CHINA ROCKS THE CASBAH: THE EFFECTS OF CHINESE CONTRACT SERVICES AND INVESTMENT ON ALGERIAN REGIME STABILITY

Abstract

The most visible aspects of China’s economic involvement in Algeria are China’s contract services and FDI. Within contract services, Chinese construction firms have completed over $20 billion in housing and infrastructural projects over the past decade. Within FDI, Chinese firms have invested an aggregate of $850 million, largely in the oil and gas exploration space, although attempts have been made to enter the automotive sector. China’s economic penetration into Algeria has happened in parallel with the Arab Spring, and in many ways has been a response to it. Much of the Arab Spring’s protests in Algeria centered around lack of housing and employment, both of which Chinese economic involvement address. This paper seeks to examine the effects that Chinese economic involvement has on the political stability of the Algerian regime. This paper categorizes Algeria, given its oil wealth as a rentier state—one that receives much of its revenues from oil. An analysis of rentier states show that potential causes of instability include over-­ reliance on one sector and a lack of diversification in others; economic shocks; and unemployment. After framing Algeria as a rentier state, this paper examines Algeria’s past and present bouts with instability, determining the causes and the mechanisms by which the instability may be addressed. This paper then examines Chinese economic involvement, analyzing how it may deal with potential instability derived from Algeria’s status as a rentier state. At the same time though, the paper analyzes how both contract services and FDI may exasperate causes of political instability. The paper finds that in the short term, Chinese contract services reinforce political stability by offering a redistribution of state income that makes people happy. However, in the longer term, Chinese contract services may destabilize a regime by causing the state to rely ever more on oil. This paper also finds that although FDI can be either stabilizing or destabilizing, because FDI levels in Algeria are very low, it has no effect.