Chapter 4 - China’s Trade and investment with Mozambique

4.1. Introduction

This chapter will be looking at the broad dimension of China’s general trade and investment with Mozambique. According to Kaplinsky et al. (2006:23) Chinese activities on the continent have three primary channels: trade, aid and FDI. These three are all interrelated. Trade is closely linked to the integration of African and Chinese investments into global value chains, and often Chinese aid offers are underpinned by extraction and market-seeking purposes. This chapter will provide a basis of the trade and FDI channels, laying ground for the cases that will be analysed in the following chapters. It will first scan the general figures and numbers of China’s FDI in Africa as a whole, to then look at different suggestions and calculations of China’s overall trade with the continent. Then, after analysing what general lessons these leave for Mozambique, this chapter will look at the particular figures of China’s trade and FDI in Mozambique, finalising with an analysis of the different paths and challenges that China’s FDI and trade might have in stall for the country. As mentioned, before moving into the specific figures for Mozambique-China trade and investment, this section will first take a look at the more general statistics of China-Africa so that a more contextualized analysis can be achieved.
4.2. General China-Africa FDI

It is the striking case in the beginning of the 21st century that:
“‘South-South’ FDI – investment from one developing nation into another–is growing at a rate five times faster than that of traditional North-South investments from industrialized to developing countries. Today, ‘South-South’ flows represent almost a third of all foreign direct investment” (Pamlin & Baijin 2007: 27)

It appears that a partial exit of TNCs of the “North” from the riskier investment areas of Africa opened up a window of opportunity “for smaller, more nimble investors able to serve local markets from a lower cost base” (Henley et al 2008:1). Looking at FDI is important because, while official economic exchange and assistance remains the order of the day, in the last few years, China’s relationship has tended to assume a more commercial, private sector-led nature. It is therefore through private vehicles and enterprises that much of that engagement has been occurring after 2001, with FDI being a privileged “vehicle for carrying tacit knowledge as well as assisting enterprises at the frontiers of world technological learning” (Liu & Wang, 2003: 945).
Before the first estimates are advanced, some notes regarding the figures are worth mentioning. For instance, because China’s private enterprises tend to rely on “retained earnings and informal arrangements rather than capital markets and bank borrowing for their investments” (Wang, 2007:11), FDI numbers have tended to go somewhat under recorded.
According to a United Nations study (UNCTAD, 2007) total FDI holdings in Africa in 2005 were worth US$96 billion. Of this, European firms accounted for 61 percent, US firms 20 percent, Asian firms eight percent and South African firms two percent.
Of the $29 billion of FDI that went into Africa in 2005, the UN put Chinese investment in Africa at about $1.6 billion in 2005, around 5,5% of total FDI to Africa. This is a figure close to Broadman’s estimate of US$1.3 billion by 2005 (Broadman 2008). Kaplinsky and Morris draw on data that suggests FDI in Sub-Saharan Africa reached a total of US$1billion by mid-2005, up by US $125 million in the first six months of 2005 alone (Kaplinsky, McCormick, & Morris, 2006:15). In June 2006, Xinhua stated that direct investment into Africa has grown to US$1.18 billion and there were almost 700 Chinese companies on the continent (Xinhua, 2006). Harry Broadman refers to this figure in his seminal work “Africa’s Silk Road” (Broadman, 2006:11). Another report from Xinhua-China Daily announced that by the end of 2006, China had invested more than $6.6 billion in Africa (Xinhua; China-Daily, 2007). These values remain however, as noted, still negligible when compared to FDI flows from the industrialised economies of the North which still account for a greater share (Guerrero & Manji, 2008:2). Africa, in turn, only accounts for about 3 percent of China’s global outward FDI flows; these are calculated with 2004 figures (UNCTAD 2007). The report further estimated that between 1979 and 2000 93 percent of Chinese FDI in Africa was in manufacturing (UNCTAD, 2007:51-56). Although no definite sum can be concluded, China’s total, non realized, estimated investment in Africa must now be well above the US$5 billion after the Standard Bank and Congo multi-year deals which are worth US$5.6 billion and US$8.5 billion respectively (africanpress, 2008) and were agreed upon in 2007. It is perhaps appropriate to finish this section by looking at an excerpt from Barry Sautman (2006:8-9) already capturing these tendencies back in 2006:
There were 750 Chinese enterprises in Africa in 2005. While a growing presence, they account for a tiny part of foreign direct investment (FDI). In 2004, PRC entities invested $135m in Africa and in the first ten months of 2005, $175m (of China’s $3.6b and $6.9b in outward investment). Africa’s average annual FDI intake in 2001-2004 was $15-18b, despite Africa providing the world’s highest returns on FDI, averaging 29 percent in the 1990s and 40 percent in 2005. FDI in Africa jumped in 2005 to $29b (of $897b in global FDI), but China’s realized FDI in Africa stood at only $1b of Africa’s $96b, two-thirds of which is European (half British or French) and one-fifth North American. PRC Africa investment is also concentrated; in 2005, $316m was in Zambia and $230m in S. Africa. Based on planned investments, however, China may become one of Africa’s top three FDI providers in five years.
4.3. General China-Africa Trade

When it comes to trade between China and Africa, the figures have increased by an average of 24 percent between 1995 and 2007 with total trade now standing at approximately US$74 billion in 2007 (TRALAC 2008). Mofcom confirms these figures, observing in November 2007 that trade between the two has just hit the US$70 billion mark and is set to hit US$100 billion soon (Mofcom 2007b). Before running the risk of overplaying its significance, it should be noted that part of the explanation as to why the numbers illustrating the growth of China’s trade with Africa are so dramatic is because the development started from a low base. Nevertheless, looking at the historical records of the actors, the volume and pace are unquestionably unprecedented. For this purpose it is helpful to refer to visual aides and graphs as in the figures below.
Having recognized the volume and pace of trade growth it is still noteworthy that investments by entrepreneurial family or kinship based companies such as small Chinese firms are rarely recorded as FDI. The reason for this is that most of the time these will not be registered as subsidiaries of companies in their home countries. Hence, their activities do not form part of the trade balance so often argued to be to Africa’s disadvantage because of exports of non-processed goods and import of manufactured goods. They do however constitute a significant component of the trade relationship because of the impacts that they have on the micro economy of most African countries whether in displacing local producers, causing disruptions to supply value chains or providing African consumers with goods at cheaper prices. In fact, Mozambique consumers have already acquainted themselves with Chinese products, said by some to be “invading” the local market (Afrodad, 2007:17) but bringing, at the same time, cheaper and more accessible consumer goods. It is however important to note that FDI does not always directly affect the trade balance, one can invest and then explore the international market with no or little effect on the trade balance. But, of course, if small businesses settling in Africa import products from China it will have an effect on the trade balance. At the same time, some of them will probably also act as platforms for exporting Mozambique’s products to China and also have an effect on the trade balance.






Figure 3 - China Imports from Africa 2007

Source (World Trade Atlas)
Figure 4 - China Exports to Africa 2007

Source (World Trade Atlas)

Figure 5 - China trade with Africa

Source (World Trade Atlas)
While the boom in trade between China in Africa started in around 2001, the terms of trade have, since then, been improving in favour of the African side, much thanks to the rise in international fuel prices (Wang, 2007). From Figure 4 however it is also noteworthy how PRC’s exports to Africa have actually been gaining pace since 2006. The share of trade between the two blocs compared to that of China and Africa with other parts of the world is still relatively small but the tendency is for this share to quickly rise not just in absolute terms but in relative terms as well.
From 1999 to 2004, Africa's terms of trade rose by approximately 30 percent, an increase far greater than for any other developing region in the world (Biswas, 2007). Kaplinsky et al (2006) discuss how China’s trade can affect Africa. It can either be complementary or competitive. It is competitive in cases where African products compete with the export products of China, a situation which often affects African export oriented industries. It is complementary when Africa’s exports fit China’s profile of import demand, or the Chinese goods function as part of a global value chain as intermediary goods needed in African manufacture.
Both complementary and competitive trade patterns can have either direct or indirect consequences. Direct consequences such as trade volumes and immediate job losses are easily quantified. Indirect effects are more difficult to measure, but have nonetheless important implications. Kaplinsky et. al. note that “there is a great danger of focusing on the present, the known and the measurable impacts” (2006:23), while the unknown remains more potent and can have much more embedded consequences. The authors have tended to have somewhat of a one-sided approach looking at the most negative impacts of China’s trade. Their analysis focuses on the cases in which exports from China crowd out similar African products in third markets such as in Europe and the US while their dominance in regional markets of Asia would pose challenges for African supplies to penetrate. A complementary indirect effect on the condition for African trade might be for example when global prices for commodities rise as a result of increased Chinese demand. This demand in turn generates greater revenues for resource rich African countries, but again this is short-term and based on a highly volatile international commodities market as African countries experienced in the 1970s on the back of the oil shocks. Not only can industries in Africa be affected directly by the import of cheap consumer goods from China. Another indirect effect is on potential industries where competition against the establishment might have serious implications for African development. However, it must be remembered that direct effects such as job losses due to competition from cheap Chinese consumer goods can also come as a result of other intervening factors, such as for South Africa in 2005 when AGOA quotas were removed (Kaplinsky et al 2006:19).
In macro-economic terms, Africa has thus benefited from China’s rising demand of exports. However, we know that revenues from extractive industries do not always translate into development for the broad masses. Kaplinsky et al note that “the benefits of this resource boom will not follow automatically – they need effective management” (2006:28). Riches in natural resources might otherwise strengthen authoritarian tendencies and lead to instability or even civil war – the already mentioned ‘resource curse’ (Beri 2005:373). Solutions to the potential problems related to trade can be interpreted from various points of view. For instance, China can be encouraged to take responsibility for the impact that their exports might have for Africa and African countries can promote and formulate policies promoting a higher positioning of their economies in the value chain. Such can be done through the encouragement of joint-ventures, promotion of technology transfer as well as legislation and other incentives.
4.4. Mozambique General FDI

Between 2000 and 2007 foreign investments really picked up in Mozambique, although from a very low basis. Investments went from US$20 million in 1990 to US$550 million in 2007. In 2005, the tourism sector was the biggest recipient of such investments, followed suit by agriculture and agro-industry (US$168 million), industry (US$49.4 million), transport and communications (US$32 million), other (US$30.6 million), mineral resources (US$15.7 million), construction and public works (US$5.4 million), banking and insurance (US$1.9 million) and aquaculture and fisheries (US$900000) (Games 2007:11). These figures almost quadrupled by 2007. They saw FDI targeting industry mounting up to US$19 million of the investment and for mining and energy to around US$502 million, more than 91 percent of total investments for 2007.

Table 2 – Evolution of total FDI to Mozambique
Year No. Projects FDI
in US$ million
1990 31 20
1991 25 21
1992 27 77
1993 29 46
1994 123 136
1995 166 60
1996 270 97
1997 184 558
1998 209 207
1999 235 101
2000 179 230
2001 129 528
2002 128 559
2003 112 122
2004 105 122
2005 139 165
2006 157 162
2007 186 550

(Source - US Department of State 2007)
4.5. China-Mozambique FDI figures

It is first worth noting how, for the purpose of the provision of FDI, the Investment Promotion Centre of Mozambique has put out a requirement of a minimum US$50 000 of initial capital investment. This has meant that a significant number of small Chinese businesses, many of them in trade (Afrodad, 2007:15) go unrecorded in the process of data registration and consequently, stay out of official statistics. Even if that is the case, when it comes to FDI figures for the period between 1990 and 2007, these show that US$32 million in Chinese direct investment has already been realized out of a planned US$108 million. From these, the most salient sectors are industry and manufacturing valued at around US$15 million, followed by US$8 million invested in agriculture, mostly in the wood industry in the north (Mofcom 2007; Market Access Map 2008).
The specific features of FDI from emerging markets, such as China are expected to reflect the social, political and economic history of the country of origin (Filatotchev et al. 2007), and for the case of China’s investment in Mozambique this is no different. Until 2007, the figures FDI for Mozambique revealed a total of US$108 000 invested by private Chinese companies, creating around 6500 jobs. The company employing singlehandedly the most employees was Formosa Textile in Maputo, with a workforce of 2,970. The largest single investment has been from a company in the forestry sector belonging to Liu Chaoying Jian, a project of US$ 64,000 that comprises logging, exploration, transformation and commerce of wood. Comparing between investments in agriculture, services and industry, agriculture takes up the bulk of the investment with US$85,000. Otherwise there seems to be a tendency for the industry sector to be the preferred destination of investments with the largest number of different investments, 17 in total (Mozambique Investment Agency, 2007). This previous estimate is larger than that of US$48 million in Mozambique also for the year of 2007 advanced by Noticias newspaper (Manchiça, 2008).
Another important source of China’s investment in Mozambique is that of state sponsored investment in the infrastructure sector. Such investments are, as previously discussed, the fruit of China’s recent tendency to offer “infrastructure packages” in order to charm African governments economically and diplomatically. Another example is the Incomati river bridge, 60 kilometres north-west of Maputo, which was delivered in 2008, one month before the initial date set out for the completion of the project. The bridge, valued at US$8 million, and its construction was carried out by China Henan International Cooperation Group (CHICO) and verification was the responsibility of Ninhan Shand (Jornal Notícias Moçambique, 2007 A). Many of these projects make use of preferential loans from China, some of which are on display below in Table 3.

Table 3 - Chinese loans to Mozambique by project
Year Funding Agreement Description Amount Repayment period/ conditions

2001 Any projects to be submitted and approved by the Government of China. US$3.9 million (loan) 2011 - 2021
2002 Funds utilized in building the Joaquim Chissano Conference Centre and the new Building of the Ministry of Foreign Affairs. USD$3.9 million (loan) 2013 - 2022
2003 Funds utilised in purchasing Police equipment. US$3.9 million (loan) 2013 - 2022
2004 Funds for building 150 houses for low income people in Zimpeto, Surroundings of Maputo. US$3.9 million (loan) 2015 - 2025
2007 Preferential credit protocol for renewal of Public Ministry Building and houses for its magistrates US$40 million (loan) 20 years of maturity plus 5 free years. Interest rate: 2%; Immobilization rate: 0.75%; Managerial rate: 1%.
Total: 3,75%
Technical cooperation protocol with the Ministry of Youth and Sports US$15 million (loan) To be determined

Source – (Afrodad, 2007)

That being said, a large part of China’s economic involvement in Mozambique is manifestly private in nature, encompassing a wide range of business endeavours across a wide range of sectors. By 2008, China’s Projects and investments in Mozambique were estimated to comprising of the following, as exhibited in Table 4.



Table 4 - Estimated Chinese Projects and Investments in Mozambique by 2008


Roads More than 500 km nationwide, mainly along the road Number 1 that links the country from south through the north passing across more than six provinces. Over 1/3rd of Mozambique’s current road construction programme, amounting to 600km roads, is carried out by Chinese road contractors.

Bridges Over Rovuma River, in Cabo Delgado province, linking Mozambique to Tanzania - Cabo Delgado province.

China Henan International Cooperation Group (CHICO) is to construct the Moamba Bridge over the Incomáti River in Maputo province, Mozambique - estimated at US$8 million

Energy and Water supply

Under Negotiation Maputo City (Maputo Province), Beira City (Sofala Province) and Quelimane City (Zambézia Province) total - US$45 million (rehabilitation of the urban water supply systems of the main provincial capitals, namely Maputo - US$30 million and Beira and Quelimane – US$15 million)

Mphanda Nkuwa Dam - to be built 60 km downstream from the existing dam at Cahora Bassa. The public-private consortium that will build and operate the dam includes Mozambique’s government-owned electricity company, EDM, Brazilian engineering company Camargo Correa and Energia Capital, part of the Mozambican Insitec group. The Export-Import Bank of China (China Exim Bank) is set to finance the US$ 2.3 billion dollar investment.

Buildings Preferential credit protocol for renewal of Public Ministry Building and houses for its magistrates – US$40 million
20 years of maturity plus 5 free years. Interest rate: 2%; Immobilization rate: 0.75%; Managerial rate: 1%. Total: 3.75%.

(small parts are sometimes concessional loans)
1999 Mozambique parliament buildings – US$5 million
2003 Chissano Conference Centre
2004 Ministry of Foreign Affairs – US$12 million
Under negotiation Rehabilitation of Maputo International Airport – US$50 million
Under negotiation Renewal of Public Buildings – US$200 million
Under negotiation Building of a National Stadium – US$100 million

Industry and Commerce Soja processing plant:
Owned by China Grains & Oils Group – CGOG - in Beira by Sojecoa - US$10 million

Prawns production plant :
In the Centre of the country, for which the infrastructure was also built by Chinese contractors - US$12 million

Industrial warehouses and a large shopping centre in Maputo
1996 Agroalfa - investor: Tianjin Machinery, US$1.7 Million
1999 Mozambique TV/VCD, investor: China L. Tian He F. Chemical Co, US$3 Million
2000 Iron & Steel Factory, investor: Li Huamin, US$800 Thousand
Fábrica de Motorizadas e Bicicletas da Beira (Beira Motorcycles and Bike Factory), investor: He Jianping, US$ 826 Thousand
Mozambique L&H Wood Co, investor: Li Xiangdong E Yao Huis, US$550 Thousand
2001 Honda Shoe Factory, investor: Hao Jingue; Hao Jinglan; Xu Dongshan; Han Baoxing, US$50 Thousand
2002 Chinelos De Moçambique, investor: Shou-Ta Huang, US$ 55 Thousand
2003 Khangelo Confections, investor: Xinle Cheng Garment, US$824 Thousand

2004 Pharco-Moçambique, investor: Shanghai Desano Chemical Pharmaceutical, US$1.5 Million
2005 Chen Chen Fundição, investor: Shengli Chen, Changli Chen, US$50 Thousand
2006 Yuan Feng Investments, investor: Wang Yuan Dong, Huang Lin Feng, US$ 510 Thousand
2007 Fundição de ferro e aço, Lu Xuhong, Tang Zhi US$2 Million
Fabrica de sapatos Hua Feng,(shoe factory) investor: Jiang Wang, Jing Li, Xugang Huang, Weiqing Lin, US$100 Thousand
Jiangsu Metals, investor: Ming Ho Lam, Chan Sze Him ERIC, US$ 300 Thousand
TYT, US$500 Thousand

Under negotiation Special Economic Zones: A study was done for a Free Trade Zone in the surroundings of Nacala in the North of Mozambique by TEDA (Thengui Economic Development Agency) and another potential project was identified in Catembe, the outskirts of the capital Maputo – US$200 million
At the moment the investment costs are too high to qualify for donations for these areas which can potentially become Special Economic Zones, but in the near future direct FDI might become a realistic option, possibly jointly with a donated portion.

Services
2004 Hua Long, Chinese Clinic, investor: Zhongxian Yao, Cha, US$52 Thousand
2007 Estudios Dragão, investor: Bo Zhang, Changhua Shan, Haiting Hao, Fengshan Li, US$100 Thousand

Agriculture
and Fishing
1999 Zhong Na Mozambique, investor: Grain & Oil L., Animal Products Of A. M. Imp.Exp, US$500 Thousand
Hubei Liafeng Mozambique, investor: Hubei Province Liafeng Overseas Agriculture Development, US$1.2 Million
Prawn-Culture and fishing in Mozambique, investor: Weihai International E.& T. Co-operative, US$12 Million
2003 Uta - União dos trabalhadores de África, investor: Tang Yu; Shen Tonghai, US$1 Million
2005 Ccog Africa, investor: China Grains & Oils Group Corporation, US$6 Million
2006 Xin Jian Companhia, investor: Xin Jian Zhang, Jing Xue Zhang, US$200 Thousand
Moz-Tai Aquaculture, investor: Su Hua Lu, US$220 Thousand

Source (Mozambique Investment Agency, 2008; Noticias de Moçambique; Afrodad, 2007)

4.6. China-Mozambique FDI Analysis

Evolution towards greater economic development will, to a great extent, depend on the nature and future vitality of Mozambique’s private sector. Generally speaking, when it comes to attracting FDI, Mozambique is able to combine low-cost electricity, with a good supply of raw materials, sea accessibility and competitive low wages. This gives for a group of factors that can potentially “act as a major catalyst for industrialization and export-oriented business” (Afrodad, 2007:11). At the same time, China and its investors must also contend with an investment environment which is high risk. In effect, particularly when it comes to sectors or industries that have only been very recently privatized there still exists a considerable number of investment “traps”. An example has been the case of the Malaysian purchase of Mozambique’s ‘Banco Popular para o Desenvolvimento’, which ended as a fiasco for the investors when government prevented them from getting the capital some government-linked individuals owed them. Chris Alden uses this example to show how most of the African countries in which the Chinese are investing still remain “locked into arrangements with local government elites that inhibit profit-making” (Alden 2005:144). China is observably subject to the same risks as other investors.
From the data above it seems that the bulk of investments are clearly concentrated in the manufacturing sector. Data above also suggest that the flowing Chinese investment is mainly small scale, seen from the angle of volume of capital. It is also important to note that, seeing that the dominant part of this Chinese investment is in the manufacturing industry, currently the competition with domestic investment is not so high, as domestic investment is mainly on agriculture and services. The one Mozambique economic cluster that has been affected and shaken by China has been the construction sector which has now been dominated by foreign companies including those from China.
Concerning the employment of local labour, figures show that, contrary to much popular belief, local workers are to a great extent being employed in Chinese-sponsored manufactures and other investments. Similar FDI data from Kenya and Ethiopia investment agencies show that more than 90 percent of the workforce employed in China’s investment is local in nature (Kenya Investment Agency, 2007); (Ethiopia Investment Agency, 2007). There is no evidence to suggest that the situation is any different for the case of Mozambique, both given the similarity in the activities of the companies that are operating in the three countries and the general tendency and business-sense of Chinese companies that are keen to utilise, whenever possible, cheaper local labour.
Some arguments now emerge predicting a shift in the medium-term towards a higher share of value-added products on exports from Africa. A growing set of evidence has meant that such claims are now more than mere speculation and constitute an analysis backed up by important evidence and signs. With Africa’s current population reaching around 900,000 million, the continent represents an important market (Mahajan, 2008). Although expendable income remains minimal this is a very similar situation to the domestic markets in which the majority of Chinese companies initially developed. As Ming Zeng and Peter Williamson have shown, such economies are an important intermediary as Chinese companies expand beyond China and prepare to enter European and North American markets (Zeng & Williamson, 2007).
For now, labour intensive manufacturing firms based in Mozambique have struggled to compete internationally. Particularly when compared to regional competitors, local firms have insufficient skills, manufacturing techniques and overall productivity to be truly competitive. Manufacturing firms face high operational and transaction costs, mainly due to lack of infrastructure, labor market rigidity and bureaucracy. However this situation is not irreversible. Meyer and Estrin (2004) go back to basic economics to remember how “market-seeking FDI seeks large populations with rising incomes”. As such, many African countries now fit this bill, even if there are still conditions in the local economies which do not offer the most inviting absorptive and institutional contexts. In similar lines, Geda (2008:13) notes that:
the long-term might hold a very different picture: the pace at which the drivers are changing the technological structure of their production and exports, rising costs of locating export oriented production in China, Africa’s proximity to European and Middle Eastern consumer markets and a host of other factors might help Africa to become the next ‘goose’ in the long run. There are signs that such combination of factors have already began to appear
Although potential returns through investment in Africa also carry with them considerable risks, Chinese investors are willing to underwrite such risks since their presence in Africa’s manufacturing sector is notable (Henley et al. 2008:5). Hence, in the near future we will plausibly see more economic integration arriving through localized hubs such as the Copper Belt in Zambia, southern DRC, Ethiopia and Nigeria’s Niger delta as these are able to connect to the international value chain (Broadman 2008). Already the Special Economic Zones identified by the Chinese in Zambia (metals hub), Tanzania (shipping hub), and Mauritius (trading hub) are going to facilitate this process. In this note, Kaplinsky et al note that “there is scope for improving the productivity of existing industries, often by working with value chains (…) rather that individual firms or subsectors”, actually suggesting that competitiveness could be improved via industrial policies (2006: 26, 27). China’s long-term engagement with Mozambique will also depend on the success of the wider strategic move of China towards setting up such SEZs and to what extent they have the opportunity to flourish together with a new and vibrant private sector in Mozambique. It also might help that China is interested to test its new technologies in Africa (Afrodad, 2007:17). Michel and Beuret (2008:44) add to such opportunities when observing for the case of Morocco that “producing in Morocco, even if you are Chinese, gives you the possibility of selling your goods without any trade barriers to Europe, across the Atlantic and to other regions”. All thanks to free trade and low trade barriers previously negotiated by Morocco with the West. Similar opportunities also apply to Mozambique’s international trade deals. This shows evidence of China not only making the most of international supply chains that run through Africa but also of China and its companies trying to make the most out of the discriminatory opportunities crafted in the rules of international trade. The practice of making the most out of international value-chains and different sets of discriminatory international trade and economic legislation is one of the ways in which China advances its relative gains vis-à-vis other major international powers. A realist perspective can read this competition of Chinese companies, entering Western markets through Africa, as a form of circumventing the trade and economic constrains put in place by state actors also directly competing with China for relative power. The long-term presence of such strategies also serves to discredit views which would see China as a simple economic competitor of Mozambique in a short-term “resource-grab” spree. Africa and Mozambique are in fact part of a broader and wider longer-term strategy by China which does not discard economic partners with ease but in fact entangles them into a complex web of economic interdependence.
4.7. China-Mozambique Trade

Afrodad (Afrodad, 2007:7) refers back to official records by the Embassy of China in Mozambique showing that, by 2004, China-Mozambique trade flows had reached US$ 120 million, already a 66.9 percent increase from 2003. By 2008, China’s top import from Mozambique was wood in its various forms and types with a volume of around US$50 million followed suit by iron and cotton at US$12 and US$10 million respectively. Imports to Mozambique from China are instead clearly topped by cells and batteries which amount to US$15million (Mofcom 2007; Market Access Map 2008). During the first semester of 2005 recorded trade flows were of about US$110 million, showing sound increase. The upward trend in the China-Mozambique trade volume is evident from Figure 6 below. While the figures rise China has consistently retained the trade balance in its favour albeit not by a huge margin, currently having a surplus of exports over imports to Mozambique of around US$40 million.

Figure 6 - Evolution of China-Mozambique Imports and Exports

Source (adapted from Mofcom, 2008)

Going back to Kaplinsky’s (2006) framework for distinguishing between complementary and competitive trade, it appears that trade between the two countries seems to be complementary for the time being with China still having the better off with products of greater value-added being exported to Mozambique, reflected in the trade surplus it holds. China is sourcing from Mozambique resources it does not hold at home or, in the case of resources it does hold at home, such as the case of wood or prawns, China’s tendency to sourcing them from Mozambique remains high due to attractive and rising levels of international and national demand. Meanwhile, Mozambique tends to import manufactured goods such as machinery and refrigerators as well as cheap goods such as footwear and textiles. These manufacturing products do not pertain to a situation which affects Mozambique’s export-oriented industries. It is in fact complementary as Mozambique’s exports fit China’s profile of import demand. As for the potential development of Mozambique’s manufacturing sector, also spurred by Chinese investment in the sector, the simultaneous arrival of Chinese manufacturing products to Mozambique must be understood within the mode in which Chinese goods function as part of a global value chain as intermediary goods needed in African manufacture, as previously discussed in the section regarding the potential of the new SEZs set up in Africa by China, as illustrated in Tables 5 and 6.

Table 5 - China Imports from Mozambique
China Imports from Mozambique (in Millions of US Dollars)

2001 2007
Wood 11.05 95.06
Oil Seeds & oleaginous fruits 0.00 9.79
Chromium ores and concentrates 0.00 8.14
Cotton 0.00 4.94
Wood sawn 0.01 2.86
Copper Mattes; Cement Copper 0.00 1.24
Niobium, Tantalum, Vanadium & Zirconium ore 0.01 1.02
Crustaceous 0.00 0.29
Binders for found molds; chemical products 0.00 0.27
Molluscs & aqua invert 0.00 0.11
Ores and concentrates 0.00 0.07
Coconut, abaca, Ramie, raw, tow 0.00 0.05
Lifting,, handling, loading & unload machines 0.00 0.01
Medical, surgical, dental or veterinary instruments 0.00 0.01
Precious & semiprecious stones, not strung 0.01 0.01

TOTAL US$11.19 Million US$123.88 Million
Source (adapted from Mofcom 2008)



Table 6 - China exports to Mozambique
China Exports to Mozambique (in Millions of US Dollars)

2001 2007
Motorcycles 0.08 8.52
Footwear 2.18 5.51
Primary cells & batteries 2.83 5.16
New pneumatic tyres of rubber 0.18 4.97
Portland cement, aluminous cement 0.00 4.29
Refrigerators, freezers 0.24 3.91
Travel goods, handbags, wallets, jewellery cases 0.36 3.78
Sodium hydrox; potass hydrox 0.77 3.45
Rice 0.75 3.37
Motor Vehicle for transport of goods 0.06 3,01
T-shirts, singlets, tank tops 0.08 2.72
Tv, Video monitors & projectors 0.08 2.65
Air conditioning machines 0.55 2.54
Woven fabric 0.95 2.50
Medicaments 0.07 2.47
Structures and parts of iron steel 0.10 2.34
Blankets and travelling rugs 0.00 2.31
Steel bars 0.00 2.11
Handtools & tools used in agriculture 0.35 1.93
Insecticides, rodenticides , fungicides, retail 0.09 1.89
TOTAL US$22.04 Million US$160.39 Million
Source - adapted from Mofcom 2008
4.8. Conclusion

The figures of overall trade and FDI are still not exact and there is considerable work that needs to be done in relation to the collection and calculation of FDI in particular. Nevertheless the numbers that have been put forward so far show evidence of a picture whereby China’s investment is picking up tremendous pace and scope. This picture is no different for Mozambique where the range and intensity of trade has accelerated notoriously, particularly since 2001. FDI from China in turn is also composed of a wide number of Chinese stakeholders, with a couple of them having made particularly significant investments inroads, namely in the forestry sector and in manufacturing. While trade seems to be dominated by the forestry sector and prawn exports from Mozambique to China and machinery imports from China to Mozambique, FDI from China to Mozambique has had the most significant participation in the manufacturing sector. The case of Mozambique also seems to follow the rule of thumb in Chinese investments in other African countries that a great majority of the labour force is composed of local workers and not flooded by Chinese expatriate workers. Lastly, after looking at the evolution of trade and FDI figures, it would appear that the impact of China on the long term development of Mozambique will depend on the success of the wider strategy of China’s SEZs in Africa, as well as its impact across the regions in which they are located. With prospects of an SEZ emerging in northern Mozambique, Nacala, in the future, it will be up to the government to actively seek to integrate its country’s industrial strategy into China’s engagement.