Internationalisation of Chinese Capital and domestic politics in Ethiopia

The internationalisation of Chinese capital is perhaps the single biggest economic story of the past two decades. The value of China’s overseas investment and construction combined is approaching $1.8 trillion. Africa has not remained behind, claiming its fair share of Chinese investment especially through South-South cooperation arrangements. As a result, the impact of Chinese investment in Africa has become one of the most central questions of international political economy. The literature and commentary on this subject is extensive but whether in the media, academia, or the wider political and public domain, it all boils down to one question: Is China good or bad for Africa? My recent book A Post State-Centric Analysis of China-Africa Relations offers more than this binary view of China in Africa. Instead I interrogate how Chinese economic relationships—particularly the role of Chinese capital—is internalised within states in Africa. For good reasons, I settled on Ethiopia as the case study that could bring out the specific in which the internationalisation  of  Chinese  capital  is internalised in Africa, impacting on state-society relations and domestic politics in the region.

Inspired by Peter Gourevitch’s “second  image  reversed” analogy that instead of being a cause of international politics, domestic structure may be a consequence of it, I was motivated to find out what Chinese capital was doing to domestic politics in Ethiopia. In the end, my book makes two broad conclusions. First, the distinctive forms of the internationalisation of Chinese capital are linked to the growth and entrenchment of party-oriented capitalism in Ethiopia. Second, it is also contributing to the informalisation of institutions. Party-oriented capitalism can be defined as an economic system where the (ruling) party, oriented to capital and endowed with  multiple vehicles of investment, both publicly known and unknown, is heavily involved in the major sectors of the economy as a player, enforcer and regulator shaping a politico-economic system in which government and party fuse, duplicating in all major state institutions but with the party overall in command. Chinese capital is distinct by virtue of its institutions being embedded in its social history, practicing  a capitalism underpinned largely by state corporatism.

What came out clearly through my research was that the ideological engagements and synergies between the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) and the Chinese Communist Party (CCP) both form a crucial component of the development of the Chinese variant of neoliberalism in Ethiopia. China has packaged its economic engagement with Ethiopia in a manner that bundles aid, trade and investment, reflecting the interplay between Ethiopian development priorities and Chinese political, economic and foreign policy objectives all of which it strives to achieve through its aid and investment policies in Africa.

Ethiopia has been attracted to the developmental state model that has underpinned China’s economic success. The east African country has adopted the same approach whilst maintaining some elements of distinctiveness. Corporate governance of state owned enterprises is now structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals. There is state monopoly or state dominance in the key sectors of telecommunications, power, banking, insurance, air transport, shipping, and sugar.

As Chinese investment expands in Ethiopia, joint ventures with local firms has become a common feature. My research proved that it is party-linked businesses that are getting much of these opportunities. There are four large umbrella party-owned business-holding endowments in Ethiopia today. The four constitute the heart of the EPRDF conglomerates which also include for-profit entities owned or co-owned by allied regional elites and politically connected associations. A new capitalist class linked to the ruling party apparatus is thus emerging in Ethiopia.

The Ethiopian government had to legitimate this flow of Chinese investment by way of institutional drivers. New modalities of state intervention had to be introduced. One such key institution is the Ethiopian Investment Agency (EIA). The EIA reviews investment transactions for compliance with FDI requirements and restrictions. Along with the Privatization and Public Enterprises Supervising Agency (PPESA), the EIA oversees the process of economic liberalisation and the gradual shift to private ownership. The state now assigns roles to specific institutions thereby devolving some of its functions. In interviews in Addis Ababa, locally owned private companies complained of favourable treatment of the SOEs in the governmental tender process. The creation of the EIA confirms the changing nature of the state as new modalities of this reform agenda work to produce an Ethiopian liberalism that strengthens state institutions.

Just like its CCP counterpart, the EPRDF is carving out a neoliberalism where authoritarian politics and increasing centralisation thrives alongside party capitalism. Under a party-oriented capitalism, the power and influence of the party increases to the extent that this becomes hegemonic. By being at the centre of all economic activity as well as influencing the distribution and allocation of economic benefits, the EPRDF has become so financially strong that opposition forces are unable to put up as robust a political challenge to its rule.

The political repression happening in Ethiopia can no longer be blamed solely on the intrinsic nature of the African state. Rather, due to Chinese capital, it now has international dimensions. This repression benefits both the Ethiopian regime (by suppressing citizens’ rights to exercise dissent) and Chinese capital (investment opportunity in the ‘repression industry’). Chinese companies like Huawei supply the Ethiopian government with software for censorship and surveillance. Ethiopian authorities rely on Chinese technical assistance for tools to monitor their citizens online. By focusing on long-term financing of industrial investment and the building of such spy infrastructure, Chinese investment strengthens the EPRDF in many ways whilst creating business opportunities for itself, including installing and maintaining such infrastructure.

In summary, Chinese capital forms alliances with internal forces in destination countries. When conceptualised, the relationship between the external and the internal offers fresh perspectives on the impact of international capital on domestic politics.