Beyond the Commodities Boom – China's Shifting Role in Africa

China’s meteoric rise in the past has been a boon to developing and advanced economies alike. Its seemingly insatiable consumption of raw materials destined for its rapidly-expanding urban centers and capital investments in a number of sectors helped to inflate what is often referred to as the “commodities super cycle” that has characterized the past 15 years. In an effort to secure such commodities, China has expanded its presence in sub-Saharan Africa, sending substantial sums of capital, expertise and workers to develop extraction industries and infrastructure in several countries. However, China’s rapid growth is unwinding, and its objectives in Africa are likely to reflect this fact. This month, Chinese leader Xi Jinping visits Zimbabwe and South Africa to engage in talks with African leaders.

China’s strategy in Africa has been largely based on resource extraction and is generally characterized by offering mostly yuan denominated loans in exchange for permitting Chinese state-owned enterprises access to resources.  Although this approach has precipitated some benefit to African countries, including countries such as Zimbabwe, the advantage is often squarely in China’s favor. Most jobs related to these investments are given to Chinese workers that are relocated into Africa and loans are often given to ineffectual or corrupt governments, without any conditions relating to better governance practices. 

 
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Image: Rory Boon (Altered from original)

 

As China’s economy slows, and rebalances from investment driven growth to consumption, so too will its demand for resources. This could harm political regimes in Africa that have grown dependent on Chinese resource extraction deals. However, the fact that Chinese leaders are visiting Africa this month indicates that China still considers a strategic role in Africa advantageous. Xi Jinping will likely be seeking new markets for Chinese manufactured goods, access to cheaper labor and production capacity, and securing precious metals, such as Zimbabwe’s gold, diamonds and other minerals that are in consumer manufacturing.

As Chinese demand cools, so too will its investment in Africa. China’s Ministry of Commerce believes that Chinese investment in Africa has fallen 40% so far this year. That being said, China continues to be Africa’s largest trading partner and still requires a vast amount of resources to fuel its economy. Aside from economic interests, China would like to see its sphere of influence expanded to include resource-rich industrializing countries, as demonstrated by the Xi Jinping’s monetary pledge for the African Union’s defense force, as well as the deployment of a Chinese infantry battalion in oil-rich South Sudan.     

Author: Robert Hill, Economist

Date: December 7, 2015


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