENSIONS OF CHINESE ENGAGEMENT IN AFRICA

    While China is not new to Africa, the magnitude of its engagement 
with the continent has grown exponentially since the mid-1990s. This 
period has coincided with enormous industrial growth in China, the need 
to import increasing quantities of raw materials to support China's 
manufacturing sector, and China's ability to export significantly more 
competitively priced products to Africa. China's interest in access to 
raw materials reinforced its longstanding policy of developing strong 
political relations with as many countries as possible in Africa.
    China has diplomatic relations with 50 of the 54 African countries. 
Four--Burkina Faso, Swaziland, Gambia, and Sao Tome and Principe--
recognize Taipei. Beijing has an embassy in all but one of the 50 
countries. The exception is Somalia where the security situation in 
Mogadishu precludes a physical presence. All 50 African countries that 
recognize China except the Comoro Islands and recently independent 
South Sudan have embassies in Beijing. Although the United States has 
diplomatic relations with all 54 African countries, it too has 
embassies in only 50. It closed embassies in the Seychelles and Comoro 
Islands to save money and never opened in Sao Tome and Principe. Like 
China, it is not in Somalia for security reasons. China has more 
consulates in Africa than does the United States.
    China is especially effective at state-to-state relations and 
attaches particular importance to high-level personal contact. Hu 
Jintao has made six trips to multiple African countries--two as Vice 
President and four as President. China's Premier is a frequent visitor 
to Africa. Each year since 1991, China's Foreign Minister has made his 
first visit abroad, usually in January, to an African country. China 
has a layer of high-level contact--senior Communist Party of China 
officials--that frequently visits Africa to expand relations with 
African party and executive branch officials. The United States has no 
similar counterpart nor does it rely as heavily on Presidential and 
Vice Presidential visits to Africa. If you exclude annual visits to the 
United Nations' headquarters in New York by African leaders, where some 
do have meetings with the American President, Chinese leaders extend 
more invitations to African leaders to visit China than the United 
States extends to visit Washington. The Communist Party of China 
frequently invites leaders of African political parties to visit China.
    China has no military bases in Africa but has some security 
interaction, however modest, with all 50 countries that recognize 
Beijing. China's share of the conventional arms market in sub-Saharan 
Africa is about 15 percent. The percentage is higher for small arms and 
light weapons. High-level military visits are an important part of the 
security relationship. Twenty-eight African countries have defense 
attaches in Beijing while 16 Chinese defense attache offices in Africa 
are accredited to some 30 African countries. China has about 1,600 
military/police personnel serving in six of the United Nation's 
peacekeeping operations in Africa. Most of the personnel are in Darfur, 
South Sudan, Liberia, and the Democratic Republic of the Congo. It has 
small numbers in Cote d'Ivoire and the Western Sahara. Since 2008, 
China has positioned two frigates and a tender in the Gulf of Aden to 
combat Somali piracy. Following a lapse in naval visits to African 
ports since 2002, this engagement in the Gulf of Aden has led to a 
recent increase in Chinese visits to African ports.
    By contrast, the United States has a designated military command--
AFRICOM--for Africa located in Germany, a base with about 3,000 
military and civilian personnel in Djibouti for countering terrorism, a 
new facility in Ethiopia for operating drones and significantly more 
defense attache offices than does China. While the United States pays a 
higher proportion of U.N. peacekeeping costs in Africa than does China, 
it has less than 30 personnel assigned to the six operations in Africa. 
The United States has played a leading role in the antipiracy operation 
in the Gulf of Aden and western Indian Ocean. U.S. military ships and 
airplanes regularly visit African cities and ports. The United States 
also engages in far more training of African military forces than does 
China.
    China passed the United States and became Africa's most important 
trade partner in 2009. It continues to hold that position. China-Africa 
trade (exports and imports) totaled $127 billion in 2010 compared to 
$113 billion for United States-Africa trade. While China's trade with 
Africa has been growing at a rapid pace since the turn of the century, 
it constitutes only about 4 percent of China's global trade. China's 
trade is, however, proportionally more important for Africa and makes 
up about 13 percent of the continent's total trade. Except for 2009, 
when Africa collectively had a large trade deficit with China, its 
trade has been roughly in balance. This is in sharp contrast with U.S.-
Africa trade, which has witnessed a large U.S. trade deficit over the 
past decade, primarily due to large oil imports from Africa. In 2010, 
the United States imported 85 billion dollars' worth of goods from 
Africa and exported $28 billion to Africa. There are huge differences 
in China's trade balance with individual African countries. Some 11 
African oil and mineral exporters have major surpluses with China, 
while the remainder, which includes the poorer countries, has 
significant trade deficits with China or the trade is roughly in 
balance.
    China imports about one-third of its total oil imports from Africa. 
Of China's 10 most important trading partners in Africa, 6 (Angola, 
Sudan, Nigeria, Algeria, Libya, and the Republic of Congo) export large 
quantities of oil to China. In 2009, oil and gas accounted for 64 
percent of all African exports to China. While that constitutes a lot 
of oil, it is only about 13 percent of total African oil exports. The 
United States and EEC countries each import almost one-third of 
Africa's total oil exports, significantly more than China imports. On 
the other hand, the United States imports relatively modest quantities 
of African mineral products while China imports huge quantities of 
cobalt, manganese, tantalum, copper, iron ore, and other minerals. In 
2009, iron ore and metals accounted for 24 percent of all African 
exports to China. It also imports timber and may look increasingly to 
Africa for agricultural products. Without these raw materials from 
Africa and other parts of the world, China would be unable to sustain 
its manufacturing capacity and maintain its high GDP growth rate. A 
sharp decrease in China's economic growth would be a direct threat to 
the current leadership of the Communist Party of China. Access to 
African raw materials is a long-term strategic interest.
    While China continues to increase significantly its imports from 
Africa, it is also increasing its total exports and the value added 
component to Africa. In 2000, China's exports to Africa consisted 
largely of textiles and clothing (28 percent), machinery and 
transportation equipment (27 percent), and other manufactured goods (26 
percent). By 2009, Chinese exports to Africa shifted to high-end 
capital goods, especially communications equipment (20 percent), road 
transport vehicles (19 percent), and electronic machinery (18 percent).
    China's State Council issued a white paper in December 2010 that 
stated China's direct investment in Africa reached $9.33 billion by the 
end of 2009. There is considerable confusion surrounding this figure 
and on China's definition of direct investment. For reasons that are 
not clear, I believe most official Chinese figures for investment 
totals in Africa significantly understate the real amount. Even Chinese 
sources cannot agree on the amount of FDI that has gone into Africa. 
The official Xinhua News Agency reported last month that by the end of 
2010, China had invested about $40 billion in more than 2,000 
enterprises in 50 African countries. This figure included investments 
of $2.1 billion in 2010 alone. While the correct total FDI figure is 
probably much closer to $40 billion than to $9.33 billion, Western 
countries collectively have invested much more in Africa, primarily 
because they started earlier. By the end of 2008, for example, the 
United States had invested a cumulative total of $37 billion in sub-
Saharan Africa alone.
    It is possible that today China is investing more in Africa than 
any other single country. The primary recipients of Chinese FDI have 
been South Africa, Nigeria, Zambia, Sudan, Algeria, and Egypt, all 
major oil or mineral exporters except for Egypt. Interestingly, the 
State Council's December 2010 white paper reported that by the end of 
2009, African countries had invested $9.93 billion in China; i.e., more 
than the paper reported China had invested in Africa! It is difficult 
to document where this much African money has been invested.
    One of the other persons testifying today is far more knowledgeable 
than I on China's aid to Africa. I will describe this component of 
China's engagement.
    The headline grabbing stories of Chinese engagement in Africa 
rarely involve investment or aid. More often, they concern large 
Chinese loans, often with concessionary financing, used by African 
countries to finance infrastructure projects. In recent years, China 
has signed loan agreements, for example, with Angola for about $14.5 
billion, Ghana for $13 billion, and the Democratic Republic of the 
Congo for $6.5 billion. Most of this money will be used to finance 
roads, dams, refineries, buildings, railways, etc., by Chinese 
construction companies and be repaid in oil or minerals. China has 
become the major builder in Africa.
    China has also stepped up its soft power efforts in Africa. The 
Xinhua news service has more than 20 bureaus in Africa and regional 
offices in Cairo and Nairobi. Xinhua competes directly with Reuters, 
AP, and Bloomberg for reporting on events in Africa. There are at last 
22 Confucius Institutes in Africa that focus on teaching Chinese 
language, culture, and history and the number continues to grow. China 
is increasing its radio transmission to Africa in various languages, 
has a transmitting facility in Kenya, and has rebroadcast arrangements 
with countries around the continent. It trains a variety of Africans, 
including diplomats and journalists, and in 2009 increased to 4,000 the 
number of full scholarships it offers to African students each year.

               IMPLICATIONS FOR U.S. POLICY AND INTERESTS

    This heightened engagement in Africa by China since the mid-1990s 
has important implications for the United States. China now offers 
African countries another political and especially economic alternative 
to the United States and the West generally. Countries such as Zimbabwe 
and Sudan, which have poor relations with the United States and the 
West, have taken maximum advantage of this situation. China does not 
engage in conditionality, except for the ``one China'' principle and 
tying its aid and loans to Chinese companies and materials. As a 
result, China (and a number of other countries) ignores Western 
sanctions against Zimbabwe and Sudan and continues to be one of the 
most important suppliers of military equipment to both countries. As a 
major supplier of small arms and light weapons across the continent, 
Chinese weapons are increasingly showing up in conflict zones. There is 
no evidence China is selling weapons to rebel groups, but as more 
weapons appear in Africa, the greater is the chance they find their way 
into conflicts. In fairness, weapons from all major arms manufacturing 
countries, including the United States, are making their way into these 
conflicts.
    Even countries that have good relations with the United States, 
such as Ethiopia, Kenya, Angola, Ghana, and South Africa, find 
themselves in a position where they can be much more selective in 
taking advice from the United States. African states under pressure 
from the United States and the West to improve their human rights and 
governance practices are less likely to do so when they know they can 
rely on China for support. China holds a veto power in the U.N. 
Security Council and Africa has three nonpermanent seats on the 
Council. Africa is well represented in organizations of interest to 
China such as the U.N. Human Rights Council and the World Trade 
Organization. China makes every effort to cultivate the maximum number 
of African countries on all issues of interest to Beijing that arise in 
international forums. In some cases, like-minded African governments 
use the Chinese just as the Chinese use them, for example when 
contentious issues affecting China or a particular African nation arise 
in the Human Rights Council. When Tibet became an issue in 2008, China 
leaned on the Africans to remain silent or even make supportive 
statements. They did. African countries can depend on China to avoid 
raising controversial African human rights issues in the U.N. Human 
Rights Council and perhaps even to support them when they are 
criticized by Western countries.
    China does not have a good record in Africa for worker safety and 
labor practices. It also receives criticism for allowing harmful and 
counterfeit products manufactured by private Chinese companies into 
African countries. The same is true for engaging in corruption although 
there are a few indications that China is beginning to see corruption 
as a negative factor for doing business in Africa. The United States 
generally has a good record in these areas and would prefer to see 
improvements in Africa. Sensitive to all of these criticisms, China is 
seeking ways to deal with these problems but is slow to find solutions. 
China's relations with strong, independent African labor unions are not 
cordial and labor standards in China are sometimes less stringent than 
in some African countries. African nations do not have the institutions 
to keep harmful and counterfeit products from entering and China has 
either not figured out or is not interested in preventing these 
problems at the source.
    The United States and the West had a major headstart over China on 
investment and commercial engagement with Africa. This is especially 
true in the energy and mineral sector where so much Western investment 
has gone over the years. As a result, there has not yet been much head-
to-head competition except in the case of winning large commercial 
contracts where China is pulling ahead in many sectors. A company like 
Boeing continues to do well in Africa and has no Chinese competition. 
On the other hand, electronic giants such as Hewlett-Packard, Motorola, 
Siemens, and Ericsson are increasingly losing business to Chinese 
companies such as Huawei and ZTE. The Chinese companies offer much 
lower prices for products that many Africans believe are of adequate, 
if somewhat lower, quality compared to their Western alternatives. In 
addition, Huawei and ZTE are creating large sales and marketing offices 
in Africa.
    The easy financing offered by Chinese state banks, lower bids on 
projects by Chinese state-controlled construction companies and the 
fact that the companies now have a ubiquitous presence on the ground 
throughout much of Africa, make it difficult for American and Western 
companies to compete. Private Western companies generally function 
independently of their governments and often find it hard to compete 
with the package proposals presented by the Chinese Government and 
their state-owned or controlled companies. This is, however, a 
structural issue that the United States and the West will have to work 
around or simply become more competitive.
    China's growing interest in African raw materials should not pose a 
problem for the United States except to the extent that Chinese demand 
pushes up global commodity prices. This could lead to higher prices 
paid by the United States and the rest of the world. So long as 
American companies and consumers have the money to pay for the product, 
African countries will continue to sell to the U.S. market. The problem 
is on the U.S. export side. It is not competing well against China in 
Africa. This is a problem that American companies will have to solve, 
although agencies like the Export-Import Bank can help. In some cases, 
American companies just have to take more interest in African markets 
and accept more risk.
    China's growing use of soft power in Africa should prod the United 
States to respond. Security concerns and fortress embassies in many 
African countries make outreach difficult. Numerous American libraries 
have been shut down. The Voice of America and government-sponsored 
programs for sending future African leaders to the United States are 
under budgetary pressure. All of these trends are in the wrong 
direction. This is the time to reach out on all fronts and be more 
accessible to African publics. These programs are not expensive and 
they have the potential to achieve an enormous amount of good will.
    For the time being, China poses no security threat to the United 
States in Africa and probably will not do so over the next 5 years or 
so. China is, however, expanding its naval capacity. This year it held 
sea trials for its first aircraft carrier. It has significantly 
expanded its submarine fleet and clearly intends to build a carrier 
force. One reason for building this capacity is to make China less 
reliant on the U.S. Navy for protection of Chinese vessels in the 
Indian Ocean. Some 80 percent of China's imported oil comes from Africa 
and the Middle East and passes through the Strait of Malacca. Once 
China has a major naval presence in the Indian Ocean, it will bump up 
against the U.S. Navy and, more importantly, the Indian Navy.

                    OTHER EMERGING POWERS IN AFRICA

    China is only one, albeit the most important, of the emerging 
powers to assert itself in Africa. The European countries, Japan, South 
Korea, Canada, and Australia continue their longstanding engagement in 
Africa, but together with the United States have been somewhat more 
reserved since the end of the cold war. Russia has recently returned to 
Africa in a major way following its retreat from the continent after 
the breakup of the Soviet Union. China and other emerging powers have 
been the big story in Africa over the past decade.
    Only India approaches the ability of China to compete in Africa and 
it is probably a decade behind China. China's trade with Africa is 2\1/
2\ times that of India. China has almost twice as many embassies in 
Africa as India. Its investment and aid are much higher. On the other 
hand, India is physically closer, has a language advantage, and has 
stronger cultural links. India also has 7,000 U.N. military and police 
peacekeepers in Africa compared to China's 1,600. India's naval 
presence in the western Indian Ocean is much stronger than China's and 
India has been developing security agreements with countries in the 
Indian Ocean and along the East African coast.
    Although well behind China and India, Brazil has made its presence 
felt throughout much of Africa, not just the Lusophone countries. Iran 
has focused its attention on northeastern Africa but is expanding its 
relations throughout the continent in an effort to escape isolation. 
Turkey stepped up its engagement in Africa beginning in 2005 and is an 
important player in North Africa and the Horn of Africa. Its engagement 
is heavily business-based but also has a strong cultural, religious, 
and educational component. Other emerging countries that are either 
reengaging in Africa or arriving for the first time include Saudi 
Arabia, United Arab Emirates, Vietnam, Thailand, Indonesia, Malaysia, 
Singapore, and Cuba.
    This situation is resulting in a much more crowded diplomatic 
playing field. While it provides more opportunities for African 
countries to obtain aid, investment, and trade, it complicates American 
diplomacy. It argues for greater understanding about the meaning of 
these developments and, in some cases, a reassessment of U.S. policies 
toward Africa and the coalitions needed for diplomatic successes.

                    AREAS FOR COOPERATION WITH CHINA

    There are several inherent challenges for U.S.-China cooperation in 
Africa. It is necessary to overcome longstanding suspicions between the 
two countries, fostered in part by different philosophies toward 
governance. Perhaps more important, it is necessary to convince the 
African countries that the United States and China are not trying to 
gang up on them. There is a tendency in many African countries to want 
to play China off against the United States in order to obtain an 
advantage. They often fail to distinguish that there are areas where 
China and the United States can cooperate and, at the same time, 
benefit the African country in question.
    If these two concerns can be overcome, and they have been in 
several cases, there are areas when China and the United States can 
work together for the mutual benefit of African countries. This 
occurred in Liberia, for example, where China and the United States 
collaborated in construction of the military barracks at Bonga for a 
U.N. peacekeeping operation and the two countries agreed to join forces 
to combat malaria. Successful cooperation depends heavily on the active 
engagement of the American and Chinese Ambassadors and key Embassy 
staff on the ground. If they do not support the proposed collaboration, 
it probably will not happen. At the same time, there must be signals 
from Washington and Beijing that both governments are fully behind the 
cooperative endeavor.
    The United States and China have particular strengths in the health 
sector that can collaboratively improve the situation in Africa. This 
is especially true in antimalarial programs where China is constructing 
30 malaria treatment centers in Africa and providing antimalarial drugs 
such as artemisinin. USAID supports a holistic program that includes 
insecticide-treated bed nets and the President's Malaria Initiative has 
a goal of reducing mortality by half in target countries. Other areas 
for cooperation are neglected tropical diseases, especially hookworm 
and schistosomiasis, where each country has important expertise to 
reduce the threat. Improvement in nutrition and pandemic preparedness 
are other possible problems for collaboration. Both China and the 
United States have considerable experience with African agriculture, 
another area where they could combine their experience and lessons 
learned.
    While the United States and China want to export more to Africa, 
they could also work to build the export capacity of African countries 
by building their competitiveness in global markets. Both countries 
could provide technical assistance for this purpose. China has shown a 
growing interest in improved corporate social responsibility in China 
and in the context of Chinese companies operating in Africa. This is 
also a priority goal for the United States and one where American 
companies have considerable experience. Both countries have 
demonstrated their concern in recent years over the negative impact of 
climate change and environmental degradation. African countries are 
deeply concerned about climate change's impact on the continent and 
might welcome a joint approach from China and the United States.
    The United States provides the single largest amount of funding for 
U.N. and African Union peacekeeping operations. Washington welcomes the 
assignment of Chinese soldiers, mostly engineering, transportation, and 
medical personnel, to U.N. peacekeeping operations in Africa. U.S. and 
China's interests generally overlap when it comes to African 
peacekeeping operations; specific projects for collaboration should be 
identified. Similarly, the two countries generally have common 
interests in helping African coastal states to reduce piracy, 
smuggling, illegal fishing, drug trafficking, and threats to offshore 
oil facilities. Although Chinese ships operate independently in the 
Gulf of Aden antipiracy operation, the United States Navy and China's 
Navy have a good working relationship. The U.S. Coast Guard has been 
particularly successful in cooperating with Chinese counterpart 
organizations. There may be an opportunity for extending this 
cooperation to Africa. Countering drug smuggling across Africa and 
improving disaster relief are additional areas that lend themselves to 
U.S.-China cooperation for the mutual benefit of Africans.

              COORDINATED DIPLOMATIC ENGAGEMENT IN AFRICA

    There are a number of conflicts and crises where the interests of 
the United States and China are similar. Both countries usually seek 
stability in Africa. China normally supports whatever government is in 
power irrespective of its pedigree or ideology. While China is quick to 
shift its allegiance to a new regime as occurred in recent years in 
Niger and Guinea, it does not want to be seen as behind regime change. 
As a result, China has no inclination to encourage governmental change 
in places such as Harare or Khartoum. If it suspects the United States 
is seeking regime change in any particular country, China will keep its 
distance. Coordinated diplomatic engagement also tends to raise 
suspicions among some African parties that the United States and China 
are ganging up against them. China is especially sensitive to this 
charge and will be reluctant to work with the United States on any 
issue where this is the perception by one or more of the African 
parties involved in the conflict.
    On the other hand, here has been little difference in the U.S. and 
China's policies toward Somalia. Both countries support the 
Transitional Federal Government and want to counter terrorism, although 
China is probably not prepared to accept some of Washington's tactics. 
Nevertheless, Somalia is a conflict that lends itself to continuing 
quiet collaboration. The United States encouraged China to play a more 
active role in resolving the conflict in Darfur. Eventually it did but 
only after some difficult episodes in U.S.-China interaction. Today, 
China has an interest in maintaining close ties to the Bashir 
government in Khartoum and the new government in South Sudan. It owns 
much of the oil infrastructure in the Republic of Sudan while 75 
percent of the oil now originates in South Sudan. China has been 
surprisingly successful in building a good relationship with Salva 
Kiir's government in Juba. There may well be ways for China and the 
United States to coordinate diplomacy as they help to resolve the 
enormous challenges facing both countries. China will consider such 
collaboration, however, only if it is convinced that the United States 
is not seeking regime change in Khartoum.
    Other troubled parts of Africa where there are no obvious 
differences in U.S. or China's policy include Cote d'Ivoire, 
Madagascar, and Guinea. They are candidates for coordinated diplomatic 
engagement. More complicated conflicts that might lend themselves to 
coordinated diplomatic engagement include the Democratic Republic of 
the Congo and Libya. China has or is developing significant interests 
in both countries and may be reluctant to team up with the United 
States and other Western countries, but it is worth exploring.
    While the United States and China will continue to have important 
differences in their approach to Africa, it is in the interest of both 
governments to seek out those areas where they can cooperate.

    Senator Coons. Thank you, Ambassador Shinn.
    Dr. Brautigam.

  STATEMENT OF DEBORAH BRAUTIGAM, PH.D., PROFESSOR, AMERICAN 
   UNIVERSITY AND SENIOR RESEARCH FELLOW, INTERNATIONAL FOOD 
           POLICY RESEARCH INSTITUTE, WASHINGTON, DC

    Dr. Brautigam. Thank you very much for this opportunity to 
speak with you today. I appreciate it very much, and I am going 
to start by telling you a story.
    Once upon a time, there was a very large, poor, resource-
rich country, just emerging from a period of intense conflict. 
And that country decided to focus on development. ``We need to 
modernize our infrastructure,'' they said. ``We need to develop 
our ports.'' And soon, they had a visit from a wealthy Asian 
country that had already become a major consumer of their oil.
    And that country said to them, ``We will make you a 
bargain. We will give you a line of credit worth $10 billion, 
and you can use that credit to develop your ports. Our 
companies can help you develop your power plants and modernize 
your mines. And you can repay us with your oil.''
    Now, many in this poor country were very suspicious of this 
Asian power. But nonetheless, they agreed to this bargain, and 
the work began. Now, as you are listening to this story, you 
are probably thinking which two countries--China and Angola, 
China-Sudan, China and the DRC?
    Well, actually, China was one of these countries. It was 
the large, poor country with oil. And the line of credit to be 
repaid with oil was offered by Japan in the late 1970s.
    Now why am I telling you this story today? I am telling you 
this story for several different reasons. One is this 
arrangement was not based on aid. It was a market-rate line of 
credit that Japan offered to China. And the second is that 
China saw this as something that could be used for its benefit, 
for its development.
    This was something that benefited Japan. They could sell 
goods and services to China, and it also benefited China 
because they could finance imports even though they didn't have 
an international credit rating.
    Now China is operating in Africa using the frameworks that 
it has learned by being an Asian power, and some of those come 
from its relationship with Japan. And it is a very different 
model of engagement. And much of this does not actually involve 
official development aid. It is much closer to Japan's pattern 
of engagement in Asian countries.
    So what does this involve? There are a lot of different 
tools and instruments that the Chinese have to engage in Africa 
that we don't have or that we have at a much smaller level. So, 
for example, they have resource-backed infrastructure loans.
    I would argue that these are not concessional loans because 
the very large ones are all based on London Interbank Offered 
Rate. They are LIBOR plus margin-rate loans. These allow 
countries with poor credit ratings to borrow today and pay with 
tomorrow's exports.
    They are setting up overseas economic zones that are 
attracting Chinese companies to come and set up manufacturing 
in Africa as costs become expensive in China. They have a $5 
billion equity fund to encourage Chinese investment and joint 
ventures in Africa, and they have a $1 billion fund for small 
and medium enterprises. They are setting up agricultural 
demonstration centers that are trying to get Chinese 
agribusinesses involved in Africa.
    So most of these are not about official aid, but they are 
about development. And more importantly, they are responding to 
the request by African leaders over and over again with 
assistance for help in building infrastructure and creating 
jobs in Africa.
    Let me give you two quick stories. In Liberia, when Liberia 
emerged from war, Ellen Johnson Sirleaf said her main priority 
was roads and infrastructure. But the international donors were 
not providing roads and infrastructure. Then the Chinese 
stepped up and said, ``We will build roads.'' And suddenly, the 
other donors became interested in roads.
    When we look at what the Millennium Challenge Account is 
funding in Africa for African governments that are doing well 
and want to make their own decisions about how to spend their 
money, they are investing in infrastructure. So this is an 
important sector for Africans.
    Now, China is not a new actor in Africa. Their presence is 
growing, as Ambassador Shinn has told us. Many of the things 
they are doing in Africa are nontransparent. We do not have 
information about them. That is a legacy of many things, partly 
because it is mainly business. We don't know a lot about how 
our own companies operate in Africa, even though we do have 
better data on that.
    But the figures--I can talk about more in the question-and-
answer period about what we know about the actual dimensions of 
engagement. But I want to make three final points. One is about 
realism versus alarmism.
    China's rise in Africa should be seen in context. China is 
still a developing country. It has the norms and standards of a 
developing country and has much more in common with other 
developing countries than it has with us.
    That means that it presents a lot of challenges. India, 
Brazil, and the other countries that Ambassador Shinn has just 
mentioned present the same kinds of challenges. They have the 
same levels of corruption. They operate in very similar kinds 
of ways. So this is a broader challenge, and it shouldn't be 
seen out of context.
    The second is that we need much better information to make 
good policy. Our information about China in Africa is not good, 
and we are not doing a very good job of collecting better 
information.
    And finally, we need to engage China multilaterally. We 
have a problem in that the arena for engagement that sets the 
rules and norms for how to engage internationally is the OECD, 
and China is not a member. We have to figure out a way to deal 
with this.
    Thank you.
    [The prepared statement of Dr. Brautigam follows:]

              Prepared Statement Dr. Deborah Brautigam\1\

    China is not a new actor in Africa. Yet over the past decade, 
China's presence in Africa has grown remarkably, a reflection of 
China's rapid transformation as a global actor. This presents 
opportunities and challenges for Africa and its traditional development 
partners, including the United States. China's motives in Africa are 
twofold: diplomacy and business. There are more countries in Africa 
than in any other continent. Each has a vote in the United Nations, and 
many are also members of the World Trade Organization. Warm diplomatic 
ties are important for Chinese foreign policy goals, including 
competition with Taiwan, the effort to obtain market economy status at 
the United Nations, and Chinese efforts to emphasize sovereignty as a 
core foreign policy principle. On the other hand, Africa is an 
important source of raw materials and business opportunities for 
China's companies as they become global corporations.

           CURRENT DIMENSIONS OF CHINESE ENGAGEMENT IN AFRICA

    Current dimensions of Chinese engagement in Africa include trade, 
foreign direct investment, engineering contracts, development finance, 
development and humanitarian assistance, and military cooperation. I 
will focus here on the economic aspects. China's total trade with 
Africa in 2010 was $120.9 billion, about 4 percent of China's total 
trade with the world ($2972.7 billion). Chinese official figures for 
FDI in Africa 2007-2010 show an average of about $1.5 billion per year 
if one discounts the exceptional year 2008 when Industrial and 
Commercial Bank of China purchased 20 percent of South Africa's 
Standard Bank for around $5 billion. FDI in 2010 was reported to be 
$2.1 billion, with a stock of FDI at $13 billion.
    Engineering contracts are enormous. In 2008, Chinese companies had 
nearly 3000 engineering contracts in Africa, valued at close to $40 
billion (in 2008, Chinese companies had 180 separate engineering 
contracts in Libya, for example, valued at $10 billion, while earlier 
this year, the total in Libya had risen to $18 billion).\2\ Some 
187,396 Chinese were officially working in Africa in 2009, most on the 
large engineering contracts in Algeria, Libya, and Angola. Although 
there are exceptions, such as Angola, most of China's engineering 
business in Africa is not financed by the Chinese, but by African 
governments, development banks, bilateral banks, and private companies 
contracting with Chinese firms.
    Some believe that the China is a bigger donor than the United 
States or the World Bank. This is far from the case. The United States 
disbursed a total of $29.7 billion (gross) in official development 
assistance in 2009, with $8 billion going to Africa, about 27 
percent.\3\ In 2010, the United States again budgeted $8 billion in aid 
for sub-Saharan Africa; global health and child survival came to $4.7 
billion (57 percent).\4\ The top five recipients of U.S. bilateral 
health assistance in sub-Saharan Africa in fiscal year 2012 were 
projected to be Kenya ($545 million), South Africa ($510 million), 
Nigeria ($471 million), Tanzania ($346 million), and Uganda ($323 
million).\5\ In the equivalent categories, China probably disbursed aid 
of about $3.1 billion (gross), with Africa receiving 45.7 percent, 
about $1.4 billion.\6\ In 2010 alone, according to its annual report, 
the World Bank committed US$14.5 billion to 66 countries in IDA grants 
and soft loans, with cumulative commitments of US$222 billion since 
1960. These differences are also reflected in staffing levels. USAID 
has a global staff of more than 8,000, of which almost 5,000 are host-
country nationals; overseas projects employ considerable local 
personnel.\7\ MOFCOM's Department of Foreign Aid has about 100 staff, 
and the Export-Import Bank of China's Concessional Loan Department has 
another 100. The economic sections of Chinese embassies will also 
assign one or two people to manage the aid program locally (no host-
country nationals appear to be employed).
    In April 2011 the Chinese provided some of the first official 
figures on China's aid program: cumulative commitments of close to 
US$38 billion since the early 1950s and the end of 2009, broken down as 
follows (for all regions): \8\

   MOFCOM: cumulative US$16 bn in grants (not including debt 
        relief), and US$11 bn in interest-free loans, some of which 
        have been cancelled;
   China Eximbank: cumulative US$11 bn in concessional foreign 
        aid loans

    Africa has traditionally received between 40 and 50 percent of 
China's total aid annually. My estimates of Chinese aid disbursements 
suggest that on an annual basis, (Figure 1) China disbursed about 
US$1.3 billion in 2008, making it a mid-sized donor in Africa. (Chinese 
aid to Africa is growing rapidly; annual commitments could be more than 
30 percent higher than disbursements.)



    Source: Brautigam, The Dragon's Gift, 2011 (2009).

    In figuring out how to react to the rise of China in Africa, the 
United States first needs to understand how Chinese engagement works. 
For too long we have been trying to force the square pegs of Chinese 
engagement into the round holes of familiar Western patterns. Because 
we think of official development assistance (ODA) as the main currency 
for relations between Africa and the more developed world, we think 
this is what China is doing, instead of seeing their aid as a 
relatively small part of a far broader and more strategic engagement.
    One of the major misconceptions of Chinese engagement in Africa is 
that it is largely financed by ``concessional'' loans, implying that it 
is a type of ODA (official development assistance). A 2010 background 
paper written for the OECD, for example, used the adjective 
``concessional'' at least 27 times while writing in often general terms 
about the Chinese financing model in Africa.\9\ Yet loose terminology 
like this is unhelpful for our understanding of how China operates 
overseas.
    Most Chinese finance in Africa is not concessional. Indeed, Chinese 
banks reserve the term ``concessional loan'' only for the foreign aid 
loans issued by China Eximbank, with, as noted, a cumulative total of 
US$11 billion committed between 1995 and 2009. The term ``concessional 
financing'' should be reserved for ``loans made by a government at an 
interest rate below the market rate as an indirect method of providing 
a subsidy.'' \10\
    How much finance has China provided through other, nonconcessional 
instruments? The figures here are very approximate:
    China Development Bank. In September 2010, China Development Bank 
said that it had made commitments of over US$10 billion to projects in 
Africa, and already disbursed US$5.6 billion to 35 projects in more 
than 30 African countries (People's Daily, 2010). This can be compared 
with an earlier announcement in March 2007, when CDB reported that it 
had financed 30 projects in Africa, for a total of about US$1 billion 
(Xinhua 2007).
    China Eximbank. At the end of 2010, China Eximbank's outstanding 
loans in support of China's ``Going Global'' program totaled some US$41 
bn worldwide.\11\ In the year 2010, China Eximbank disbursed about 
US$7.6 bn in export sellers' credits for Chinese overseas investment 
and about US$1.3 bn to finance construction projects being implemented 
by Chinese firms. It is not clear how much of this was directed to 
Africa. China Eximbank president Li Ruogu said that his bank had 
committed over US$13 bn to Africa as of June 2007, and planned to 
extend up to US$20 bn in loans to Africa over the next 3 years.\12\

           GOING OUT: INSTITUTIONS AND INSTRUMENTS IN CHINA'S
                      OVERSEAS DEVELOPMENT FINANCE

    China's long history in Africa stretches over the Maoist period, 
(1949-1976), and the reform period, (1978-present). In the early 1980s, 
Chinese leaders reevaluated their aid program in view of its poor 
results, their limited funds and the need to focus more on their own 
development.\13\ They announced to their African partners that China 
would need to ``do more with less,'' focusing more on ``mutually 
beneficial'' cooperation rather than ``one-way'' aid.
    At home, economist Chen Yun advised China to move toward the market 
cautiously, experimentally: ``feeling for stones while crossing the 
stream.'' For the next decade, the Chinese experimented with ways to 
combine aid, trade, and investment in Africa. By the mid-1990s, the 
instruments were largely in place, although new experiments continue to 
be launched.
    One of the changes was institutional. From the 1960s until 1995, 
Beijing financed its projects in Africa solely through an evolving set 
of departments and ministries that all focused on foreign economic 
cooperation (including aid) and trade. In 1994, as China continued to 
reform its economy in a market direction, Beijing established three 
policy banks.\14\ Today, in the state-directed finance model that is 
common in East Asia's ``developmental states'' (Japan, Korea, Taiwan), 
China's Ministry of Commerce directly controls most of the instruments 
that provide actual government subsidies abroad.
    Ministry of Commerce (MOFCOM). China's traditional aid instruments, 
zero-interest loans and grants, are financed directly out of China's 
budget for external assistance and are overseen by MOFCOM's Department 
of Aid to Foreign Countries, in cooperation with the respective 
regional departments of the Ministry of Foreign Affairs.
    MOFCOM also has a variety of other funds, including the Special 
Fund for Foreign Economic and Technical Cooperation that can be used to 
support Chinese businesses, as long as they are carrying out the needs 
of China's economic diplomacy. One fund, for example, is used to 
support Chinese companies building six overseas special trade and 
economic cooperation zones in Africa.\15\ These funds can be used for 
the partial reimbursement of preinvestment costs (feasibility studies, 
documents and consulting services, etc.) and some interest rate 
subsidies for bank loans.\16\ They are not financed out of the external 
assistance budget.
    China's Policy Banks. Two of China's policy banks (China 
Development Bank and China Eximbank) also operate overseas. Loans from 
policy banks are, as a Chinese analyst put it ``heavily influenced by 
government policies and are not to operate in full compliance with 
market rules.'' \17\ This does not mean that CDB and China Eximbank are 
allowed to be unprofitable or that they are directly subsidized by the 
government. Rather, as a recent study of CDB explains, with the Chinese 
Government standing behind them, policy banks have the same credit-
rating as the Chinese Government, can raise funds by issuing bonds with 
that rating, and can take a longer term view with their loan 
investments.\18\
    In 1995, China Eximbank was given sole responsibility for a new 
foreign aid instrument--concessional loans (you hui dai kuan). These 
are provided with a fixed interest rate, usually 2 or 3 percent, a 
grace period of 5 years, and a long repayment term (20 years). China's 
budget for foreign assistance subsidized the difference between the 
Eximbank's costs and the fixed interest rate. This allowed the Chinese 
Government to dramatically expand its resources for development 
assistance, but it also required more careful use of these resources, 
as the new loans were to be more carefully appraised for their 
financial feasibility. The Eximbank fully intended to be repaid. As the 
Eximbank's chief economist told an audience at a World Bank retreat: 
``it's the new lenders' problem if countries can't repay, not the Paris 
Club. We know we need a good, strong balance sheet.'' Although some 
Eximbank concessional loans have been rescheduled, there are no reports 
of any being canceled.
    The majority of China Eximbank's lending instruments do not qualify 
as foreign aid. In 1998, they began offering export sellers credits 
(usually short to medium term) to Chinese firms to boost their ability 
to invest overseas and finance construction contracts.\19\ In 2000, the 
bank launched export buyer's credits, rolling them out in Africa in 
2005. These are usually issued in dollars, at London Interbank Offered 
Rate (LIBOR) or the Commercial Interest Rate of Reference (CIRR) rates 
prevailing in global markets. Preferential export buyer's credits (you 
hui mai fan xin dai) also exist. These are very similar to concessional 
loans, but are subsidized from a different budget.
    Commercial Banks. In the past decade, several Chinese commercial 
banks--China Construction Bank, Industrial and Commercial Bank of China 
(ICBC), and Bank of China--have also set up offices in Africa to 
support Chinese companies' business. One, ICBC, purchased 20 percent of 
South Africa's Standard Bank for around US$5 billion, and has since 
embarked on a number of joint projects across the continent.
    China Africa Development Fund. The China Africa Development Fund 
(CAD Fund), overseen by CDB, provides equity capital. CDB provided the 
initial US$1 billion investment, and the CAD Fund was expected to raise 
finance for successive phases from other investors, with the goal of 
reaching US$5 billion. The fund's managers have stressed that this 
equity finance is not aid, and not loans, but medium-term investment 
that expects a return.\20\ A similar instrument, China Asia Fund, was 
set up by China Eximbank in Asia.

                    IMPACT ON THE LIVES OF AFRICANS

    China's approach to development cooperation clearly offers 
opportunities, but also entails some risks. The benefits include 
greater ownership, and more equal partnerships, lower transaction 
costs, a new emphasis on infrastructure and productive activities, 
``agency of restraint,'' and policy space. The risks include the 
potential for higher costs when contracts are signed without 
competitive tenders, as well as the lower labor, social, and 
environmental standards that come with a middle-income developing 
country partner, as opposed to one at a high level of development.
    Ownership. Countries across the developing world have been pressing 
for more ownership over their aid and development finance. The Chinese 
have neither the expertise, nor the inclination, nor the personnel to 
engage in development strategy planning or write country assistance 
strategies, for any of the countries where they engage. In fact, such 
an activity would probably never occur to them.
    For the Chinese, ownership starts (and sometimes ends) at the top. 
In cases where leaders do not coordinate with ministries, this can 
cause problems, as in Liberia where a President asked the Chinese to 
build a hospital upcountry, leaving the Liberian health ministry 
scrambling to figure out staffing for the remote location. But 
governments who do have well thought out development plans appreciate 
the Chinese willingness to follow their lead. They also appreciate that 
the Chinese principle of noninterference in internal affairs allows 
them to maintain sovereignty over their development strategy.
    Partnership. The language of ``donor'' and ``recipient'' remains 
widespread in the West, despite the efforts of the Paris Declaration to 
shift to partnership. As the West has found, it is difficult to have 
real partnerships when one partner is wealthy and autonomous and the 
other is poor and dependent. As a Chinese researcher once asked me, 
``how can you fight poverty and stay in a five star hotel?''
    Skilled Africans can't help but wonder why foreign experts who work 
beside them are earning 10 or 20 times their salaries, all paid out of 
a foreign aid budget (or even worse, financed by a loan that will later 
be paid out of African Government workers' taxes). The Chinese live far 
more simply in Africa, often in group housing or compounds, and share a 
frugal mentality. The managing director of the Bank of China branch in 
Lusaka is authorized to fly business class, his assistant told me, but 
he flies economy class instead ``to save the bank money.'' It is hard 
to imagine a similar gesture from a World Bank employee.
    Lower Transaction Costs. China's tiny aid bureaucracy (70 
professionals in MOFCOM's Department of Aid to Foreign Countries, 100 
in China Eximbank's Concessional Loan Department) means that the 
Chinese rarely participate in the stream of donor missions that occupy 
the time of so many African ministries. China's aid program offers a 
relatively limited menu of turnkey projects, mainly focused on 
infrastructure: roads and bridges, telecoms and power plants, 
sanitation and water systems. Once a project is initiated or requested, 
all important decisions are made in Beijing, not by the Chinese mission 
in the host country. Contrary to conventional wisdom, Chinese banks do 
require environmental impact assessments, but will often accept those 
prepared by their borrowers. In recent years Chinese banks have begun 
to require more elaborate environmental impact appraisals for loans. 
Increasingly, these are contracted out to European firms.
    New Emphasis on Infrastructure and Production. Chinese companies 
and banks appear to be far more open to financing and investing in 
infrastructure, resource processing activities and industrial projects 
than their peers coming from Western countries. ``Donors have neglected 
power since the 1990s,'' a recent study noted, pointing to an 
infrastructure financing gap of some US$93 billion in Africa.\21\ 
African countries themselves spend some US$45 billion a year on 
infrastructure; and Chinese companies have been building much of this, 
earning revenues of over US$20 billion annually from construction and 
engineering contracts on the continent. Worldwide, over 60 percent of 
China Eximbank's concessional loans have been committed to 
infrastructure projects.\22\
    After Liberia's war ended, President Johnson Sirleaf repeatedly 
said that her number one priority was getting roads financed. According 
to adviser Steven Radelet, ``No one was doing it. They all said `we 
don't do roads. But the Chinese Ambassador said: `we'll do roads.' And 
things changed.'' \23\
    In Ghana, the China Africa Development Fund is one of the equity 
investors in a joint venture with the Government of Ghana and Bosai 
Minerals Group in a Sekondi industrial estate that will be anchored by 
a proposed alumina refinery. Ghana has long been a producer of bauxite, 
mined by large western firms--Rio Tinto (now merged with Canada-based 
Alcan), and the U.S. company Alcoa--who refined the bauxite into 
aluminum ingots which were then shipped out. But none of these partners 
was willing to invest in building an aluminium industry.
    As Ghana's Minister of Trade and Industry put it, the Chinese 
project ``will allow our country to finally achieve our long-term 
objective of establishing an integrated aluminium industry and make the 
most of our resources.'' \24\ Business Monitor International predicted 
that the Sekondi Industrial Freezone would ``create a major growth area 
in West Ghana.'' \25\
    Another Chinese company is building Chad's first petroleum refinery 
in a 60:40 joint venture. The Chadian Government applied for a 
preferential export credit to help finance its share of the venture. 
Although the famous Chad-Cameroon pipeline project supported by the 
World Bank originally envisaged building a small refinery, this did not 
happen, and the pipeline instead transferred Chad's crude oil outside, 
while Chad continued to import all its refined petroleum products. 
Ngata Ngoulou, Chadian Finance and Budget Minister, said: ``If we had 
made this request to our traditional partners, they would have 
certainly told us to give up the idea.'' \26\
    Likewise, in Niger, the Chinese approach contrasted with that of 
earlier Western companies. Some Africans believe that ``China's efforts 
offer opportunity for industrialization on a scale never countenanced 
by the colonizers of old.'' \27\ Ibrahim Ango, president of Niger's 
Chamber of Commerce, told a reporter that French oil firm Total and the 
U.S. firm ExxonMobil both held oil concessions in Niger's Agadem 
region, but refused to consider refining oil. ``East time the 
government said, `build a refinery,' they said: `it's impossible.' The 
Chinese came and said: `A refinery? What size?' '' \28\
    Agency of Restraint. China's system of resource-backed 
infrastructure loans is a way for countries with weak governance, 
unable to access global finance, and prone to the ``resource curse,'' 
to opt for an agency of restraint. With multiple competing demands for 
access to the revenue streams from their natural resources, leaders 
find it hard to say no. Commodity-backed loans are a precommitment 
technique. They allow a government to have public works expenditures 
today, paying for them with future exports. In weak governments, rather 
than trying directly to improve the host government's accountability 
mechanisms, or forcing improvements through conditionality, the Chinese 
accept that institutional development is a long-term process. They 
manage their fiduciary responsibility by keeping control over the 
finances and almost never giving cash. As one African official told me: 
``with China you never see that money.''
    Debt Sustainability. China's new ability to offer large-scale 
finance arrived just as African countries were finally successful in 
getting multilateral debt relief through the Highly Indebted Poor 
Countries (HIPC) program. Paris Club and multilateral creditors have 
worried about a new debt burden. In the DRC, for example, China's 
initial offer of a credit line of US$6 billion for infrastructure and 
another US$3 billion or so to finance the copper mine appeared certain 
to sink the war-ravaged country beneath towering waves of debt just 
when the government was negotiating with the Paris Club for debt 
forgiveness on the cold war era loans racked up under Mobutu.
    Yet a different way of looking at this package suggests that while 
the Chinese financing model involves large sums of credit, it also 
frequently creates new cash flows to finance the investments. When 
asked about Western criticism of China's African engagement during a 
press conference at the World Bank/IMF Spring Meetings in April 2011, 
Ngata Ngoulou, Chad's Finance and Budget Minister, said, regarding 
debt: ``it is more important that the debt burden of African countries 
is manageable. For us, this is a big difference. Even if the some of 
the Western critique of China makes sense, I still do not think it a 
bad thing for Africa. We borrow for our industrialization projects and 
the debt will be repaid from their profits.'' \29\ This also creates 
incentives for the Chinese companies and banks to do what they can to 
ensure that their investments are financially sustainable, an incentive 
that was often missing in past multilateral debt.
    Impact on Local Firms and Workers. Chinese imports, particularly of 
textiles, have been devastating competition for African firms using 
outdated technologies to produce for local markets. At the same time, 
some African entrepreneurs are partnering with Chinese companies or 
using new Chinese machinery and technical assistance, and competing 
successfully with Chinese imports into their regions.\30\ Indeed, World 
Bank data shows that between 2004 and 2009, although Chinese imports 
were rising dramatically, sub-Saharan African countries experienced 
average annual increases of 3 to 5 percent in manufacturing for every 
year except 2008, the first year of the global financial crisis.\31\ In 
Ethiopia, Senegal, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe, all 
large importers of Chinese goods, manufacturing grew by an average of 9 
percent in 2009.
    In the construction industry, Chinese companies clearly benefit 
from contracts tied to Chinese finance. When these contracts are 
delivered without competitive bidding, as in many export credit 
arrangements, countries may find themselves paying higher costs than 
would otherwise be the case. Yet even when they have no financial 
support, Chinese companies are winning a large share of the small and 
medium construction contracts that might have gone to local firms in 
the past.
    Chinese companies do have low costs but construction firms in 
Zambia and Namibia have documented unfair Chinese business practices: 
collusive bidding, low wages, and a tendency to hire contract workers 
in order to get around mandated labor benefits (paid holidays, sick 
leave, etc.) for permanent staff. A study by Namibian labor unions 
pointed out that the Chinese were following the same practices as local 
African firms. European-owned firms that adhered to local labor laws 
and regulations suffered most.\32\
    Chinese companies do bring a larger proportion of their workforce 
from home than Western firms, but this is the case mainly for 
construction projects in oil-rich countries like Algeria, Libya, or 
Angola where local labor is expensive. In other places, with few 
exceptions, Chinese projects have a majority of Africans in their 
workforce. Those who do fieldwork regularly report this reality. For 
example, a researcher who recently visited Cameroon expecting to find 
large groups of Chinese workers found instead that every construction 
site she visited had Cameroonian workers under Chinese managers.\33\ It 
is the poor conditions of this employment, and not its absence, that is 
a constant complaint among African workers.
    Policy Space. Decades of advice and conditionality imposed by the 
West have pushed African governments to rely on the magic of the 
marketplace, develop by opening their markets and exporting according 
to their comparative advantage in raw commodities. While the Washington 
Consensus usefully stressed key macroeconomic fundamentals--low 
inflation and adequate foreign reserves--it was skeptical of the kind 
of industrial policy and targeted intervention practiced across East 
Asia, and it had little to say about strategic development policy.
    The achievements of the Chinese in moving millions out of poverty 
are recognized as a significant success. But like other East Asian 
countries, although China moved toward the market, they did it 
gradually, and in particular, they did not begin by liberalizing trade, 
as recommended by the Washington Consensus. Their model emphasizes 
fiscal stability and macroeconomic balance, but also learning and 
experimentation. The enormity of this example provides policy space for 
African governments to experiment with other approaches to fostering 
development.

                 AFRICAN REACTIONS TO CHINA'S APPROACH

    Africans have reacted to China's approach in different ways. 
Government officials and leaders have largely been very positive, with 
some exceptions, such as Zambian opposition politician and, now, new 
President, Michael Sata. Civil society, trade unions, and some sectors 
of local business have been more wary. This is particularly the case 
with regard to Chinese labor practices, the influx of small-scale 
traders, the impact of Chinese goods on local manufacturing, and the 
fact that by engaging primarily with governments, Chinese aid and 
export credits reinforce incumbent leaders. Concerns have also been 
raised about the high levels of counterfeiting and substandard goods 
coming into Africa from China.
    Opposition politicians have sometimes found that Chinese engagement 
can provide ample fodder for political capital. Writing an op-ed about 
a large Chinese economic zone planned for Mauritius, Anil Gayan, an 
opposition member of Parliament, wrote: ``It is a voluntary 
colonization . . . a danger for our security.'' \34\ Michael Sata, a 
perennial Presidential candidate in Zambia, famously dismissed the 
Chinese in his country as ``infesters'' not investors.
    Public opinion polls in Africa show that populations there are 
generally even-handed about Chinese engagement. In Cameroon, for 
example:

        . . . 70 percent of the respondents in one poll were 
        ``disturbed by the Chinese influx'' while at the same time 92 
        percent in the same survey admitted that China is good for 
        Cameroon's economy. Also, 81 percent welcomed Chinese products, 
        which benefited poorer parts of the population.\35\

    A study analyzing Afrobarometer's public opinion surveys in 20 
countries found that while most Africans expressed positive views of 
China's role, Africans who rank human rights as high in importance were 
more likely to have an unfavorable opinion. Views on the importance of 
democracy were not correlated with negative opinions of China, 
however.\36\
    Government officials generally express positive views. Speaking at 
the World Bank/IMF Annual Meeting in April 2011, Dr. Situmbeko 
Musokotwane, the Zambian Minister of Finance, compared China's business 
and aid model with that of the West. China used aid and other tools 
vigorously to encourage its companies to invest in Africa, he said, but 
that did not seem to be the case for Europe and America, whose aid 
programs were more paternalistic, and seemed to be designed as charity: 
``at least help them not to suffer, we can't do much more than that. 
They're not ready for investment.'' \37\
    Mthuli Ncube, chief economist at the Africa Development Bank, 
commented in Tunis that the Chinese model ``is a fascinating and new 
model in terms of how aid is flowing into Africa and how infrastructure 
investment is being conducted and supported.'' China, he said, is 
``posing a challenge and making us think about aid architecture, this 
kind of governance-neutral approach to aid engagement and investment in 
Africa.'' China's approach might even be more sustainable, he said. 
``We can talk forever about Millennium Development Goals but my view is 
you can only pay for MDGs targets and progress not through aid but 
through growth.'' \38\
    A survey of African stakeholders carried out in 40 African 
countries by the OECD for the African Economic Outlook 2011 found that 
emerging partners such as China were ranked as having a comparative 
advantage for cooperation in infrastructure, innovation, and even 
health compared with Africa's traditional bilateral and multilateral 
partners. Economist Helmut Reisen, head of research at the OECD's 
Development Center commented: ``these results are striking considering 
all the effort traditional donors have put into these sectors.'' \39\

       STEPS THAT CAN BE TAKEN TO IMPROVE COOPERATION WITH CHINA

    First, invest some effort in getting behind the headlines and 
seeing what China is actually doing. The Chinese have six decades of 
experience with aid in Africa. They've spent time analyzing their own 
past failed aid projects, and they've come up with a different model of 
engagement, much of which does not actually involve official 
development aid. It's much closer to Japan's pattern of engagement with 
other Asian countries.
    Through diplomatic processes like the Forum on China-Africa 
Cooperation (FOCAC), initiated in 2000, China has increasingly 
coordinated its development engagement with Africa on a ``whole of 
government'' basis, with involvement by the line ministries 
(agriculture, health, education, science and technology), universities 
and think-tanks, policy banks, as well as the ministries of commerce 
and foreign affairs. This synergy has led to practical experiments 
based on China's own experience:

   Resource-backed infrastructure loans. Credits that allow 
        countries with poor credit ratings to borrow today and pay with 
        tomorrow's exports.
   Overseas economic zones that encourage Chinese companies to 
        move their labor, energy, and resource-intensive manufacturing 
        offshore.
   A US$5 billion equity fund provides additional capital 
        investment options for suitable Chinese companies in Africa who 
        plan invest in public-private partnerships, joint ventures, and 
        manufacturing.
   A US$1 billion fund to provide loans to African small and 
        medium enterprises, channeled through African countries' 
        national development banks.
   Twenty agro-technology demonstration centers that ask 
        Chinese institutes and agribusinesses to build sustainable 
        business models that can cross-subsidize development outreach 
        with profitable income opportunities.

    These tools are for the most part not funded by China's official 
aid, but they are about development. More importantly, they respond to 
the requests of Africans for assistance that will help in building 
infrastructure and creating new jobs. The Chinese approach to 
development finance in poorer countries demands that we reconsider our 
assumptions and our neat categories that separate ``aid'' from business 
support.

                         THE EXAMPLE OF HEALTH

    China has hosted two International Roundtables on China-Africa 
Health Collaboration, on December 4-5, 2009, and on February 11-12, 
2011, respectively, organized by the Chinese Alliance for South-South 
Health Cooperation Research, the Peking University Institute for Global 
Health, and the China Institute of International Studies, and 
cosponsored by the World Bank Institute, China's MOH, WHO, and the Bill 
& Melinda Gates Foundation. Interest in collaboration appears to be 
growing.
    However, the lack of understanding and, sometimes, the 
misrepresentation of the nature of Chinese engagement overseas, have 
created a challenge for United States-China collaboration. For example, 
one analyst writes: ``More than 2,000 Chinese medical personnel have 
been sent to Yemen during the past 40 years to assist with Yemen's 
health and medical programs and responses to disasters. In exchange, 
China has received access to Yemen's markets and energy resources'' 
(emphasis added).\40\ Another argues, without evidence, that ``Health 
diplomacy helps pave the way for Chinese oil companies [sic] to win 
mining rights for oil, platinum, and other natural resources, . . . one 
part of the quid pro quo that encourages African states to make these 
concessions and provide Chinese companies access to these resources.'' 
\41\ It is more accurate and useful to see China's health diplomacy as 
a broad-based strategy aimed at building goodwill across the continent, 
no more an ``exchange'' or ''quid pro quo'' than U.S. health 
engagement. To encourage official collaboration between the United 
States and China in health, high-level support by political leaders on 
both sides will be necessary to build trust and overcome suspicions 
like those noted above.
    Operationally, the Chinese concern about not intervening in the 
internal affairs of their partners means that they operate with a great 
deal of regard for local ownership of their assistance efforts. 
Therefore, a key step in collaboration requires genuine buy-in by an 
interested African partner. The stars need to be aligned further: In 
the partner country, it will be essential to have constructive 
commitment by both the Chinese and American ambassadors.
    A parallel track should involve building relationships by working 
together in multilateral settings, particularly those endorsed by the 
U.N. or WHO, or in private or more decentralized settings, for example, 
foundations with health-related programs in China as well as Africa--
the Rockefeller, Ford, or the Gates Foundations. With a ``green light'' 
from political officials, experiments in cooperation can be started 
between organizations such as the Centers for Disease Control in China 
and in the United States.
    Possible areas for collaboration could include not only malaria but 
also sanitation and rural and urban water supply efforts. The Chinese 
have extensive experience in building low-cost water supply systems in 
Africa, whereas the United States could focus on public health 
education (e.g., promoting hand washing). Some American officials have 
expressed interest in purchasing more Chinese antimalarial medicines 
for use in Africa, as long as they are certified by WHO. Assisting 
Chinese firms to gain WHO certification could be mutually beneficial. 
Building up the capacity of African governments to test and monitor 
imported medical products in order to fight substandard and counterfeit 
drugs would also be useful.\42\

                              FINAL POINTS

    In conclusion let me stress three points: realism versus alarmism; 
good policy needs good information; engage China multilaterally.
    Realism versus Alarmism. China's rise in Africa should be seen in 
context. China is still a far smaller player than the West. The Chinese 
Government has much in common with other rising economic powers: Brazil 
and India, for example. Brazil is also expanding on the continent. The 
Economist recently reported that Brazil has more embassies in Africa 
than the U.K., for example. Lack of transparency is also a common 
pattern for these emerging powers. Brazil, India, and China are alike 
in not being members of the OECD and in not reporting their aid and 
development finance flows to the OECD's Development Assistance 
Committee, which tracks these things on behalf of its members and 
others. Brazil, India, and China also have similar levels of 
corruption, according to Transparency International.
    Good Policy Needs Good Information. Pushing China to be more 
transparent about aid and official finance may eventually yield 
results, and this would be helpful for us in reacting to China's rise. 
But in the meantime, it is possible to gather better information and to 
publish that information. In the 1970s, the CIA gathered information on 
China's aid program and published this information regularly. Today, it 
appears that no one in the U.S. Government is gathering and sifting 
through the volumes of information on Chinese engagement. The 
information that is sometimes made available to Congress, for example, 
a report on Chinese ``aid'' written by the Congressional Research 
Service that estimated annual aid flows from China of some $18 billion 
in 2007 alone, is not always as careful or accurate as it could be.\43\ 
As a Washington Post article said not long ago, ``China is no enemy, 
but inflating the challenge from China could be just as dangerous as 
underestimating it.'' \44\
    Engage China Multilaterally. China is a member of the United 
Nations, World Trade Organization, and the World Bank and International 
Monetary Fund, the World Health Organization. All of these have rules 
and norms on global engagement that China has pledged to uphold: rules 
on export credit subsidies, for example, or on debt sustainability and 
reporting of international credits. At the same time, China is not a 
member of the OECD, where many of our rules on trade, investment, 
export credits and official finance are made. The OECD sets the 
standard for being a responsible global player (even if the standard is 
not followed consistently by OECD members). The Chinese by and large 
are familiar with these rules. We need to think about ways in which we 
can make actually joining the club--as South Korea and Mexico have 
recently done--both feasible and attractive to the Chinese.

----------------
End Notes
    1. This testimony draws on Deborah Brautigam, ``The Dragon's Gift: 
The Real Story of China in Africa,'' Oxford: Oxford University Press, 
2011 (2009) and Deborah Brautigam, ``China in Africa: What Can Western 
Donors Learn?'' Norfund, August 2011, http://norfund.no/images/stories/
publikasjoner/andre_publikasjoner/Norfund_China_in_Africa.pdf.
    2. Ministry of Commerce, ``China Commerce Yearbook,'' Beijing, 
2009.
    3. OECD, ``Development Assistance Committee (DAC) Statistics,'' 
http://stats.oecd.org/.
    4. USAID, ``Congressional Budget Justifications, Foreign 
Operations, Annex on Regional Operations, Budget Year 2012,'' http://
www.usaid.gov/performance/cbj/158268.pdf.
    5. ``Global Health Initiative,'' http://foreignassistance.gov/
Initiative_GH_2012.aspx?FY=2012.
    6. Brautigam, ``Dragon's Gift,'' 317. The percentage of aid going 
to Africa is adjusted slightly (from my estimate of 43 percent to the 
actual figure of 45.7 percent, revealed in State Council, ``China's 
Foreign Aid,'' Beijing, April 2011. Rapid increases mean annual aid 
commitments are higher than disbursements.
    7. USAID, ``USAID Primer: What We Do and How We Do It,'' 
Washington, DC, revised January 2006, http://www.usaid.gov/about_usaid/
PDACG100.pdf. A small number of additional personnel are seconded from 
other agencies or institutions.
    8. Information Office, ``China's Foreign Aid,'' Beijing, People's 
Republic of China, State Council, April 2011, 4. Currency conversions 
are on the basis of the exchange rate in 2009. These totals are not 
very meaningful, however, as the Chinese figures in RMB yuan were 
simply aggregated, without accounting for inflation.
    9. Martyn Davies, ``How China is Influencing Africa's 
Development,'' background paper for the ``Perspectives on Global 
Development 2010: Shifting Wealth,'' April 2010.
    10. ``Concessional financing,'' http://www.economics-
dictionary.com/definition/concessional-financing.html [accessed June 
15, 2011]. Although market rates vary strikingly around the world, this 
clear, standard definition suggests that the label ``concessional'' 
should be applied only for finance that is given below the benchmark 
rate for the currency in which the loan is issued.
    11. China Eximbank, ``Annual Report 2010,'' p. 22. The Chinese 
figures were RMB 278 billion.
    12. China Eximbank, ``The Export-Import Bank of China Hosted a 
Symposium on Financing and Project Cooperation in Africa,'' news 
release, July 25, 2007.
    13. Deborah Brautigam, ``Chinese Aid and African Development,'' New 
York: St. Martin's Press, 1998.
    14. The United States has the government-owned Export-Import Bank. 
Germany has a publicly owned bank: KfW, or Kreditanstalt fur 
Wiederaufbau to support exports. Brazil owns BNDES, Banco Nacional de 
Desenvolvimento Economico e Social (Brazil National Social and Economic 
Development Bank). China's three policy banks are China Development 
Bank, China Export Import Bank, and the Agricultural Development Bank 
of China.
    15. Deborah Brautigam and Tang Xiaoyang, ``African Shenzhen: 
China's Special Economic Zones in Africa,'' Journal of Modern African 
Studies, 49, 1 (2011): 27-54.
    16. For an excellent overview of the various types of financial 
support available to China's enterprises under ``Going Global'' see 
Duncan Freeman, ``China's Outward Investments: Challenges and 
Opportunities for the EU,'' Brussels Institute of Contemporary China 
Studies Policy Paper (no date).
    17. Institute of Economic and Resource Management, ``A Report on 
the Development of China's Market Economy,'' Beijing: China Foreign 
Economic Relations and Trade Publishing House, 2003, 129.
    18. Erica Downs, ``Inside China, Inc: China Development Bank's 
Cross-Border Energy Deals,'' Washington, DC, Brookings, March 2011.
    19. People's Daily, April 9, 2000.
    20. China-Africa Development Fund, ``Online Q & A,'' http://
www.cadfund.com/en/ques_on
line.asp?Id=9 [accessed June 29, 2011].
    21. Vivien Foster and Cecilia Briceno-Garmendia, eds. ``Africa's 
Infrastructure: A Time for Transformation,'' Agence Francaise de 
Developpement and the World Bank, 2010, p. 8.
    22. Information Office of the State Council, ``China's Foreign 
Aid,'' Beijing, China, April 2011, p. 6.
    23. Steve Radelet, Meeting at Center for Global Development, 
October 9, 2007.
    24. Hanna S. Tetteh, Statement Read on Behalf of Government at a 
Press Conference,'' October 26, 2011.
    25. ``Oil Exports to Propel Growth Boom,'' Africa Monitor, v. 12, 
n. 8, August 2011, p. 7.
    26. ``CNPC and Chadian government sign MOU on financing for 
N'Djamena Refinery,'' Press Release China National Petroleum Company, 
August 25, 2009, http://www.cnpc.com.cn/en/press/newsreleases/
CNPCandChadiangovernmentsignMOUonfinancingforNDjamenaRefinery_.htm 
[accessed July 15, 2011].
    27. Burgis, ``A Richer Seam.''
    28. Burgis, ``A Richer Seam.''
    29. IMF, Video of Press Briefing, African Ministers, World Bank/IMF 
Spring Meetings, April 16, 2011, http://www.imf.org/external/mmedia/
view.aspx?vid=907396692001 [accessed July 30, 2011].
    30. See Brautigam, ``The Dragon's Gift,'' for the success stories 
of several African entrepreneurs.
    31. World Bank, World Development Indicators. Analysis covers all 
sub-Saharan African countries with data between 2004-2009.
    32. J. Anthony Yaw Baah and Herbert Jauch (ed.), ``Chinese 
Investments in Africa: A Labour Perspective,'' African Labour Research 
Network, Windhoek, Namibia, May 2009.
    33. Lisa Sodalo, ``China in Cameroon's Construction Sector: Towards 
Enforcement of Higher Labour Standards Than Local Regulation?,'' China 
Monitor, May 2011, http://www.ccs.org.za/wp-content/uploads/2011/06/
China_Monitor_MAY_2011SG1.pdf [accessed June 28, 2011].
    34. Brautigam, ``The Dragon's Gift.''
    35. Max Rebol, ``Alternatives: Turkish Journal of International 
Relations,'' Vol. 9, No. 4, Winter 2010.
    36. Aleksandra Gadzala and Marek Hanusch, ``African Perspectives on 
China in Africa: Gauging Popular Perceptions and Their Economic and 
Political Determinants,'' Afrobarometer Working Paper No. 117, January 
2010.
    37. Comments at a panel, Washington, DC, April 15, 2011.
    38. Ndamu Sandu, ``Chinese Aid to Africa in the Spotlight,'' The 
Standard, November 29, 2010.
    39. Helmut Reisen, ``Emerging Partners Create Policy Space for 
Africa,'' Shifting Wealth Blog, June 6, 2011. The traditional partners 
were thought to have a comparative advantage for exports and for 
governance.
    40. Denise Zheng, ``China's Use of Self Power,'' in Chinese Soft 
Power, ed. McGiffert, 4.
    41. Jeremy Youde, ``China's Health Diplomacy in Africa,'' China: An 
International Journal 9, no. 1 (2011): 159, 160.
    42. See the discussion by Liu Youfa, ``Responsibilities of China 
and the United States in Promoting Global Health Programs in Africa,'' 
paper presented at CSIS-China Institute of International Studies 
Conference Conference, Beijing, May 24, 2011.
    43. See, for example, http://www.fas.org/sgp/crs/row/R40361.pdf and 
my comments on it on my blog: http://www.chinaafricarealstory.com/2010/
02/billions-in-aid.html.
    44. http://www.washingtonpost.com/wp-dyn/content/article/2010/02/
26/AR2010022602601.html
?sub=AR.

    Senator Coons. Thank you very much, Dr. Brautigam.
    Mr. Hayes, if you would.

 STATEMENT OF STEPHEN HAYES, PRESIDENT AND CEO, THE CORPORATE 
               COUNCIL ON AFRICA, WASHINGTON, DC

    Mr. Hayes. Thank you.
    It is very good to see all four of you.
    Senator Coons. Turn your mike on.
    Mr. Hayes. Sorry. Good to see all four of you. And 
certainly, Senator Lugar, it is great to see you again as well.
    I would like to speak really more from the private sector 
point of view, of course, and as I noted in my written 
testimony, I am honored to be invited to provide testimony.
    Much of my life has been built around both China and Africa 
relations with the United States, and certainly, currently, the 
status as president of the Corporate Council on Africa has 
brought together my interest in both regions of the world.
    For the Corporate Council on Africa, this issue is of high 
urgency. It is nearly 200 companies represent about 85 percent 
of all United States foreign direct investment in Africa. As we 
attempt to expand United States trade with and investment in 
Africa, the relationship with China becomes increasingly 
important to the American economy.
    China's interests in Africa do go beyond economic and 
include wider political influence on a global scale, as does 
ours. In the global marketplace, China is and will continue to 
be an aggressive competitor to the United States and other 
nations, including those in Africa.
    They have every right to be such. No one should challenge 
China's right to be engaged in Africa. Both China and the 
nations of Africa are free to seek any and all trading 
partners.
    Neither is China alone in increasing its investment in 
Africa. The emerging economies of Brazil, Russia, India, South 
Africa as a group are outpacing United States investment in 
Africa.
    However, China does enjoy certain advantages over the 
United States and other nations, particularly following rules 
and practices of the OECD. Those rules forbid bribery of public 
officials in any form, as well as eliminating predatory 
practices on export credit financing.
    Chinese counterfeit goods have flooded African markets, not 
only undercutting United States companies who have created the 
products--some of the products--driving them out of the market, 
but also creating health risk with counterfeit medicines. 
International patent rights are ignored, and this has 
implications for supporting development of new products and 
manufacturing in Africa, as well as exporting nations.
    Chinese populations are also increasing throughout Africa, 
with major socioeconomic implications for the continent. While 
this is the business of African host nations and China, it does 
bring up questions of future stability of nations, as well as 
create questions around the use of local versus imported labor.
    The United States strategy toward China should be twofold. 
The U.S. Government should do more to help American companies 
compete in Africa. Far greater United States private sector 
engagement in Africa will not only help African development but 
will also help rebuild the manufacturing base in America.
    Our aid program should be shifted toward building a vibrant 
private sector throughout Africa, and USAID should recognize 
the United States private sector as a partner in African 
development. I think our competitive advantage in this regard 
will be if we can compete and work with a vibrant private 
sector in Africa, then private sector to private sector is more 
in our line, and we can develop that. I think that is one of 
the emphasis that we should be placing.
    In this regard, many of our members' experiences and 
insights are reflected in legislation being developed by 
Senator Durbin that may make it possible for U.S. companies to 
compete on a more even playing field. We should recognize, 
however, that China will be a long-term player in Africa and 
that China offers an opportunity also for America in terms of 
economic partnerships.
    Cooperation will require time and the establishment of 
trust, but there are some business partnerships already between 
the United States and China in Africa. But there are also areas 
that Professor Shinn rightly noted that we can now cooperate 
in, such as South Sudan and the Horn of Africa.
    Much of this cooperation, though, will be built through 
joint ventures in the United States. If the United States and 
China can find common ground in Africa, not only will the 
United States-China relationship strengthen but so, too, will 
the benefit to Africa. In this regard, the Corporate Council on 
Africa will be leading a delegation of businesses to China in 
February to meet on possible cooperation in Africa.
    Thank you.
    [The prepared statement of Mr. Hayes follows:]

                  Prepared Statement of Stephen Hayes

    Senator Kerry and other members of the Foreign Relations 
Subcommittee on African Affairs, I am honored to be asked to testify 
before you on China's role in Africa. I have worked for some years with 
Chinese emerging leaders before I became President of the Corporate 
Council on Africa more than 12 years ago. Much of my life has been 
engaged in China and African affairs.
    The Corporate Council on Africa, whom I proudly serve, is a 
membership organization of more than 180 companies. Collectively the 
members represent more than 85 percent of all U.S. private sector 
direct investment in Africa. Probably no organization in America is 
more engaged in the economic and political landscape of Africa. As such 
we are a nonprofit, nonlobbying organization committed to increasing 
U.S.-Africa trade and investment. We are engaged in different ways in 
most issues affecting the economic relationship. Certainly, the Chinese 
engagement with Africa is one of those key issues.
    A great deal has been said about China's perceived domination of 
the African market. Clearly China has long-term aims, both economic and 
political, through its heightened involvement in Africa. Given their 
needs for the development of their own nation coupled with the fact 
that so much of the world's strategic resources are to be found in 
Africa this should not be surprising. I think it wise to presume that 
their interests go beyond just economic, however, and they seek wider 
political influence than they have had in the past. They are, after 
all, one of the principal bankers for the world right now, and their 
planning, unlike most countries today, is cohesive, coherent, and long-
term, both in economics and politics.
    In global business, contracts are completed when three basic 
dynamics are realized: capacity to deliver, decisionmaking and 
execution of the contract itself. In capacity to deliver and in 
execution of the contract, that is the completion of the product, the 
United States can evenly compete with China or any other nation in the 
world. However, the decisionmaking process, which affects the time that 
a contract can be completed, is far less cumbersome in China than it is 
in the USA. Nearly every U.S. deal relies on private investors, and on 
this matter China has a distinct advantage.
    The decisionmaking process in China is far more efficient than it 
is in the United States. Decisions and recommendations for investment 
are often directed by the government, or at the very least, and they 
are able to meet requests from African governments far more quickly 
than we can in this country. There are far more checks and balances 
that most business deals must meet in our own system. We also operate 
our economic models on business-to-business contracts, while many 
African countries, especially those with weak private sectors, operate 
on Government-to-business model, more similar to the Chinese model than 
to the American model. The competitive advantage clearly goes to China 
under these circumstances.
    It is not necessarily China's capacity, or even its ability to 
execute/complete contracts quickly that defines its competitive 
advantage in Africa. The West still holds key advantages in both 
technological and scientific capacity, as well as in management skills 
and probably quality of workmanship. Rather it is the Chinese ability 
to forge consensus and mobilize resources quickly that gives them a 
distinct advantage in the African marketplace.
    No one should challenge China's right to be engaged in Africa. 
Their involvement has helped Africa perhaps more than any nation has 
helped Africa in any 10-year period directly and indirectly. Certainly, 
the China engagement with Africa has brought about heightened interest 
in Africa. Infrastructure has expanded in many countries thanks to 
Chinese investment and political interests. More productive agriculture 
has been developed in some countries where China is active, and 
certainly the increased competition for strategic minerals has driven 
up the price of commodities and raised national incomes for many 
African countries.
    It is not China alone, however, that is increasing its investment 
in Africa. While it can be debated whether the increased interest of 
China in Africa has spurred on other nations to become more engaged 
economically in Africa, the combined investment of the so-called BRICS 
(Brazil, Russia, India, China, and South Africa) has surpassed all U.S. 
investment in Africa. As a result, the economies of these countries 
have also shown greater strength and stability in these times than most 
developed nations. There are growing investment flows into Africa from 
the Middle East, ranging from Turkey to the nations of Arabian 
Peninsula and to Iran. We also see growing interest in Africa from 
Japan, particularly since its recent nuclear disaster, but also because 
of the growing influence of China. China's interest and growing 
involvement in Africa is perhaps one of the most important political 
and economic phenomena in the world right now, and in my view, the 
United States has been very slow to either understand its meaning and 
ramifications for our own country and its own economic and political 
future.
    It is difficult to know exactly how much China is investing in 
Africa, and it is just as difficult to pin down exactly how they are 
winning the competition. Their currency is artificially pegged so exact 
values are almost impossible to determine. Certainly, their government 
and their private sector are working closely together, and the Chinese 
Government appears to help its private sector investing in Africa as no 
other government helps its own private sector. Some of this is due to 
the history of China, particularly over the last 30 years, and some is 
simply due to the fact that China can underbid most projects through 
lower labor costs and through government-subsidized assistance to 
Chinese companies. While Chinese companies win infrastructure contracts 
with low bids and subsidized financing, they also have developed a 
reputation for limited employment for Africans, limited technological 
transfer, and in some cases, uneven workmanship. If Chinese companies 
do not correct these practices, it presents an opportunity for American 
companies to win contracts and train Africans during project 
implementation, which is in Africa's long-term benefit. One American 
company, Symbion Power, has done exactly that in winning an MCC-funded 
contract for power transmission in Tanzania. It also partnered with CCA 
to develop an HIV/AIDS prevention campaign for its employees in 
Tanzania.
    What is also obvious is that the Chinese population on the African 
Continent is increasing in nearly every nation. Chinese businesses are 
sprouting up in not only the major cities of Africa but in smaller 
urban areas as well. Chinese laborers are brought in with Chinese 
construction projects, and it is difficult to determine if the laborers 
return to China after the projects are completed. In many areas, the 
Chinese appear to be permanent immigrants. Again, exact figures are 
difficult to obtain, but I have traveled to no African country where 
some citizens of the country did not express concern about the growing 
Chinese domination of the local markets and their influence in 
displacing African workers on construction projects and in new 
businesses. In the recent Presidential elections in Zambia, the growing 
Chinese influence over the economy was the key political issue. One 
should not be surprised if similar issues develop in other countries on 
the continent.
    Clearly, the Chinese have no interest in following OECD rules. They 
are not members of OECD and therefore are not constrained by the rules 
in their negotiations with the governments and businesses of Africa. 
They are, in many ways, at a distinct competitive advantage over its 
Western counterparts, as are other countries not bound by OECD rules 
and regulations. However, again, exactly how the Chinese compete for 
contracts is not easily verified. There is no requirement for 
transparency in negotiations and the terms of the contracts are often 
held privately by the governments and companies involved in the 
negotiations. I do not think this likely to change in the near future. 
What is clear, however, is that such tactics have slowed the pace of 
reform in Africa and strengthened the intransigence of those resisting 
democratic reform for the benefit of the people.
    For U.S. companies, as well as those of other nations, counterfeit 
goods have flooded the African markets, not only undercutting those who 
have created the original products, and driving them out of the market, 
but also creating health risks with counterfeit medicines and false 
products, with the Africans once again the victims of this 
exploitation. International patent rights are ignored.
    The question before this body is whether China will become so 
dominant in its control of the African market that this dominance will 
significantly impair our own policies toward Africa, and whether, in 
fact, our own need for strategic resources, including fuel, will be 
threatened. After all, countries will necessarily gravitate toward 
those countries who are most heavily and directly invested in them. If 
the United States continues to fail to develop private sector-led 
growth, can we realistically expect to maintain the same respect and 
relationships with the African people and the nations of Africa?
    Perhaps an even more salient question is what opportunities for 
jobs in America are never created because American business may be more 
a spectator than an actor in the African marketplace. It is not a 
matter of how many jobs are lost, but how many are never created 
because we have failed to engage in Africa to the same extent others 
have, particularly as China makes Africa in its highest strategic 
interests? China's engagement in Africa puts them at the planning 
tables for nearly all new projects and opportunities. How many jobs are 
we not creating by not being engaged in Africa?
    There are some in this country, (and I hear this from some of our 
member companies involved in Africa), who believe that it is almost 
impossible to compete with the Chinese. I do not accept this and think 
that if we do not compete more effectively in Africa our long-term 
interests and hopes, as well as our national economy, will suffer 
sufficiently as to render us a mid-level economy over this century. I 
believe that our political and economic engagement with Africa is in 
our highest national interests.
    Our strategy as it regards China in Africa should be twofold: we 
need to find ways to compete, certainly, and I also believe it is in 
the interests of China, the United States, and the nations of Africa 
that we find ways to more effectively cooperate.
    First, in terms of competition, we should not isolate China as the 
primary competitor. It is certainly the largest, but as I noted 
earlier, many other nations are now becoming far more engaged in China, 
and the economic environment is becoming increasingly competitive. We 
need to look at our own economic stance toward Africa, regardless of 
whom we perceive as primary competition. The fact is that we have not 
shown the same competitive strengths as others, and we need to ask 
ourselves what needs to be done.
    We need to expand and strengthen the ability of American companies 
to make investment decisions. We need to engage our university systems 
in more economic research in Africa. Our business schools need to focus 
more on developing markets globally, just as American companies need to 
conduct more on-the-ground research in Africa. A company will not 
invest in Africa if they doubt their ability to recover their 
investment. Therefore, making investment decisions rests with the 
quality and the research that provides confidence in long-term 
sustainability and profitability of investment.
    We should recognize that the development goals of Africa do not 
simply benefit Africa, but are essential to our own national economic 
security. Private sector-led development throughout Africa will bring 
about a growing middle class, create greater stability throughout the 
continent, and provide for U.S. businesses stronger and more reliable 
business partners. Our traditional approach to development needs to be 
reexamined and altered to make private sector economic development 
among our highest priorities.
    Second, we need to examine specific barriers to U.S. companies 
ability to compete more effectively in Africa. There are several 
serious barriers, largely self-imposed, that hamper our ability to 
compete.
    One such barrier is access to financial markets. Few U.S. banks 
will finance U.S. companies seeking to do business in Africa, and our 
own agencies designed to mitigate such risks, such as the Ex-Im Bank 
have fallen woefully short in addressing the problem. We can provide 
one example after another of good U.S. projects in Africa failing to 
get necessary government support. While I think Ex-Im is attempting to 
address the problem, as is OPIC, the support provided U.S. companies is 
far below the level of support that the Chinese counterparts provide 
for their private sector companies seeking to do business in Africa.
    A second impediment for U.S. companies doing business in Africa is 
the necessity to find partnerships. One simply cannot do business 
easily in Africa without having a reliable partner on the ground. There 
is no mechanism set up that allows us to easily find a partner. We have 
a limited number of U.S. Commercial offices in Africa and under budget 
constraints those that we do have are being closed. These closures are 
coming at exactly the wrong time. They come when China and others are 
increasing their commercial government presence throughout the 
continent. Among the highest priorities of Chinese Embassies is to 
support its business development in Africa.
    At the Corporate Council on Africa we have developed through the 
support of the U.S. Agency for International Development a U.S.-Africa 
Business Center whose primary purpose is to identify business partners 
in Africa for U.S. companies, especially small and medium-sized 
businesses wishing to do business. It is the only such organization in 
America and it can only meet a small proportion of the need. This 
operation needs to be significantly expanded and duplicated in other 
parts of the country. China provides support for its small businesses 
investing in Africa. We do very little of this, and as a result hurt 
our own economy as well as fail to help develop the private sector in 
Africa.
    Diplomatically, I believe that our current Assistant Secretary of 
State, Johnnie Carson, deserves a great deal of praise for insisting 
that many of our new ambassadors selected for African posts have 
significant economic experience. The challenges in Africa are now as 
much economic as they are political, and traditional diplomacy is no 
longer applicable to this rapidly changing economic environment.
    To his credit, he is also working with U.S. companies to see that 
they win contracts in Africa. The Department of State and the Corporate 
Council on Africa are jointly working together now to take a delegation 
of U.S. power companies to Africa in the first quarter of 2012. The 
delegation may be lead by Assistant Secretary Carson. The purpose of 
the mission will be to significantly increase the involvement of U.S. 
power companies in the development of the power sector in Africa. Few 
projects could be more important to Africa, as there is not a country 
on the continent that is meeting its current power needs, and until 
they do we cannot expect rapid economic development in Africa. This is 
but one example of how U.S. companies can make a difference to Africa 
as well as buttress the economy of the United States of America.
    At the same time as we increase our competiveness for a share of 
the African market, I also strongly believe that we must find ways to 
cooperate with China in Africa. The stakes for humanity are too high 
for us not to cooperate. While we must recognize that we must compete 
internationally with China and others if we are to heal our own 
economic wounds, we must also recognize that partnerships globally must 
be developed.
    In a world facing growing food shortages, water scarcity, climate 
change, and the social instabilities they cause, any responsible path 
forward must rely on international cooperation. Yet today we find the 
United States and China, competitors at the best of times, struggling 
to resolve how to address their common interests in Africa, a continent 
that has suffered more than any other in recent centuries from 
disasters both natural and man-made.
    If the United States and China can find common ground in Africa, 
both Africa and U.S-China relations can make dramatic strides forward. 
But the challenge is to convince all the actors to put the health and 
wealth of the global community above national interests, a difficult 
and rare endeavor.
    It is ironic that as we face new global crises, the competition for 
economic and political advantage is occurring, as it has throughout 
human history, in Africa, where mankind's struggle for survival first 
began. Africa offers the arable land needed to provide food for a 
hungry world; it offers the water to feed the world and quench the 
thirst of billions, and it offers the remaining minerals necessary to 
maintain a modern global society. And the primary players competing 
over African hearts, minds, and resources today are the Americans and 
the Chinese, with China having the early advantage of money for 
investment and a plentiful worker supply for export to the continent.
    But it is not just the United States and China with an interest in 
Africa. The Gulf States, Russia, India, and Europe are all looking to 
Africa as well to feed their people, with the African peoples 
themselves struggling to control their own destinies and put food on 
their tables. Africa matters, and the United States and China are going 
to play an outsized role in Africa's future. But they need to find 
common ground and lead together. Partnerships of all kinds are needed 
for Africa's development, and our own economic self-interests.
    There can be better days ahead for Africa. Infrastructure 
development is moving at a rate unseen before, but the needs are still 
great. No African country has a sufficient power supply to meet current 
needs, let alone the projected needs of the future. Famine has 
returned, if it ever really left, to the Horn of Africa, and water is 
scarce for a large percentage of the continent's population.
    Together, the United States and China can lead the world into a 
more cooperative arrangement, beginning in Africa. They cannot do so 
without the support of Africans, but they remain, at this moment in 
history, the two nations most able to develop a stronger Africa, and a 
more harmonious world. It is not a case for bipolarity. It is simply 
recognition of history at this particular moment. Someone must lead and 
right now, the United States cannot lead alone.
    Cooperation comes a step at a time. There must be some confidence 
and trust-building. A project or projects will need to be agreed upon 
and the host country must be a party to all agreements.
    There are several opportunities for the United States and China to 
cooperate economically in support of both mutual and continental 
benefit. For example, economic cooperation in South Sudan is to the 
advantage of both the United States and China. A peaceful and developed 
South Sudan clearly benefits the interests of China, which has made 
enormous investments into the oil sector, and would build up a pocket 
of political stability in an otherwise very tough neighborhood for the 
United States. The United States and China both have interests in 
promoting stability in the Horn of Africa. Consistent supply lines and 
agriculture development is important to both nations, and the Horn of 
Africa could be one of several future global breadbaskets providing 
Africa with increased economic power and a better quality-of-life.
    Closer cooperation between China and the United States is not 
something to be feared, but welcomed, by Africa. Such cooperation would 
bring about greater stability in reality and perception, and would lead 
to the opening of new markets and a faster influx of new investment 
into Africa. The sign of two great nations cooperating in and with 
Africa would be a very positive and welcoming sign of stability and 
promise for new investors.
    Competition is inevitable, but competition does not preclude 
cooperation. Instead, a cooperative effort to build Africa through 
amicable competition and cooperation can lead to improved development 
across the continent, and can lead to far greater understanding for all 
parties. If the United States and China choose to cooperate in their 
efforts in Africa, and always include African leaders and the African 
peoples in the process, they will set the tone for every other nation, 
and point Africa toward a brighter future.
    What we need now is for the leaders in the United States and China 
to find the courage necessary to seek common ground and elevate 
international development among its highest priorities.

    Senator Coons. I would like to thank all three of our 
witnesses. And I will begin a first round of 7-minute 
questions, if I might.
    First, Mr. Hayes, let me just follow up on your concluding 
point. Given the trends shown in the charts and in your 
testimony, all three of you, what specific policy 
recommendations would you make for U.S. Government action that 
would make American business more competitive with regard to 
China, and what are the areas that you see we might really have 
some potential for cooperation?
    Mr. Hayes. I think there are several areas. One is the 
Export-Import Bank. I think it has played a less than stellar 
role in supporting United States business in Africa. I think 
there are attempts to change that, but certainly, legislation 
as well as a cultural change within Ex-Im Bank, I think, is 
required.
    The amount that the Chinese Ex-Im Bank supports its own 
businesses--and China does have a private sector--is 
phenomenally higher by many times than the United States 
support of its businesses. It can make decisions quickly.
    Ex-Im Bank, as is well documented, takes a long time to 
make decisions. It hurts American business. We can give you one 
horror story after another. I won't go into that unless 
pressed.
    I think USAID should shift its development toward the 
private sector and, again, toward developing the private sector 
in Africa. Most of its work is in other areas. I think that it 
could help a great deal in developing the private sector.
    If we can develop a middle class, these countries are going 
to be far more stable. We are going to have more reliable 
business partners. I also think that we ought to be linking 
more with business organizations in Africa.
    In terms of cooperation, certainly China and the United 
States has common interest in seeing South Sudan as a stable 
area. So, certainly, that is one area.
    The second area is those areas where our companies can 
cooperate, where China may be lacking certain areas--we have 
seen General Electric cooperate with Chinese companies in 
Africa. So there are those areas of cooperation, particularly 
on infrastructure.
    The reality is that it is to our advantage to work with 
Chinese companies, as well as others, because they have an 
advantage already, and it is a way of getting more active in 
China and Africa.
    Senator Coons. Thank you.
    Ambassador Shinn, you mentioned in your testimony that 
African states under pressure from the United States and from 
the West to improve their governance practices or their human 
rights record are less likely to do so when they know they can 
rely on China for support, and you cited, I think, Zimbabwe and 
Sudan, among others.
    Has China's economically driven aid policy undermined 
United States policy goals in terms of promoting democracy and 
human rights and good governance? And is there any evidence 
that China's increased investment in political engagement may 
empower or entrench undemocratic or repressive regimes, first?
    And then, second, what do you see as the long-term benefit 
broadly for the average African of the increased Chinese 
investment engagement in Africa? Has it succeeded in fighting 
poverty? What is its impact on the ground?
    And then, Dr. Brautigam, if you would address those same 
two questions, please?
    Ambassador Shinn. I think the short answer to your 
question, Senator, is that, yes, Chinese involvement in Africa 
has, to some degree, undermined Western goals generally of 
trying to improve democratization, good governance, and human 
rights.
    I don't think that was the intention of Chinese policy. It 
is just that they have a different philosophical approach to 
dealing with countries around the world than does the United 
States.
    And having said that, there are sometimes inconsistencies 
with U.S. policies. I could identify a couple of African 
countries that are very autocratic, while the United States has 
not done much in order to try to improve the human rights 
situation.
    But in terms of Chinese policy, it is across the board. It 
is a policy of aid without political conditions, investment 
without political conditions, other than the One China 
Principle, and that is just not the way the United States 
approaches the situation.
    The two major examples are those that I cited earlier, 
Zimbabwe and Sudan. There are others that don't stand out quite 
as much as those two countries. But even a country like 
Ethiopia, for example, where the United States has very good 
relations, on the one hand would like at the same time to see 
better human rights practices.
    And because Ethiopia has a very strong relationship with 
China, it is fairly easy for Ethiopia to say, wait a minute, we 
know where we can get additional help if we need it. Of course, 
the United States also has other concerns in Ethiopia in terms 
of its policy. But it does certainly complicate the ability of 
the United States to pursue an improvement in human rights 
policies and practices and good governance.
    In terms of China's investment in the continent and its 
impact on the long term, I think I would have to basically give 
them a positive response to that. They have, indeed, gone 
heavily into infrastructure, but they have done that because 
that is precisely what the Africans have requested.
    The Africans were requesting an improvement in 
infrastructure at a time when the West had basically opted out. 
Angola is a classic example. Following the civil war in Angola 
at the beginning of this century, when it came to an end, the 
Angolans wanted the West to come in, invest a lot of money, 
rebuild their infrastructure. And the West essentially said, 
no, we are really not that interested.
    They went to China, and China said it would be more than 
happy to do it. Of course, China expected Angola to pay back 
these loans by sending oil to China. And by the way, China said 
it has some really good Chinese companies that will build all 
of these projects for you, and it even has a component of 
Chinese labor that will come and help to construct the 
projects.
    So it was certainly a good deal for China, but China was 
the only country that was offering to do this sort of thing. 
And in the final analysis, if the African countries don't have 
much improved infrastructure, they are never going to improve 
their economies. They cannot continue at the level that they 
were at, say, 10 years ago in terms of infrastructure.
    In that sense, China has done them a favor. I think across 
the board, the effort that China has done to invest on the 
continent, with some exceptions, has generally been a plus.
    Senator Coons. Dr. Brautigam.
    And I am about out of time for my first round. So what 
impact has it had on the United States sort of values agenda to 
have an expansive Chinese presence on the continent?
    Dr. Brautigam. Thank you.
    I just did a paper on this recently, and I actually looked 
empirically at this. And there is no evidence across the 
continent that political rights and freedoms have declined in 
general between 2000 and the present. And in countries where 
Chinese engagement is larger, there is also no evidence that 
there has been any systematic impact on human rights or 
political liberties and freedoms.
    So we have an impression that there has been a negative 
impact, and I think it largely comes from the case of Sudan and 
Zimbabwe, where the impact has been negative. But by and large, 
I don't think we see that it has been negative across the 
continent.
    And we can see this with examples that are quite recent. In 
Sudan, when the countries negotiated a breakup and they had a 
referendum to enshrine that in law, the Chinese sent referendum 
monitors rather than trying to fight to keep the two parts of 
Sudan together.
    We can see this in Guinea, where there was a coup and 
people thought that the Chinese presence there was going to 
make it so that they wouldn't have a new election to bring in a 
new government. And that didn't happen. So they had an 
election, the most free election they have had in their 
history--although it wasn't perfect.
    So we can see this in Zambia, where the leader that was 
quite heavily favored by the Chinese did not win the election, 
and they have moved smoothly into a relationship with someone 
that was quite opposed to their presence. So I think, by and 
large, they are moving in a less negative direction than we 
usually think.
    In terms of impact, I would add to what Professor Shinn 
said that I see a lot of interest in manufacturing investment 
and a lot of people being employed by Chinese companies. This 
is, again, counter to the conventional wisdom that they don't 
hire Africans.
    The longer a Chinese company is present in Africa, the more 
the proportion of labor they hire tends to be African, and this 
makes economic sense for them. And so, what we can find is that 
the problem is not that they do not hire local people, but 
treating them well. And they do not generally treat them at the 
level an American company would. Labor standards, protection 
and safety standards, all of these are generally abysmal by our 
standards, and they are roughly at the level that they are in 
China.
    Senator Coons. Thank you very much, Doctor.
    Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    I think Ambassador Shinn's last comments regarding China 
making the investment and infrastructure and the West backing 
away from a lot of that points me to what Stephen Hayes said, 
which I have observed. We need to do a better job as a 
government of facilitating United States competitive business 
investing in Africa.
    China and business--the line between business with China 
and China's businesses are kind of blurred, but they are quite 
clear in the United States. And I know I have been to 
Equatorial Guinea, where Marathon built the gas liquification 
facility, which really has transformed economic development in 
that country.
    What kind of things do we need to do, from your 
perspective, Mr. Hayes, to more facilitate United States 
business investment from our government's standpoint in Africa?
    Mr. Hayes. In addition to what I already said in response 
to Senator Coons is I also think that we need a far stronger 
commercial presence among our embassies and our government on 
Africa. We are cutting back our commercial offices now, at 
exactly the wrong time. We are actually diminishing our 
presence on Africa and our commercial offices.
    Second, as I mentioned in my paper, the written testimony, 
I think at least Johnnie Carson should be praised by putting 
more emphasis on economic knowledge by ambassadors because we 
are beyond traditional diplomacy. If we are going to be able to 
compete and strengthen our own political interest in Africa, 
our embassies here are going to have to be far more attuned to 
economic realities.
    So I think that there needs to be far greater emphasis on 
that. Those are two things that I think could be done right 
away.
    Senator Isakson. In other words, do a better job through 
our embassies and our ambassadors of promoting U.S. investment 
by private sector companies.
    Mr. Hayes. Certainly that and certainly a greater support 
of the private sector nationally. We need national leadership 
to tell the American people why Africa is important. I don't 
think that has been explained.
    Senator Isakson. Very good.
    Dr. Brautigam, I want you to--you were talking so quickly. 
I can't write as fast as you were talking, and you made a great 
statement about realism versus alarmism with regard to China 
and America's perspective. And I think what I heard you say is 
we should be realistic to understand China is a lot like 
Africa. It is still a developing country. Did I hear that 
right?
    Dr. Brautigam. Yes.
    Senator Isakson. And so, we should not be alarmed by what 
they are trying to do. Tell me what the alarmism part was.
    Dr. Brautigam. Thank you for your question.
    The alarmism--the realism is that China's rise in Africa 
needs to be seen in context, that it is a far smaller player 
than the West. Although some dimensions of engagement, such as 
investment or trade, can be quite large compared to any one 
Western country,
by and large, China's engagement is far smaller than the West 
combined.
    And they have a lot in common with other rising economic 
powers. So I think it is unhelpful sometimes to single them out 
as ``the Chinese have low labor standards'' or ``the Chinese 
have a lot of corruption.'' This is true in general of India, 
Brazil, and the other emerging market players that are also 
operating in Africa and also a challenge to us.
    So this is a common set of problems, and I think it is 
helpful to address them in common. I think this would be 
helpful for our diplomacy as well.
    Senator Isakson. Both you and Ambassador Shinn referred to 
China vis-a-vis the Sudan, and I don't know which one of you 
said it. One of you said that Sudan is a real option for China. 
Whoever said that, would you amplify on that?
    Ambassador Shinn. Sure, I would be happy to, Senator.
    I think that you have a situation in Sudan today, both 
North Sudan, the Khartoum Government, and South Sudan, or the 
Juba Government, where both of these regimes, if they don't 
make a lot of changes for the positive soon, are on track for 
becoming failed states. That is often said about North Sudan, 
which is the case. It is not often said about South Sudan.
    Neither country wants that to happen, and neither China nor 
the United States wants that to happen. There is a mutual 
interest in both China and the United States to see the 
comprehensive peace agreement achieve success, to ensure that 
there is a good relationship between the north and the south.
    All of the oil infrastructure for exporting and refining 
oil is located in the north. Seventy-five percent of the oil is 
now in the south, and probably most new finds of oil are in the 
south.
    For the time being, the south has no option other than 
sending that oil out through the north and using northern 
refineries. Therefore, they are still basically joined at the 
hip, and they cannot allow--and China and the United States 
cannot allow them to let this situation break down into some 
sort of conflict again.
    I think it is an ideal situation for the two countries and 
others, not just China and the United States, to try to work 
with both Juba and Khartoum to ensure that the CPA works. In a 
sense, you could argue that China has even greater interest 
here than the United States does because China built and owns 
much of the oil infrastructure in the northern part of Sudan.
    Senator Isakson. Well, you have made a critical point. The 
CPA is critical in the short-term interest of the United 
States, and I am glad to hear your observation about China as 
well, making sure the comprehensive peace agreement works and 
these countries don't separate.
    Not only is it critical on the oil infrastructure, but they 
border close to proximity to Kenya and Somalia. And you just 
have an expansion of what is already a bad situation in Somalia 
and in Northern Kenya, and it could blow up like a powder keg 
if you got back in a civil war situation again.
    Do you know if our Embassy and our State Department are 
doing enough to reach out to the Chinese to try and partner in 
ways to keep the CPA together?
    Ambassador Shinn. I don't know, Senator. I am not in 
Government now. So I am not privy to that kind of information.
    I have no doubt that there are contacts. I have visited 
Khartoum in the last 5 years, met with both the Chinese and the 
American Embassies. At that time, there was some contact. It 
was not as great as I would have liked to have seen, but that 
was a number of years ago.
    Mr. Hayes. Just to add to that because it is germane. 
Princeton Lyman, our emissary, has been to China to discuss 
Sudan, recently. In fact, I talked to him while he was in China 
on South Sudan.
    Senator Isakson. This is one of the great points to come 
from this hearing. I think it would be incumbent on Senator 
Coons and myself to engage Princeton or the State Department at 
a meeting to make sure we are following up on this because I 
think it is a very cogent point.
    Thank you all for your testimony.
    Senator Coons. Thank you, Senator Isakson.
    Senator Cardin.
    Senator Cardin. Well, first, Mr. Chairman, thank you very 
much for holding this hearing.
    I think this is an extremely important area for us to 
explore. Obviously, we need to do a better job ourselves in our 
relationships with Africa on trade. I am proud of my own State 
of Maryland,
that we have established an African trade office with the help, 
by
the way, of the Federal Government and the Small Business 
Administration.
    We have natural ties between many of the countries in 
Africa and the business community, particularly in the 
Washington suburban areas. And we have built on that and have 
built relationships that I think will be very beneficial for 
business growth here in America but also will help develop the 
African economy, which is so critically important for stability 
and for a market for United States goods.
    I think that is the most important thing we can do is 
enhance our own relationship with the continent of Africa.
    I want to ask a question, though, of concern to me about 
China and Africa. China is interested in their own goals and 
has very little concern about the governance issues in the 
countries that they deal with, at least that is the impressions 
that I have.
    When we deal with particularly foreign assistance, we deal 
with issues such as conditionality, making sure that women's 
rights are protected, dealing with transparency. And with 
Senator Lugar, we worked on the extractive industries 
transparency, which is a big issue with dealing with the 
resource not being a curse, but an advantage to a country. And 
Africa certainly is a continent that is very much involved in 
those issues. We deal with anticorruption issues.
    And I guess my question to you is, Is there an indication 
that China's participation in Africa has been a negative 
influence on those issues, such as advancement of women's 
rights, transparency, anticorruption, those types of issues? 
Have we seen any indication that China's involvement offers an 
avenue for some of the repressive regimes to get the type of 
commerce they need without having to deal with the 
conditionality of Western powers?
    Ambassador Shinn. Senator, I would be happy to respond to 
that. I addressed--it might have been just before you arrived--
the connection between human rights and democratization and the 
Chinese impact. My take on it is that although not 
intentionally, it does have a negative influence on the 
American desire to see better human rights practices on the 
continent.
    If you take specifically, however, women's rights and 
corruption--in fact, if you break this down into various 
topics--it becomes a more nuanced situation. I don't see any 
negative impact in Africa of China's activities on women's 
rights, for example. If it is there, I just haven't observed 
it.
    Corruption traditionally has been a problem. I also see 
some changes in how China deals with corruption. I think, 
increasingly, China is finding that that is not the best way to 
do business around the world and that it is costing them, too. 
And I see a willingness to rethink the whole concept of 
engaging in corruption.
    So China is not there yet, but at least I think the trend 
is in the right direction. I think you have to break these all 
down into their individual issues, and there will be some areas 
where Chinese influence is not helpful. There will be others 
where it is essentially neutral and even a couple where it 
might be helpful.
    Corporate social responsibility is one where China is 
beginning to show an interest in improving its policies in 
Africa and around the world, as it is doing in China. I think 
that is a potential cooperative area with the United States, 
where we have a much better record on corporate social 
responsibility. I think China is willing to be more helpful on 
that issue.
    Senator Cardin. Do you see any indication that China is 
importing technology into Africa that could be used to repress 
human rights advances, such as cell phone jamming or Internet 
access or that type of technology, which China certainly has 
used in its own country? Is that being exported to Africa by 
repressive regimes?
    Ambassador Shinn. There is some indication of that. It 
definitely occurred in Zimbabwe a number of years ago. Even in 
Ethiopia, where China has been deeply involved in the 
communications sector, Ethiopia has a very restrictive policy 
on the handling of the Internet. It is a government-controlled 
Internet.
    At least until very recently, in fact, when I was in Addis 
Ababa in July of last year, I tried to access my own blog at 
the Hilton Hotel, and I couldn't access it. I asked some of my 
Ethiopian friends, ``What's going on here? I can't even get to 
my own blog.'' They just laughed, and said, ``Oh, you didn't 
know that anything on blogspot is blocked in Ethiopia?'' That 
is thanks to the technical assistance of the Chinese.
    In the last several months, the counts on my blog suggest
that Ethiopians are now accessing it. Something apparently has 
changed. But there has been some evidence of Chinese assisting 
certain governments in restricting information flow.
    Senator Cardin. Do you have any suggestions how the 
international community could try to counter those types of 
activities?
    Ambassador Shinn. There probably are some technical ways to 
do it. I am just not knowledgeable about it. The only other way 
to approach it is simply continuing to raise these issues with 
China and with the African governments.
    In the first instance, this is a problem for the African 
Governments because they are the ones that are authorizing 
these restrictive practices. I am sure we do have these talks 
with the Africans. I don't know whether we are having the 
discussions with the Chinese.
    Senator Cardin. And of course, it also says that we should 
be more aggressive in Africa. If we had more ties and there 
were more avenues for us to be able to exercise our influence, 
then we could have a better way of dealing with the type of 
relationships with China that are counterproductive with good 
governance.
    Ambassador Shinn. I would certainly agree that we should be 
more aggressive in Africa, but not to the point where we are 
pushy. I think there is a fine line that one has to draw 
between being aggressive on policy and overstepping those 
bounds and looking like we are trying to boss everyone around.
    Senator Cardin. I agree with that, but we have had many 
hearings on this. But the United States, particularly in the 
AID programs, has to have a very strong position on 
anticorruption, women's rights, those issues. Because if not, 
then what do we stand for?
    Ambassador Shinn. I would agree.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    Senator Coons. Thank you, Senator Cardin.
    Senator Lugar.
    Senator Lugar. Well, thank you very much, Mr. Chairman.
    I thank you and Senator Isakson again for bringing about 
this hearing with three great witnesses. I think it is so 
important in terms of what you have pointed out subtly to all 
of us, which is that the degree of knowledge on the part of the 
Congress and our constituents about Africa certainly needs 
great improvement.
    And the extent to which we have improvement with investment 
in Africa on the part of American businesses will largely come 
about because of support among the American business community 
for making the investments and taking the prudent risks, in 
addition to informed support from their stockholders and their 
constituencies. Transparency is important because people will 
say, ``Why Africa? Why that market?''
    And the fact is that we perhaps, as a nation, have not been 
as attentive or as competitive as we might be because we don't 
know a great deal about Africa. The basic facts of life about 
the 54 countries and much of the information you have given us 
today will be news to many people and, hopefully, will be 
conveyed by the media.
    What I am hearing, however, and this oversimplifies, but we 
do have, as Senator Cardin was pointing out, very strong ideas, 
and they are good ones, about human rights and that we tend to 
approach foreign policy with these ideas in mind, and we 
should. Now contrast that with the Chinese, who have a very 
business-
like attitude. That their priority and continuity across the 
region hinges upon having energy resources in particular at 
this stage for their growth and the continued improvement of 
their material conditions.
    Likewise, increasingly, we have reports about the amount of 
farming, agriculture and food literally coming out of Africa to 
feed the people of China. In other words, there are existential 
problems in China with regard to the continuity of their nation 
state. So, as a result, the Chinese may or may not care for any 
of the governments there, but these are the people with whom 
they do business.
    Now we look at many of Africa's governments and we find 
corruption, lack of democracy, and what have you. Our tendency 
is to want to fix it, to try to move people and other resources 
around in response to the governance challenges, and remain 
much less attentive maybe to the business aspects of our 
bilateral relationships in Africa. I am not suggesting we 
follow the Chinese model, but currently the United States and 
China are carrying out two different policies on the same 
continent. And we should not be surprised, I think, at the 
testimony that you are giving.
    What I am curious about down the trail, however, is, are 
there reasonable estimates as to how much oil and natural gas 
are in reserve in Africa? This is a great problem always asked 
around the world. And again and again, the time of reckoning is 
pushed back to a later date because more is found.
    But I am curious literally as to what happens at the end of 
the trail when these resources diminish and become more dear, 
they are more expensive to whoever is going after them. Or as a 
matter of fact, in some African countries where they--if they 
are sufficiently developed--might have used some of these 
resources themselves, and this is no longer an option given 
inadequate technology or the premium on export.
    Likewise, with agriculture, it would appear that we have 
been inhibited--that is, the United States--by European ideas 
on genetically modified seed, and therefore African countries 
still have very low production rates. Whatever the Chinese are 
taking out and whatever method they use notwithstanding, the 
fact is that Africans are going to find it increasingly 
difficult to feed themselves, quite apart from exporting to 
China.
    Just from the standpoint of Africa, what are the mineral 
resources in reserve? Are they boundless? Does it depend upon 
the degree of development by a country, or how would you 
predict the future of these markets, however the United States 
or China approach them?
    Dr. Brautigam. I will address part of that. I don't have 
data on the depth of resources in Africa, and I am not sure 
anyone does. What we do see is that as prices go up, more 
resources are found. And that has been the case for a long, 
long time.
    And so, now we are finding all over West Africa and along 
the coast there, countries that never thought they had oil 
resources have suddenly found them. And of course, our 
companies are very active in that, and Chinese companies are 
trying to break into that without so far very much success.
    I want to say something about agriculture. There is an idea 
that the Chinese are out there leading the land grab in Africa. 
It is one of the areas that I have been looking at at the 
International Food Policy Research Institute, where I am now.
    And what we are finding is that there is actually no 
evidence of very large Chinese engagement in Africa to grow 
food to ship back to China at all. It doesn't exist, with the 
small exception of sesame seeds, which is not a vital resource.
    There is some Chinese investment in agriculture for local 
consumption. In Zambia, there are some 25 Chinese farms that 
all produce for the Zambian market, but they are not yet doing 
speculative land investments. What we see is American and 
European firms that are active in land speculation.
    And for investment in agriculture for feeding people at 
home, it is the Gulf States in the Arab world that are doing 
that and India, but not so far China.
    So one other point about our different concerns about 
governance, and that is I think, as has come up in this hearing 
earlier, we both care about stability. That is very important. 
China's principles here are more consistent than ours are. And 
what China and many of its friends in Africa see is that the 
United States and Europe are engaging with China, and China is 
stable, but does not have a very good human rights record. And 
yet we are all there, investing and trading quite actively.
    And China seems to be--the Chinese people seem to be doing 
better. They are becoming more prosperous. And so, that is 
something that is important for framing this conversation as 
well.
    A small anecdote about Chinese engagement and governance. 
In Sierra Leone after the war, there was an election, and the 
presiding government lost. But they didn't want to give up 
power, for various reasons.
    And a group of ambassadors went to talk to them, to the 
President, to say you have got to step down and let your 
opponent come in. And amongst that group of ambassadors was the 
Chinese Ambassador.
    So I think this kind of engagement at the ambassadorial 
level is something we need to do a lot more of, and we are not 
doing enough of this in most of the countries that I am 
familiar with.
    Thank you.
    Mr. Hayes. I think, Senator, you are absolutely right in 
terms of the GMO issue. I think that is one of the really 
important issues that needs to be addressed, and the United 
States needs to press that more.
    I also think that China is open to that. So there may be 
another area where China-United States could cooperate in 
breaking what I think is essentially a European blockade of 
American agriculture. I don't think there are many United 
States ag companies in Africa. I think that is a major problem. 
I also think it is a major opportunity for U.S. business.
    I think there is enormous opportunity for agriculture and 
the United States, especially. We are still the leaders in the 
world in that area.
    Senator Lugar. And it will be an opportunity for Africans 
to have more food, likewise----
    Mr. Hayes. Absolutely right.
    Senator Lugar. I thank you very much.
    Ambassador Shinn. Senator, if I could just speak to the oil 
question? Ten percent of the world's oil reserves, known oil 
reserves, are in Africa. The experts think that as we look to 
the future, the continent that is going to come up with the 
largest percentage of new finds will be Africa because it has 
been relatively underexplored so far.
    The experts also say that China's percent of oil imports is 
going to continue to grow at a significant rate. Now that may 
be because of increased demand. It may also be due to declining 
domestic production or a combination of both.
    But those two trends suggest that the China-Africa oil link 
is going to become increasingly important in the years ahead.
    Mr. Hayes. We are counting on 25 percent of our oil needs 
to be met by Africa by 2020. I think there is going to be an 
increasing and competitive environment, although, yes, there is 
more oil being discovered.
    Senator Coons. Thank you, Senator Lugar.
    Senator Durbin.
    Senator Durbin. Thank you, Mr. Chairman.
    Last year I went to Ethiopia with Senator Sherrod Brown and 
met with Prime Minister Meles. We had a 30-minute meeting. And 
25 minutes into the meeting, I asked Prime Minister Meles, 
``Oh, incidentally, what is the story about the presence of 
China in Ethiopia?'' The meeting went on for 35 more minutes.
    And basically, his message was pretty straightforward. ``We 
think the United States has given up on Africa. China hasn't. 
China is investing in Africa in a way that nobody has ever seen 
before, and we have noticed it,'' he says, ``in terms of the 
Chinese and their interest in our energy, our raw materials, 
our cheap labor, an opportunity for a growing middle class to 
buy their products.''
    And he said they come in with concessional loans many 
times, saying we will give you $100 million, just pay back $70 
million for whatever the project is, so long as there are 
Chinese engineers, Chinese contractors, and half the workers 
are Chinese. And so, there is a pretty substantial presence of 
Chinese in Ethiopia and many other African countries. So they 
clearly have a plan, and they are executing it.
    One European Foreign Minister told me, as I described this 
to him, he says, and there is one other factor you have missed. 
They will do business with anybody. The rules are very relaxed, 
as long as it meets their economic needs.
    So what I put together here is a bill that Senator Coons 
has joined me on to talk about how we can improve our exports 
to Africa and our business in Africa and investments in Africa 
and try to coordinate this melange of agencies that we have 
that don't seem to work as well together as they should.
    But as I listen to this hearing, I think the most 
significant thing that has come out of the hearing goes beyond 
what I have just said. And it started with Senator Coons's 
presentation with this chart behind me, which really tells a 
big story here about the fact that we are spending a 
significant amount of money in Africa for different things than 
the Chinese.
    They are investing in infrastructure and building potential 
for economic growth. We are investing in people and health 
care.
    So I asked my staff to take a look at the Global Fund. Most 
of us know the Global Fund. That is a group of nations around 
the world trying to find ways to alleviate human suffering from 
AIDS and malaria and tuberculosis all around the world.
    In recent years, the United States has given $1 billion 
annually to the Global Fund. We are one of the largest donors. 
China, between 2003 and 2011, received $550 million from the 
Global Fund in grants. Another $200 million is pending. China's 
Global Fund contributions over recent years equaled $16 
million, our contribution $5.5 billion.
    So we are clearly putting money into Africa, and we have 
decided that we want to focus at least part of our commitment 
to Africa into alleviating human suffering and death. Zambia 
has been talked about a lot here. There is an interesting 
article in my notes given me about the recent election. And it 
became a backlash against the Chinese economic presence in 
Zambia.
    And the Chinese Ambassador to Zambia ridiculed the writer, 
saying, ``You send election judges. We build hospitals and 
roads in Zambia.''
    It turns out we spend $400 million a year in Zambia keeping 
300,000 Zambians alive with antiretroviral drugs. So we are 
spending money there in different ways, and I guess virtue is 
going to have to be its own reward.
    The last point I want to make before opening it up to your 
thoughts on this, every time you say ``OECD,'' I kind of do the 
shorthand, which says no bribery. I think what you are 
suggesting is that if we could get China to play by some rules 
that we think we are playing by, we might have a better 
competitive situation with them. And if they are not going to 
play by those rules, we may not have as good a chance.
    So how do you overcome this? We are not just strictly 
mercantile here. We are trying to alleviate human suffering and 
play by some rules on corruption and human rights. Do we have 
our hands tied behind our back, Ambassador Shinn?
    Ambassador Shinn. Senator, you mentioned your meeting with 
Prime Minister Meles--I have had similar conversations with him 
as recently as several years ago.
    Ethiopia is one of the major recipients of the Global Fund. 
It is also one of the major recipients of bilateral HIV/AIDS 
support from the U.S. Government. The problem is that HIV/AIDS 
money and emergency food aid probably accounts for two-thirds 
of all American assistance to Africa today. It is taken for 
granted by the Africans. We just don't get the credit for it 
that we deserve, quite frankly.
    The Chinese go in with a loan that has to be paid back, 
albeit it is concessionary financing, build a road or a dam or 
a bridge. All of a sudden, it becomes the Chinese road or the 
Chinese dam or the Chinese bridge, and everyone in the vicinity 
knows about it. So China gets all sorts of credit for that. It 
is very smart on China's part to do that.
    It puts us in a very difficult position because we are 
simply not getting the credit that we rightly deserve, even 
from someone as sophisticated as Prime Minister Meles. He knows 
the numbers. He knows them better than anyone in this room.
    But I don't know how you deal with that issue. It may just 
be the nature of the beast.
    I would like to make a pitch for one organization, though, 
that hasn't yet been mentioned in terms of what the U.S. 
Government can do, and that is support for the Overseas Private 
Investment Corporation. It is very small organization. I used 
to deal with it when I was Ambassador, and I found it to be an 
effective organization in what it did. But it is very small.
    Senator Durbin. Mr. Hayes, you said we should be shifting 
USAID toward the private sector. That seems to say to me spend 
less on health care, spend less on educating young women, more 
on establishing mercantile, business relationships.
    Mr. Hayes. Well, I think that we have got to look at a 
greater balance certainly in aid and how we use that, and also 
there are other ways beyond simply money, in terms of training, 
capacity-building, and so forth. So I think, yes, I do say that 
we need to put more emphasis on building a middle class because 
then I think
it makes the other money that we are spending less needed 
ultimately.
    Senator Durbin. These are Faustian choices, 300,000 people 
living----
    Mr. Hayes. Indeed, they are.
    Senator Durbin [continuing]. With HIV retroviral drugs who 
would be, some of them, cut off in the name of establishing a 
better business relationship.
    Mr. Hayes. I am not convinced that it is an either/or 
choice. I think that----
    Senator Durbin. With this budget, it is.
    Mr. Hayes. I think the issues of commercial offices, 
stronger commercial presence. For God's sake, send the 
Secretary of Commerce to Africa once every 10 years.
    Senator Durbin. We now have one.
    Mr. Hayes. It has been 10 years since the last Secretary of 
Commerce visited. There are other ways to develop those ties. 
I----
    Senator Durbin. I am sorry.
    Mr. Hayes. Go ahead.
    Senator Durbin. Dr. Brautigam, I want to give you one last 
word, if you would like?
    Dr. Brautigam. I think, ultimately, Africans are going to 
have to pay for their own health care in the long term. And how 
are they going to have the foundation to do that? They are 
going to have to build up their business sectors. They are 
going to have to be able to tax, and they are going to have to 
be able to get the revenues.
    And I think the Chinese approach--looking at the 
infrastructure, looking at business engagement--is moving 
toward that kind of future. Whereas our approach, which is 
laudable in many ways, the amount of money that we are putting 
into health care in Africa, we are keeping a lot more people 
alive, but we aren't doing much about providing jobs for them.
    Senator Coons. Thank you, Senator Durbin.
    Our last questions today will come from Senator Udall.
    Senator Udall. Thank you, Chairman Coons, and thank you 
both for holding this important hearing.
    I wanted to focus a little bit on--and I think it was very 
important we got into the human rights issues and corruption 
and all the issues that Senator Durbin just raised. I wanted to 
focus a little bit on environmental issues.
    You mentioned, Profession Shinn, in your testimony that 
China has four hard interests in Africa. And you mentioned as 
one of those--on one of the four--energy, minerals, timber, and 
agriculture products. And obviously, if you are talking about--
we would like to see, I would assume our policy is sustainable 
economic development.
    That we do these things--you can develop energy and 
minerals and timber and agriculture in such a way that you do 
it sustainably. That you do it where you don't harm the 
environment, where--you mentioned dams, you build dams in such 
a way that you don't dislocate local people.
    I know there is a dam that has been mentioned here recently 
in the news that the Chinese are funding, where 300,000 Kenyans 
would be deprived of their water needed for agriculture, cattle 
herding, and fishing.
    And so, the real--my question is looking at how Western 
countries, and mainly the Western developed countries, 
participate in Africa and how their practices compare with the 
Chinese and what you see there. What are the things that we can 
do about if there is a disparity and they are not practicing 
sustainable practices, then what can we do to try to encourage 
them to do so?
    And the other witnesses also may have comments on this. So, 
please, why don't you lead off?
    Ambassador Shinn. Thank you, Senator. That is an 
interesting question, and it is also a very timely one.
    If you were to go back 5 or 6 years and look at Chinese 
projects in Africa and the environmental consequences of those 
projects, you would have a fair amount to criticize. There was, 
for example, a plan to develop iron ore in Gabon. The problem 
was that in order to do so, China would have to rip up a local 
game park in order to implement that project.
    There was so much opposition from both local environmental 
groups and international environmental groups that the whole 
thing was scrubbed, and it is being revisited in terms of how 
the project moves forward.
    China does not have a great record, obviously, on 
environmental issues. Western projects, I think, across the 
board must have environmental impact assessments. It is 
certainly true in the case of American projects and, I think, 
most Western governments. That has traditionally not been the 
case with many of the Chinese projects.
    But, and this is a good news story. I think you are 
starting to see a change in the Chinese approach to how they 
deal environmentally not only with their projects overseas, but 
what is happening in China. I think the Three Gorges Dam has 
been a real wakeup call for them. They are now seeing some very 
negative environmental impacts from the construction of that 
project, and it is causing them to rethink how they deal with 
the environment in China. That is impacting how they deal with 
projects outside of China.
    You are hearing more and more about Chinese actually 
employing outside Western companies to do environmental impact 
statements for their projects, and that, I think, would have 
been unheard of 5 or 6 years ago.
    Senator Udall. You see that as a real improvement for them, 
weighing in on these issues of how you balance sustainability 
and still get what you need for your country?
    Ambassador Shinn. I do see it as an improvement, but China 
is still well behind Western countries and getting to the point 
where it needs to be. But the trend is in the right direction.
    Senator Udall. And is there more that we can do to 
encourage them to do this kind of thing?
    Ambassador Shinn. I don't have any ideas other than having 
these conversations at senior levels with appropriate Chinese 
officials and also with the African officials who are signing 
these agreements with China. They need to understand that there 
has to be an environmental impact statement and assessment 
before you go ahead with a project.
    And I think that is what is happening with this Gibe III 
Dam project in Ethiopia that impacts Lake Turkana in Kenya. I 
think that is the project you were referring to.
    Senator Udall. That is the one I was referring to.
    Ambassador Shinn. Gibe III has raised a firestorm of 
difficulties among the Kenyans and even among some Ethiopians 
who would be displaced as a result of construction of the dam.
    On the other hand, the region desperately needs more 
hydropower. So there have to be some offsets there. But better 
environmental studies are clearly needed by the African 
countries and in terms of the Chinese who are doing a lot of 
these projects.
    Senator Udall. Dr. Brautigam.
    Dr. Brautigam. I would agree with Ambassador Shinn's 
assessment of the changes that we have seen happening with 
Chinese financiers. They are very interested in corporate 
social responsibility as a concept. Adopting these kinds of 
practices is still going to take quite a while, though. It took 
us a while to get there.
    I was young when the World Bank was the big problem actor 
in this regard, funding these kinds of projects overseas. And 
eventually, they changed. And the Chinese will probably change 
in the future, and we can see signs of that already.
    But the way this change happens is in part through pressure 
from outside, and it comes from a lot of different players--
from the U.S. Treasury Department, from civil society, and from 
informed analysis. But I think the pressure is not coming from 
African governments.
    And the Chinese standards, surprisingly, for environmental 
assessment are higher in China than they are in most parts of 
Africa. And so, that is part of the challenge now that we have 
a new actor here. Whose standards will prevail?
    But we can see this change amongst the Chinese in other 
areas as well. Few people realize this, but the Chinese have 
actually made overseas bribery into a crime in China. So that 
was never the case before. This just happened very recently. It 
is part of their responsibilities under their signing of the 
U.N. convention against corruption.
    They don't yet have good enforcement for that, and it is 
very new. And we know a lot of our partners in Europe aren't 
enforcing this very well, either. But this is a change, and 
these are the kinds of things that we can see signs of. And it 
is up to us to know about those and then to encourage them.
    Senator Udall. Great. Mr. Hayes, do you have any thoughts 
on this or----
    Mr. Hayes. Well, I have thoughts, but it is not too 
different from what you have already heard from the two 
witnesses. I think our diplomacy, particularly with the African 
Governments in this case, needs to be strengthened.
    Senator Udall. The one thing I would note and then turn my 
time back here is that apparently--and Dr. Shinn, correct me if 
I am wrong. But I think China ignored the EIS from the World 
Bank in the Gibe III case, having to do with the dam? Is that 
correct that there was an EIS? It was done by the World Bank 
and that they just went ahead. I don't know if they have made 
adjustments.
    Ambassador Shinn. I don't know the answer to that, whether 
they did or not.
    Senator Udall. OK.
    Ambassador Shinn. It would be better not to comment on, as 
I just don't know.
    Senator Udall. OK. OK. Well, as you noted, I mean, this is 
a--I have a report here that says, you know, this Omo River is 
responsible for 90 percent of the water heading into Lake 
Turkana. A major dam blocking the river would drain most of the 
lake, depriving 300,000 Kenyans of the water needed for 
agriculture, cattle herding, fishing, and this Omo River could 
affect--the changes in it that we are talking about, and I 
think that you mentioned, could affect 70 percent or more of an 
important species around the lake. So, you know, that is major 
damage being done by a major part of their effort in terms of 
their loan that they put out there.
    So, thank you, Mr. Chairman. Really appreciate you holding 
this hearing.
    Senator Coons. Thank you, Senator Udall.
    Unfortunately, we have reached 3:30 p.m., and as I shared 
with the panel before we began, we have a briefing to which all 
Senators need to turn now.
    I just want to thank you very much for sharing your 
insights and your expertise on these critically important 
subjects that have significant implications for the economic 
and political future of the United States, of China, and of the 
people of Africa.
    There are so many remaining interesting questions I would 
like to have gotten into about intellectual property 
protection, the role of the other BRIC nations, multilateral 
means for more effectively engaging with China, and ways to 
develop shared standards for everything from labor protections 
to environmental protections, to advancing human rights, and 
then ways to diversify the economic opportunities of Africans 
going forward. But we will have to wait for some future 
opportunity.
    With that, I will conclude today's meeting. I thank the 
witnesses, and we will keep the record open for any Senators to 
submit statements for the record until the close of business 
Thursday, November 3.
    Senator Coons. Thank you very much.
    This hearing is hereby concluded.
    [Whereupon, at 3:30 p.m., the hearing was adjourned.]

                                  
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