A Study on Chinese Investment in African and Asean Countries

In November 2011, Human Rights Watch released a report documenting the abuses by Chinese state-owned enterprises (“SOEs”) against local miners in Zambia. A sweeping indictment of their labor practices, the report charges that, among other things, Chinese mine operators routinely coerce Zambian workers to toil in unsafe and unhealthy conditions for long hours at low wages in violation of domestic and international law.

Along with the report, some critical issues have been directed to Chinese enterprises and their stakeholders. There are notably two priority issues. The first one concerns the sustainable management of national resources, with advocates of resources patriotism suggesting that Chinese investors should try to increase added value to local economies rather than grabbing natural resources in an unsustainable way. The second thorny issue is employing local workers. Chinese investors are expected to create jobs for the local economy, however many Chinese companies, prefer using Chinese employees for administrative efficiency, even if it means flying in a Chinese worker with the same  level of qualification. Based on interviews with various Chinese business leaders, Chinese entrepreneurs are concerned with the lack of flexibility of African workers and high standards of labor laws. It seems there is a need for compromise between Chinese investors and local stakeholders.[1]

It is a fact that the expanding Chinese trade presence in North Africa may have induced painful restructuring within some the most vulnerable and employment generating industries in the region. But it is also the case that, in countries like Algeria, the Chinese have built the much needed infrastructure and provided new investment in the manufacturing and services sectors. This latter trend is even more pronounced in Egypt where the establishment of a successful trade and industrial zone has encouraged a rising tide of Chinese SMEs into the economy. Despite some of the difficulties experienced, the employment impact is of significance and should be recognized by host governments for its benefits in alleviating some of the pressures of unemployment.[2]

As indicated above, the employment effect of Chinese investment has always been questioned by the international observers. Therefore, in order to investigate the suspicions from international observers, a survey of the investment of 16 Chinese enterprises in Johannesburg, South Africa, was held to analyze China possible employment effect in South Africa. From the survey, we found these Chinese investments brought many positive things. In terms of employment creation, most surveyed Chinese firms in South Africa not only directly creates jobs for local people, but also bring indirect jobs through their forward and backward linkages. At the same time, the localization rate of labor in Chinese enterprises is high. Therefore, China's investment in South Africa is helpful in alleviating local unskilled and low-skilled labors employment pressure.

In terms of employment quality, the interviewed Chinese firms not only provide many ordinary jobs, but also create some mid-level and high-level jobs. The international suspicion that Africans are always employed in the low-level jobs is not true in South Africa. According to ECCO of the Embassy of the PRC in South Africa, there are clear divisions of labor when Chinese firms invest in Africa. Some critical positions such as general manager and financial managers must be occupied by Chinese people as it matters for firms’ development strategy, and sales personnel are mostly local people because of their knowledge about local market.[3] Therefore, beyond some key positions that might be filled by Chinese ‘expatriate’ staff, Chinese investors should create as many jobs as possible to local competent candidates when they invest in Africa.  Only by doing this can they develop well in the long run provide more jobs for the local people.

In ASEAN, especially in Cambodia and Vietnam, Chinese manufacturing FDI is concentrated on low-skill, labor-intensive manufacturing and tends to be relatively small-scale. Chinese investment in Cambodia mainly targets the labor-intensive garment industry and employees, on average, large numbers of workers. But these average figures are no higher than for comparable foreign-invested firms in the region. Furthermore, the average wages paid by Chinese firms correspond to the average wages paid by other foreign firms in Cambodia, as the survey by Chandararot and Dannet (2009) shows. Although the level of employment is significant, given that the investment goes to more capital-intensive industries, the effects on wages are inconclusive. It follows from these observations that Chinese investment has neutral to positive direct effects on employment and wages in these host economies.

The other direct effect, training, and the indirect effects considered in this study are very limited in the case of Chinese investment. Low-skilled assembly activities do not require specialized training or upgrading of local employees, and learning-on-the-job through the delegation of managerial responsibilities is virtually barred to Cambodian employees, since the majority of senior posts are held by Chinese expatriates. Even though more Vietnamese hold senior posts, there is again no evidence of any systematic training.[4]

In Indonesia, lately China seemed to want to make massive increase in investments here. The newest is the Investment Coordinating Board (BKPM) says it has secured US$16.7 billion in investment commitments from Chinese investors.[5] A new economic relationship will have to be built around Indonesia’s own strategic development agenda, and it must include far better labor relations. The Chinese cannot be blamed for pursuing their own particular development objectives, including access to the raw materials and energy resources needed to sustain China’s industrialization programs. Indonesian trade unions and governments will have to set their own agendas and then negotiate the best possible deals with potential investors, including those from China. In the absence of a more strategic approach by Indonesia’s political leadership, Chinese investments will be of limited benefit to the continent’s development.

In future negotiations for funding with the Chinese, it is important that the Indonesian government demands that a given big proportion of any project’s workforce be sourced locally, and requiring Chinese investment and projects to use more local labor and inputs. In terms of a developmental cooperation, Indonesian governments must strengthen their bargaining position and ensure local processing, instead of allowing the export of raw materials to continue. They must also improve monitoring to ensure that investors do not divert their focus from manufacturing, and that skills and technology transfers actually take place. Instruments like tender requirements, work permits, labor laws, and investment conditions can all be used to achieve some of the desired outcomes. Such local content requirements are common in FDI projects elsewhere, including in China. We are suggesting that the use of local inputs be negotiated rather than be imposed.[6]

The Chinese investment effect in home countries is different between one country and another. China in many country is open a big job opportunity for the home countries through their investment, but the workers’ quality, safety, and security are not become their main focus.

In terms of a developmental cooperation, home countries’ governments must strengthen their bargaining position to make a mutual negotiation for some conditions like Chinese investment and projects to use more local labor and inputs, improve the quality, safety, and security of local workers, and make sure that the skills and technology transfers actually take place in the investment agreement.

[1] Olga Timokhina, Chinese foreign direct investment in Africa in corporate social responsibility context. Working Paper No. 2014/29., Maastrich School of Management.
[2] African Development Bank, Chinese Investments and Employment Creation in Algeria and Egypt, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Brochure%20China%20Anglais.pdf
[3] Huang Meibo and Ren Peiqiang, A Study on the Employment Effect of Chinese Investment in South Africa, Stellenbosch University, Center for Chinese Studies, October 2013.
[4] Julia Kubny and Hinrich Voss, The Impact of Chinese Outward Investment: Evidence from Cambodia and Vietnam, German Development Institute, 2010.
[5] http://www.thejakartapost.com/news/2015/05/18/bkpm-gets-167b-investment-commitments-china.html
[6] African Economic Research Consortium, The Impact of China-Africa Investment Relations: The Case of Mauritius, Policy Brief Issue Number 6 November 2010.