Business & Economy Continental

Does Africa catch a cold when China sneezes?

Does Africa catch a cold when China sneezes?
  • PublishedOctober 14, 2015

The recent bubbles in China’s financial market precipitated immediate panic in major stock markets around the world. New York, London and Tokyo felt it instantly, creating an unfounded fear that perhaps another financial crisis may be imminent, a replica of the 1997-98 Asian financial crisis that shook the global economy and served as a forerunner to the economic decline that the world witnessed shortly thereafter.

The fidgety reaction no doubt affirms China’s new status in the global marketplace, not only as the second largest economy, but also as a major economic power broker on the global scene. 

While economic growth may be decelerating in China, and a transition process moving it from a “global factory site” into an e-commerce economy, nothing on the horizon suggests to me that China is about to witness a major decline. There are three major reasons for this.

Firstly, China’s growth momentum is very high and it is still one of the fastest growing economies in the world in spite of its slowdown. From 1989 to 2015, China had a GDP growth rate averaging 9.04%, and it is expected to have its lowest growth rate in recent times this year, at about 7%.

In the second quarter of 2015, the economy grew at 7%, which is far far higher than the growth trend in many Western countries including Europe and the United States of America. 

Secondly, the economic fundamentals are still very strong in China – huge financial reserves, macroeconomic stability, and a strong manufacturing base, which is crucial to sustained capitalist growth and transformation. The industrial sector in China grew from 6.1 % in May 2015 to 6.8% in June, suggesting a steady consolidation of its production capacity. Indeed, the devaluation of the yen can only intensify China’s aggressive export strategy abroad, making its exports cheaper and further flooding the global markets with different quality of goods – from the sub-standard to the high valued ones. 

Thirdly, China is not a free market economy; China practises “guided capitalism” that does not leave the fate of its economy in the hands of invisible market forces. State regulation and control of the economy is a high priority for the political authorities in China. As such, China may not yet be going down the path of any economic crisis, but may be experiencing a growth fatigue or an overheated economy, whose capacity to sustain its high growth rate is waning. 

Insatiable appetite

China’s robust economic growth has been good for Africa, especially in the last two decades.  The phenomenal expansion of China’s economy created an insatiable appetite for natural resources and raw materials to fuel its production base, and also the need for new markets to sell its finished products. Africa was one of the new trade frontiers for China. From a trade volume of $10.5 billion in 2000, the figure increased to $40 billion in 2005, $166 in 2011, $210 billion in 2013 and is estimated to reach $280 billion by the end of this year. China is now Africa’s biggest trading partner, surpassing Europe and the United States, and has developed a “Special Plan of Trade with Africa” with which it seeks to scale up trade relations with the continent.

But China’s economic foray into Africa is not confined to trade alone, China has penetrated major economic sectors ranging from the infrastructure of roads, railways, telecommunications and energy, to agriculture, industry, and construction. China’s recent involvement with Africa partly defines Africa’s rising success story. Trade with China diversified Africa’s economic relations ,which was crucial to avoiding the economic crisis that gripped many Western countries. Without that, Africa would have melted with its traditional trading partners, with depressed primary commodity and mineral prices. China, with its high demand, kept prices at a reasonable level, which allowed African countries to reap the benefits of higher export receipts. China has been a major source of development financing for African countries in recent times. It is estimated that between 2009 and 2012, China provided African countries with about $10 billion in concessional loans, a figure which is to be doubled to $20 billion from 2013 to 2015. It is anticipated that by 2025, China will have provided African countries with about $1 trillion in development financing including direct investment, soft and concessional loans. Also, the “China-Africa Development Fund” is a viable mechanism for development assistance, which invested over $1.8 billion in no less than 53 projects in Africa by 2012. 

However, as Yun Sun noted, “the billions of dollars that China commits to Africa are repayable, long-term loans”, and hardly aids. 

China’s decline

China’s economic slowdown is likely to affect African countries, but raise new opportunities for the continent as well. The cycle of the commodity boom may have come to an end with a possible steeper decline in the prices of primary products and mineral resources. This will hurt African countries as their export receipts will likely drop remarkably, which is already happening. The demand for oil is slowing down in China, affecting global oil prices, with negative consequences for oil-producing countries like Angola, Nigeria and Gabon. 

China’s development support and investment portfolio in Africa may also dwindle. The projection of $1 trillion development financing by 2025 may not materialise if China’a economy continues the current slide. 

However, the opportunity for Africa lies in the possibility of intensifying regional economic integration aimed at creating expanded markets and facilitating industrialisation. The truth is that while Africa has benefited from China, there are setbacks as well. There is growing de-industrialisation in many African countries, arising partly from the influx of cheap imported goods from China and other Asian countries. Africa’s weak manufacturing base has been further depleted, especially its textile industry. In the construction sector, for example, China has virtually crowded out local firms such that even local road maintenance is undertaken mostly by Chinese companies. 

If African policymakers can be very strategic and seize the moment, the economic decline in China may afford a window of opportunity for a major push towards industrialisation in Africa. With the tripartite free trade agreement (TFTA) signed and the continental free trade area (CFTA) negotiations about to commence, the market space is already being created; what is left is to expand production by looking inwards at enhancing regional value chains as a major step towards industrial progress.

Also, the development funds contraction from China may challenge African countries to think creatively in raising their own development financing from within. Remittances, for example, estimated at about $65 billion annually, are much bigger than the total Overseas Development Assistance (ODA) that Africa receives. Also, pension funds stashed in Europe and the US running into billions of dollars only provide cheap investment funds for those countries, which could otherwise be used to support Africa’s development process. But this is with the proviso that they are used transparently and productively. As China looks inward to adjust its economy for sustained growth, Africa must reconfigure its strategy in engaging China. China has an Africa policy, Africa also needs to have a clear China policy that will guide it in its relationship with the Chinese. Africa’s current approach to China is ad hoc, unsystematic and fragmented. It would not produce the desired result of economic transformation. China knows what it wants from Africa, Africa on the other hand, should be very clear about what it wants from China in the short, medium and long term. Old and historical fraternities and empty comradely clichés will not be enough to produce meaningful gains in China-Africa relations in a competitive globalised world.

Complacency is not an option for Africa; Africa must not bemoan and complain about what is happening or not happening in China, but think strategically about options and possibilities on how to emerge as the “new China” – the next frontier of economic transformation in the 21st century. Economic development is not a natural state of affairs; it is man-made- a human design, which any people, nation or society can attain. China proved that it is possible in a short space of less than five decades, why not Africa?  NA

Prof.  Said Adejumobi writes in his personal capacity.

Written By
New African

1 Commentaire

  • Thank you, Prof. Adejumobi, for the mind blowing article. China is currently the fastest runner in the economic race. She poses a great challenge to the Western economic giants. Any way the most important question is:” What is the position of Africa in the race?” Is Africa a participant or an onlooker? Africa is replete with resources to transform her into a giant economy. The problem is inadequate technology to translate the resources into economic prosperity. If Africa continues to supply her raw resources to China and the West, she will forever remain an onlooker in the world’s economic race.

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