China’s Trade with African Countries

Yana Grigoryeva, Intern at the Russian National Committee on BRICS Research - special for InfoBRICS

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It is not a secret that China has recently been actively increasing its influence in the countries of the African continent. China’s interests in Africa become very clear if we take into account the fact that at the beginning of the 21st century, the Chinese economy faced a number of systemic problems associated, first of all, with the excess of growth rates over domestic consumption. Another problem is the acute shortage of resources for the country’s economic growth. To solve these problems, the leadership of the PRC put forward a new foreign economic strategy of active access of Chinese manufacturers to world markets, development of natural resources of other countries and active investment abroad. Africa became the continent that met all the goals of the Chinese strategy.

There are also risks of development of foreign trade relations. First, there are political risks, as African countries are characterized by relatively strong ethnic or tribal thinking. Ongoing conflicts between regions, between ethnic groups, and between Central and local governments lead to the growth of regionalism and national separatism. Political conflicts and confrontations inevitably affect the political stability of the countries and regions.

Secondly, the risks of the legal system have a huge impact on potential investors. The degree of institutionalization of African energy exporting countries is generally low, the level of governance of the country is often extremely low, this all leads to corruption. It is important to understand that corruption can always lead to instability in the resource policy of the government, to increase the operating costs of companies, and can undermine the competitive environment.

Third, the wave of resource nationalism that emerges from time to time increases the uncertainty of the investment environment in African countries. Resource nationalism takes various forms: reducing exports, manipulating prices (both to maximize profits and to exert political pressure on individual importers), limiting the access of foreign companies to the development of national natural resources. As a result, companies may face large investment losses.

The reason for development is primarily the complementarity of the economies of China and the countries of the African continent. It is no secret that the main goal in trade with Africa for China are natural resources. This is evidenced by the fact that more than 50% of all imports are oil products, and more than 80% are another natural resources in general. In addition to oil (main suppliers: Angola, Sudan, Algeria), China also imports iron ore, gold, platinum from South Africa, copper and cobalt from Congo and Zambia. Regarding agricultural commodities, China primarily imports rice, palm oil, cotton for the textile enterprises.

If we talk about Chinese exports to Africa, the main competitive advantage of China, compared with European and American goods is the relative cheapness of goods, primarily clothing, household electrical equipment. Moreover, China is actively increasing the supply of industrial products to Africa, and this is not only consumer goods, such as household appliances, clothing or utensils, but also complex equipment – turbines of power plants, telecommunications equipment for mobile networks.

However, as a result, local African business is under attack, which cannot compete with cheaper Chinese goods. In particular, the transfer of Chinese textile companies is detrimental to African enterprises. China’s export structure, as well as its import structure, negatively affects the economies of African countries, limiting their technological development and hindering the diversification of their exports.

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China is quite successful in its trade policy, importing natural resources and exporting consumer goods. At the same time, despite the more than 20-fold increase in trade with Africa in recent years, the Sino-African trade turnover is only 5% of the total trade turnover of the PRC.

A critical problem is the lack of infrastructure. The South African company, an exporter of iron ore to China, has repeatedly stated that the Chinese side is interested in doubling the supply of raw materials to China, however, this is impossible due to the lack of transport infrastructure. The main contradictions in the development of African economies in mutual trade with China is the fact that this kind of cooperation makes African countries dependent on the world price of natural resources. Africa is not able to rationally and fairly distribute large revenues from natural resource exports and invest in other industries, which is the cause of income misallocation; cooperation with China deprives governments of incentives to diversify the structure of the economy and exports.

China sees Africa as its closest partner in the future, both economically and politically. Africa is likely to play an important geopolitical and economic role in a future alternative to China’s Western world order with its own financial and banking systems. In recent years, China, considering Africa as an important strategic partner, has sought to create a favorable image for itself, actively helping Africa and solving the important problems of hunger, lack of quality medicine and educational infrastructure. Thus, China’s economic strategy towards Africa is extremely contradictory: on the one hand, it is a pragmatic desire to solve its problems (lack of natural resources, overproduction crisis, labor surplus), on the other – to get an important geopolitical partner with a large number of votes in international organizations. In general, despite many difficulties, China is quite successfully developing foreign trade relations with African countries.

Still, despite the criticism coming from some African countries and, to a large extent, from Western countries, China is a good partner in the eyes of most Africans. Indeed, the Chinese leadership and the leaders of African countries have developed mutual understanding and close friendship, which may continue to stimulate their economic relations.

For Russia, China’s cooperation with African countries can be viewed from two angles. On the one hand, Africa implies a serious competitor of Russia in the Chinese oil market. The share of African oil will steadily grow, and the leadership of Russian energy companies will have to reckon with it. On the other hand, the relationship between China and African countries is a clear example of how it is necessary to build economic relations not only with the African continent, but also with other countries.

In order to achieve certain economically advantageous objectives, Russia needs to develop cooperation more closely not only with our country’s traditional partners on the African continent, such as Egypt, Algeria, Morocco and South Africa, which account for a large share of trade turnover, but also with countries not previously considered as major economic entities.

Source: InfoBRICS

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