Beyond Trade
作者 :  By Sarah Baynton-Glen

   China’s economic engagement in Africa in recent years has ballooned, in line with the government’s ‘going global’strategy (走出去). In many respects, Chinese investment has differed significantly from the typical pattern of foreign direct investment (FDI) in Africa.
   China-Africa economic involvement growing
   China’s investment in Africa is the natural counterpart to increased China-Africa trade. Both form part of China’s Africa strategy, with state-backed loans and the development of Special Economic Zones (SEZs) featuring prominently on the investment side.
   China’s investments in Africa reflect Beijing’s longer-term strategy of ‘going global’. China is seeking to secure natural resources, as well as support the interests of Chinese state-owned enterprises.
   State-led developmental assistance is implemented by China’s Export-Import Bank (Eximbank) and the China Development Bank (CDB). Funding in Africa through official channels has acted as a conduit for wider corporate activity.
   Although Europe is currently Africa’s biggest trading partner, China’s higher growth forecasts and its continued strong engagement with Africa means the China-Africa relationship will become increasingly important.
  China-Africa trade is flourishing
  In 2000, the value of China-Africa bilateral trade was just USD 7.3bn. By November 2011 trade volumes had broken the 2010 record high of USD 126.9bn, and stood at USD 151.4bn.
  China-Africa bilateral trade increased at an average of 33.6% y/y from 2004 to 2010. EU-Africa and US-Africa trade grew at average rates of 11%
   and 18%, respectively, over the same period. If Africa’s trade with all three continues to increase at the above rates, by 2016 China will have replaced Europe as Africa’s largest trading partner. It replaced Europe as South Africa’s top trading partner in 2009.
  Both trade and investment are concentrated
  China-Africa trade is largely concentrated in terms of geographical distribution and trade components. China imports commodities from Africa, and exports manufactured goods to Africa. Although Chinese FDI flows in to all African countries that follow the One China policy, it is also highly concentrated. In 2010, the top 10 African recipients of Chinese FDI accounted for 76.3% of its total FDI to Africa. Following almost a decade of African growth, FDI is only slightly less concentrated today than it was in 2004, when the top 10 recipients received 90.3% of China’s FDI to Africa.
   Chinese capital is flowing into Africa
  China’s OFDI to Africa is increasing rapidly
  While starting from a low base, Chinese outbound foreign direct investment (OFDI), from both state-owned and private-sector companies, has been on a rapid upward trajectory since 2000. From 2004 to 2010 China’s global OFDI flows increased at an average of 58.5% y/y.
  In 2010 China’s OFDI flows were largely concentrated in Asia (66%), Latin America (15%) and Europe (10%). However, Africa’s share of China’s OFDI tripled from a low base of 1% in 2004 to 3.1% in 2010. China’s OFDI to Africa increased from USD 317mn in 2004 to USD 2.1bn in 2010, increasing at an average of 115% y/y (even with a 73.8% contraction from 2008 to 2009). In comparison, Chinese OFDI to Asia, Europe and Latin America grew by 72%, 61% and 63%, respectively, over the same period. As China-Africa engagement continues to receive attention in Beijing, we see this rapid upward trend continuing.
  FDI accounts for only a small portion of Chinese capital in Africa
  While a lack of transparency limits our ability to gain a full picture of Chinese funding in Africa, we estimate that Chinese loans to Africa outweigh FDI. From 2003 to 2010 cumulative Chinese FDI flows to Africa reached USD 11.9bn. Gao Hucheng, China’s International Trade Representative announced in January 2012 that China’s investment in Africa has exceeded USD 40 bn.
  Investment is financed by China’s state development banks
  The principal foreign investment banks disbursing Chinese loans in Africa are CDB and China Eximbank. As state-owned banks, both have helped to promote the Chinese government’s global interests, as well as those of China’s state-owned and private companies.
  As opposed to directly financing African companies or governments, the two banks mainly offer lines of credit to assist Chinese companies in their overseas expansion. CDB’s investment vehicle, the China Africa Development Fund (CADFund) has disbursed an estimated USD 1bn in equity investment and aims to increase this to USD 5bn by 2015. The bank claims to have ‘guided and supported’ a total of USD 4bn of investment by Chinese companies in Africa since 2007.
  China has provided some aid to Africa
   According to China’s Ministry of Commerce, foreign aid (grants and zero-interest loans) to Africa increased to USD 705mn in 2009 from USD 300mn in 2006.
   Eximbank’s concessional loans are disbursed to the government of the borrowing country and then assigned to projects approved by the Chinese government. These are usually offered in exchange for some preferential treatment for Chinese project contractors, or Chinese exporters supplying at least 50% of goods in procurement projects. The value of concessional loans disbursed to Africa rose to USD 600mn in 2007 from USD 230mn in 2005. In 2009, Eximbank pledged to offer USD 10bn in concessional loans to Africa by 2012.
  But aid is limited
  Generally, Chinese financing does not involve foreign aid, but rather credit for investment or trade, often at preferential rates. Since 2002 more than 70% of Eximbank’s operational portfolio has consisted of export seller’s credits: loans for Chinese companies operating abroad, offered at competitive commercial interest rates.
  Export seller’s credits were first offered to buyers in Africa in 2005. Those in Nigeria, Angola, Sudan, Ethiopia and Ghana can be seen as mildly concessional, but could not be considered aid. In Ethiopia a USD 1.6bn export seller’s credit arrangement with the Chinese telecommunications operator ZTE, for the supply of equipment to Ethiopia’s national telecommunications provider, was offered at LIBOR +1.5%, well below typical commercial terms.
  CNY-denominated capital flows
  Capital flows could play an important role as the Chinese government looks to increase yuan (CNY) circulation in international markets and, more specifically, in Africa. As discussed in On the Ground, 19 May 2011, ‘ChinaAfrica trade – Pay in, then save in, the CNY’, the CNY is already used as a trade-settlement currency in the majority of African markets with significant trade volumes with China. Chinese aid is largely denominated in CNY, and Eximbank’s export buyer’s and seller’s credits and concessional loans can also be denominated in CNY. Receiving foreign aid and export proceeds in CNY will likely see Africa moving closer to CNY ‘reserve-ification’.
   China is securing more than just resources
  Chinese FDI is flowing into several sectors, not just natural resources
  The overriding view of Chinese funding in Africa is a drive to secure commodities. Table 1 shows Africa’s top 10 recipients of Chinese FDI and their share of total Africa trade. Six of the top 10 recipients of Chinese FDI are also among China’s top 10 African trading partners, and are commodity exporters.
  A few of China’s largest investments have involved African countries using natural resources to secure loans for infrastructure development. These include a USD 3bn loan to Ghana in 2010 secured against petroleum revenue. However, these energy-backed loans are not the norm. Official Chinese FDI in Africa also does not focus on resource extraction. A huge spike in FDI in 2008 was the result of ICBC’s USD 5.5bn acquisition of a 20% stake in Standard Bank.
   Competitor, coloniser or development partner?
  China’s investment in Africa has received an overwhelmingly negative reaction. Reports abound of land grabs and a purely extractive relationship with Africa aimed at resolving China’s food and resource security concerns. However, we have found little evidence for these claims, with China seen as more of a competitor and development partner than a coloniser.
  China as a competitor: made by China, in Africa, for Africa?
   China is positioning itself to harness Sub-Saharan Africa’s relatively untapped and undeveloped consumer market. Consumer spending in the region is expected to expand to USD 1trn by 2020 from USD 600mn in 2010.
  The African market fits China’s development plans. As China shifts production towards highervalue manufactured goods, Chi-
   nese exports to Africa are also moving up the value chain, from low-value textiles to high-value capital goods. In 2009, machinery and transportation equipment accounted for the largest share of China’s exports to Africa (41% of total exports compared with 27% in 2000).
  We could see a shift whereby China not only exports to Africa, but moves manufacturing offshore to Africa to be closer to the market. While there have long been expectations of greater Chinese offshoring in Africa, the actual evidence is mixed. Of six China-funded SEZs in Ethiopia, Nigeria, Zambia, Mauritius and Egypt (see Chart 1), only one, the Zambia Chambishi zone, has a commodities focus (copper and cobalt processing). Five focus on manufacturing. Nonetheless, the boost to African manufacturing provided by the SEZs is still subject to some debate.
  Development partner: investing in Africa’s growth
  Poor infrastructure is the greatest hindrance to Africa’s growth. Increasing Chinese investment in infrastructure could offer an important development opportunity, helping to fill an estimated USD 93bn annual infrastructure funding gap. The Forum on China Africa Cooperation stated that from 2000 to 2009, 2,000 companies built 6,000km of road in Africa and 3.5mn KW in power generation with a total investment of USD 27bn.
  While China’s African loans are largely offered to Chinese companies, African SMEs have also been provided with loans through the 2009 CDB Special SME loan fund. To date, the fund has signed contracts worth USD 589mn in loans to African SMEs in 31 countries and this is set to rise to USD 2bn this year. Investing in both Chinese and African companies will help to secure economic co-operation and more trade flows.
  A bit of both?
  As China looks to support its manufacturing industries and domestic infrastructural development, the Africa relationship, and access to commodities, agricultural goods and the African market will remain important. But the relationship is not wholly China- led. Africa also has much to gain. For Africa, the challenge will be to ensure that it is securing the maximum benefit from increased engagement with China. As Europe, still Africa’s largest trading partner, enters a phase of potentially more difficult growth, this will become even more important.
  
  
  

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