China’s Economic Advances in Africa

October 13, 2018

Africa, China, Information Reports

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Written by Andrew Allen

Background

During much of the 20th century, Sino-African economic relations were a minor feature of Chinese foreign policy. In the 1960s, China encouraged a small amount of investment and trade between the two regions to promote solidarity among “Third World” nations (Muekalia, 2004). However, following a quarter century of economic growth and a large global financial crisis, Africa has become an integral part of China’s larger economic and political foreign policy.

Trade

China’s economic expansion into Africa has involved significant increases in Sino-African trade. From 2000 to 2016, China’s imports from Africa increased by more than 200%, while its exports to the continent increased by 50%. During that period, total Sino-African trade totaled over $850 billion (Sow, 2018).  As a resource-poor nation, China has an interest in obtaining natural resources such as petroleum and copper in order to support its domestic investments and economic growth (Dollar, 2016). In addition, the demand for low-cost manufactured goods in African nations creates an attractive export market for Chinese manufacturing and textile industries. Although the low cost of these Chinese exports is beneficial to African consumers, it has had unfavorable spillover effects, pushing aside local African industries and producers (Lyman, 2018).

Development Finance

Another substantial portion of China’s economic relationship with Africa in the 21st century has revolved around China’s Belt and Road Initiative (BRI). Announced in 2013, the BRI is an multi trillion-dollar effort to strengthen economic ties between China and other developing nations through a large series of infrastructure projects (Freund and Ruta, 2018). In order to finance these infrastructure projects, China provides African countries with direct state-to-state loans that are non-concessional, yet relatively free of conditions.

From 2000 to 2014, China financed more than 2,000 African infrastructure projects worth a total of $121 billion, half of which were in the transportation and energy sectors. In the process, China has become Africa’s largest creditor, accounting for 14% of all bilateral loans within the continent (Chen and Nord, 2018). While some academic evaluations have found positive economic growth as the result of China’s development finance, others contend that China’s heavy use of loans within Africa could facilitate corruption or constitute a “debt trap”, through which China encourages poor nations to accept debts that they cannot repay in order to obtain control of their resources, territory, or property (The Economist, 2018).

Geopolitical Implications

            Through the BRI-led development finance activities in Africa, China offers African nations an easy alternative to Western-led development. Consequently, as economic, logistical, and political ties deepen between China and African nations, the United States loses leverage in the region. In September of 2018, the United States responded to this challenge by authorizing the creation of a new development finance agency known as the U.S. International Development Finance Corporation (Zengerle, 2018). The new $60 billion agency will offer loans for infrastructure projects in developing countries, with the aim of promoting economic growth as well as helping developing nations to avoid the “debt trap” of Chinese development finance.

WORKS CITED

Chen, Wenjie, and Roger Nord. 2018. “Reassessing Africa’s Global Partnerships.” Brookings. Brookings. April 30. https://www.brookings.edu/research/reassessing-africas-global-partnerships/.

Dollar, David. 2016. “China’s engagement with Africa.” From Natural Resources to Human Resources.

Freund, Caroline, and Michele Ruta. 2018. “Belt and Road Initiative.” World Bank. March 29. https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative.

Lyman, Princeton. 2018. “China’s Rising Role in Africa.” Council on Foreign Relations. Council on Foreign Relations. Accessed October 13. https://www.cfr.org/report/chinas-rising-role-africa.

Muekalia, Domingos Jardo. 2004. “Africa and China’s strategic partnership.” African security studies 13, no. 1: 5-11.

Sow, Mariama. 2018. “Figures of the Week: Africa’s Intra- and Extra-Regional Trade.” Brookings. Brookings Institute. March 29. https://www.brookings.edu/blog/africa-in-focus/2018/03/29/figures-of-the-week-africas-intra-and-extra-regional-trade/.

“The Perils of China’s ‘Debt-Trap Diplomacy.’” 2018. The Economist. The Economist Newspaper. September 6. https://www.economist.com/asia/2018/09/06/the-perils-of-chinas-debt-trap-diplomacy.

Zengerle, Patricia. 2018. “Congress, Eying China, Votes to Overhaul Development Finance.” Reuters. Thomson Reuters. October 4. https://www.reuters.com/article/us-usa-congress-development/congress-eying-china-votes-to-overhaul-development-finance-idUSKCN1MD2HJ.

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