Chinese President Xi Jinping, speaking at the Asia-Africa Summit in Jakarta this weekend, has announced a trade initiative to all Least Developed Countries that China enjoys diplomatic relations with. Stating that all such nations would be entitled to duty-free tariff reductions of 97 percent of previous customs rates, he used the summit to promote China as a trade partner to Africa and to push forward the “New Silk Road” and the establishment of the Asian Infrastructure Investment Bank.
A least developed country (LDC) is a United Nations definition of a nation that exhibits the lowest indicators of socio-economic development with the lowest human development index ratings of all the countries in the world. A country is considered a Least Developed Country if it meets three criteria:
- Poverty (adjustable criterion: three-year average GNI per capita of less than US$ 1,190)
- Human resource weakness (based on indicators of nutrition, health, education and literacy)
- Economic vulnerability based on instability of agricultural production, instability of exports of goods and services, economic importance of non-traditional activities, merchandise export concentration, handicap of economic smallness, and the percentage of population displaced by natural disasters.
The majority of LDC’s are based in Africa and Asia. The complete United Nations list can be found here. Of these, Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, Myanmar and Nepal lie directly within China’s geographical sphere of influence. Meanwhile, China’s trade with Africa has been booming – worth some US$ 200 billion in 2014. By comparison, US-Africa trade runs at US$ 85 billion and EU-Africa trade at US$ 113 billion although it should be noted these figures are for the African continent as a whole and not just the LDC’s.
RELATED: The Big Players in ASEAN-Africa Trade
Of the Asian LDC’s on China’s doorstep, several are also members of ASEAN, with which China already has a Free Trade Agreement. We have covered China trade and business cost comparisons on our ASEAN Briefing website, featuring Cambodia here, Laos here and Myanmar here. It is doubtful however if President Xi’s offer at the Asia-Africa Summit will impact much upon these nations as they are all included under the existing ASEAN free trade agreement. This means the bulk of interest in Xi’s offer will come from Africa.
Of the 34 African LDC’s, China trades significantly with Angola, the Democratic Republic of Congo, Equatorial Guinea and Sudan, with Angola, Congo and Sudan all having relatively healthy export trade with China.
Whether Xi’s announcement carries any real weight or advantages to these nations remains to be seen – he did not state whether the reduction on imported tariffs on goods from these countries is expected to be reciprocal. However it is one that China traders in LDC countries should be studying. How well and how far African based China traders are able to access the country remains to be seen, although it should be recognized that China does have a significant historic diaspora across Africa, now being augmented by thousands of Chinese workers being stationed to many of these countries to work on large commercial projects, most of which involve commodity extraction. While many are on work visas on BOT projects, a trade diaspora remains at the heart of each of these countries that can assist in navigating the local African terrain.
Xi’s words then appear to be gracious, yet when stacked up against the billions of dollars being extracted from the LDC’s may not appear as generous as assumed at first sight. Many of the real China deals have involved China’s SOEs and direct G2G negotiations. Most also involve mass Chinese labor being deployed to do the work. Quite how China expects to see the worlds LDC’s really gain access to the mass China market may take rather more than a few words about reducing tariffs. On the other hand, many of these countries will expect to be recipients of investment by China’s proposed Asian Infrastructure Investment Bank. But whether that institution’s remit extends to Africa also remains to be seen.
Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Chris can be followed on Twitter at @CDE_Asia.
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