China last year became Africa’s largest trading partner and makes up 10.4 percent of the continent’s total trade.
The recent report published by Renaissance Capital (RenCap), detailing trade and financial activities between China and African countries, showed that even the gross domestic product (GDP) boom in China has been outperformed by the rapid growth of Chinese-African economic relations.
According to this report, Chinese trade in Africa increased 10-fold between 2000 and 2010, compared with the eightfold increase it had with the rest of the world.
In 2000, China traded $11 billion (R71.7bn) with the continent and the figure increased to $129bn at the end of 2010.
According to US Heritage Foundation statistics, Chinese foreign direct investment (FDI), including project work done by Chinese companies in Africa, totalled $44bn between 2005 and 2010.
South Africa accounted for a quarter of these FDIs, with China’s major banks having established a footprint in the country. The world’s largest bank, the Industrial and Commercial Bank of China, is currently the biggest single shareholder in South Africa’s Standard Bank following a purchase of 20 percent of its shares for $5.5bn in 2008.
Frontier Advisory analyst Hannah Edinger said China’s trade with Africa was mostly driven by commodity prices. She said trade was not the only indicator ascertaining that it was there to stay.
“It’s not just about how much they export to Africa, but it’s about its modernisation, its industrialisation and growing its nation, its economy,” Edinger said.
China’s state-owned Eximbank and China Construction Bank, have representative offices in Johannesburg. China’s investments through loans have since proved to be overshadowing the traditional aid investments, which totalled an estimated $11.5bn between the 1950s and 2009. Loans from Eximbank totalled $7bn by 2009.
China Development Bank promised $10bn to Africa and has already disbursed more than 50 percent of this.
RenCap said the bank’s recent numbers compare favourably with lending by the World Bank and the African Development Bank.
“Future plans suggest a boom in lending in the coming years. China’s cheap financing is giving it a dominant position in Africa, which will force developed and other emerging market economies to fight harder for access to African resources and markets,” said Charles Robertson, the global chief economist at RenCap.
The issuing of Chinese loans had guaranteed Chinese firms an entry and uptake of their products in the developing African market.
Loans granted by Eximbank are on condition that their repayment can be guaranteed by payments from China for African exports. Also, the projects financed by the bank must be undertaken by a Chinese company, with at least 50 percent procurement from China, all to guarantee that Chinese companies retain contractor rights and that their goods were used in development projects.
“So China is buying African exports, but trying to ensure the African export revenues are spent on Chinese goods and companies, while aiming, over the longer term, to boost African GDP and the African market of 1 billion consumers,” Robertson said.
RenCap said the two Chinese banks, Eximbank and China Development Bank, were in the same lending league as the World Bank and African Development Bank, but African countries often preferred Eximbank loans due to the longer grace and repayment terms and a generally lower interest rate.
A boost for China-Africa trade, was that the Chinese exports were suited to African low-income consumers.
Chinese exports to Africa are more diversified, dominated by manufactured intermediate and consumer goods. Africa represents a market of 1 billion, whose consumers’ disposable income levels, with an estimated average GDP per capita of less than $1 200 in 2009, are similar to a large chunk of China’s population.
“As a result, the cheaper manufactured and machinery imports have readily displaced the more expensive western or even locally made counterparts,” said Lucy Corkin, a co-author of the report and research associate of the Africa-Asia Centre at the University of London.
Edinger said even though not all African consumers looked at China’s goods as their only option, some countries depended heavily on Chinese exports to afford new and traditionally expensive products.
“If you look at Uganda’s case, they only used second-hand clothing, and it wasn’t until China flooded their market that they could afford new clothes,” she said.
Statistics also show that the Chinese population movement has followed the country’s flow of investment. According to China’s Xinhua news agency, there were at least 750 000 Chinese people in Africa in August 2007, of which 8 540 were working in state-owned companies in Nigeria, Ghana, Zimbabwe and Kenya.
“Hence somewhere between 10 000 and 750 000 Chinese are in the countries listed above, which is an even greater discrepancy than for the Chinese FDI figures,” said Robertson. - Londiwe Buthelezi