(Nov 15, 2009 by Martyn Davies)

'State capitalism' requires greater unity between public, private sectors. The global crisis has - if anything - accelerated China's investment in Africa.

" China is now Africa's biggest trader, provider of capital and commercial investor " Jacob Zuma

Chinese investments on the continent were up by 81% during the first half of 2009 compared to last year, and Chinese financial institutions are now deploying capital on the continent in a counter-cyclical manner.

This past week's China-Africa summit, held in Sharm El Sheikh, Egypt, reinforced this trend. As part of the political meeting, a business forum was attended by more than 300 Chinese firms that are active in Africa.

China launched a "new" Africa policy almost a decade ago, when it started to conceptualise and plan the establishment of the Forum on China-Africa Co-operation - a multilateral forum within which it would plan and implement its foreign policy goals towards the broader continent.

Since its launch in October 2000, China has carefully set out three-year engagement plans that it has implemented towards Africa. At the Egyptian summit, Chinese Premier Wen Jiabao announced eight strategic initiatives aimed at the continent.

The highlight for business is Beijing's commitment to provide $10-billion in concessional loan financing, which will be disbursed by China Export-Import Bank, a policy bank and the de facto project finance arm of the government.

$1-billion is to be provided for the development of African small and medium enterprises.

When considering China's commercial policy towards Africa, the long-term nature of its engagement is often not fully appreciated. The political construct of these Chinese policy bank deals affords them a longer lead period to realise their investments.

A new risk model is being constructed that is calculated differently to traditional (Western) investors. It is more answerable to political stakeholders pursuing a defined national interest than it is to private shareholders.

The state-owned structure of Chinese policy banks allows for an approach where capital is invested in a manner that is arguably more suited to the needs of developing economies.

Indeed, China's own phenomenal developmental success over the past three decades has been underwritten by a state-owned banking sector. This has been coupled with the creation of a vibrant private sector, which now contributes two-thirds of China's gross domestic product.

This is the model that Beijing is pursuing in Africa - sovereign allocation of capital focusing on infrastructure and commodities (rather than aid) that is intended to support long-term commercial interests.

Centred on off-take contracts, the long-term strategy employed in constructing these deals, and the lesser cost of capital provided to fund them, gives Chinese contractor firms tapping into the credit facilities a definite competitive advantage in Africa.

The downside is heightened competition for local and foreign (non-Chinese) construction firms in the region. The upside is that African economies are recipients of infrastructure built significantly cheaper.

According to the Infrastructure Consortium for Africa, infrastructure is "a major constraint on doing business, depressing productivity by about 40%".

For South African business, China's move into the continent poses a major strategic consideration. As "China Inc" builds its presence in Africa, its interests will increasingly intersect with those of "SA Inc" in the region.

Do we seek to compete or collaborate with Chinese business in the immediate region, which has become South Africa's commercial sphere of interest?

To better engage China's "state capitalist" approach, it is imperative that we reduce the disconnect between the state and the private sector in this country to enhance our ability to project a more co-ordinated and focused economic diplomacy in Africa - a region in which China is now the largest trader, provider of capital and commercial investor.

- Davies is the chief executive of Frontier Advisory and a director of the Asia Business Centre at the Gordon Institute of Business Science