Thought Leadership: What China’s Economic Shift Means for Africa

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Current structural changes in China’s economy will have significant implications for Africa’s developmental ambitions. This is not the first time decisions in China have been felt in Africa: for the past 15 years, the rapid and pervasive entry of Chinese capital and companies into Africa have had a big impact on the continent.

The rapidity and scale of these changes over the past decade and a half – through multi-billion dollar transactions and political summits – has resulted in an African incline towards China’s commercial sphere of influence. This trend has been accelerated by the (Western) financial and economic crisis, with African economies reorienting towards the emerging rather than the developed world.

But as China’s strategy towards Africa matures, so too must Africa’s strategy towards China. Beijing is no longer just an actor in Africa’s resources sector but is broadening the scope of its commercial foray into the continent. African governments need to respond accordingly and be more agile in their policy-making vis-à-vis China’s engagement.

Chinese-African relations: all change

The African continent continues to struggle to develop its domestic economies through beneficiation and, by and large, sub-Saharan African countries remain dependent on raw material extractive industries, often being single-commodity dependent. Ironically, the China-driven commodities “super cycle” over the past decade or so may have reinforced the resource dependence of African states.

Despite this, China’s resource-intensive growth model has helped African growth – underpinning the “Africa rising” narrative that has emerged in recent years.

Furthermore, in 2008 Beijing’s financial authorities used a sizeable stimulus of approximately US$570bn to pump-prime economic growth. This was in response to rapidly slowing global growth following the financial crisis, and it had a very positive knock-on effect on Africa’s growth trajectory. Ironically, China’s actions reinforced Africa’s commodity dependence, with strong commodity prices providing a deterrent – or at the very least a distraction – for African policy-makers to accelerate their efforts towards diversification.

But changes now impacting the Chinese domestic economy hold out a new promise for aspirational African economies. The rising cost pressures on China’s light industrial manufacturing sector will increasingly lead to manufacturing capacity to relocate to lower-cost foreign economies over the long term. This trend of Chinese “hollowing out” of low-end manufacturing and offshoring to Africa is likely to be the next driving force of the relationship. This forms part of what is often referred to as China’s “economic rebalancing”. If this opportunity is seized by progressively reformist African states, they could well be on the cusp of a 19th-century style industrial revolution – generating jobs and creating new industries.

But viewing the relationship through the statist lens from Beijing, it can be argued that China’s Africa policy has become increasingly fused with that of the management of its own economy. China’s resource-intensive growth model – propelled by heavy infrastructure spending and its manufacturing machine – requires a large amount of commodity inputs. Underpinning Beijing’s engagement of Africa has been a desire to secure a number of strategic commodity supplies, in particular oil, iron ore and copper. In the mindset of the (very strategic) Chinese government, its own growth model may be at risk from restricted resource supply. China’s ability to guarantee the supply of key resources from resource-endowed African states is strategically important for Beijing.

Thus, a politically welcoming environment among African governments is of paramount importance for Chinese capital. In Europe, the United States and recently Australia, there have been government attempts to block Chinese investors from acquiring local assets – in telecoms, in computer hardware and in mining. In Africa there has yet to be an active political obstruction to Chinese investment.

However, recently, some senior government and political figures in Nigeria and Botswana have been critical of the often skewed nature of their countries’ relationships with China. China’s foreign policy towards the continent under President Xi Jinping will need to balance its growing commercial interests while having to accommodate a changing and more assertive Africa.

Beyond resources

It is a massive opportunity cost considering most resource-rich (solid minerals) African states did not adequately foresee and take full advantage of the so-called commodity super cycle driven by China’s insatiable demand for commodities. This is different to Australia, where, in spite of the economic crisis, GDP growth has remained strong on the back of enabling infrastructure and high demand from China. A number of oil-rich African economies – led by Angola – are the exception. Few African governments have been as proactive at linking Chinese investments in resources to mega infrastructure to build commitments in their economies. With a handful of notable exceptions, African economies could have been doing much more to hitch their resource-reliant economies to the Chinese stimulus-powered growth train.

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