When you’re in Asia, it’s sometimes easy to forget how important China is to other parts of the world.
China is the biggest, or second biggest, trading partner for most ASEAN countries. Asia receives over 70% of China’s foreign direct investment.
But China matters almost as much to Africa as well. China is invested in 46 out of 54 African countries and trails only the U.S., Britain and Italy in annual foreign direct investment in the continent. Trade between China and Africa totaled US$220 billion in 2014, up from just US$10 billion in 2000. The Brookings Institution, citing The Export-Import Bank of China, estimates that by 2025, China will have provided Africa with a total of about US$1 trillion in the form of direct investment, aid and loans.
For most of the past fifteen years, the relationship between China and Africa has been largely built on commodities. China has needed lots of oil, metals and minerals to fuel its rapid growth, and Africa could supply them. The drop in commodity prices last year resulted in an 18% decline in trade between China and Africa.
But meanwhile, China’s interests in Africa have been diversifying beyond commodities. Financial services, construction and manufacturing now account for half of China’s foreign direct investment in Africa.
China’s investment in Africa has grown so quickly partly because China doesn’t mind dealing with countries where there’s lots of corruption and not much rule of law. China doesn’t make assistance conditional on democratic reform or improved human rights.
The Brookings Institution reviewed the Chinese government’s direct investments in Africa and found a negative correlation between Chinese investment and the World Bank’s Rule of Law index (which gives an idea of how corrupt a country is). This means that China is in fact more likely to invest in more corrupt countries in Africa, than it is to invest in less-corrupt countries.
China’s relationship with Africa is helped because China was never a colonial power in Africa. So there’s no historical baggage to interfere with business.
As growth in China’s voracious demand for commodities slows, trade has declined, and its relationship with Africa is evolving. But even if China’s eagerness to secure sources of raw commodities might decline a bit, its overall investment in Africa will continue to grow, for two reasons.
First, China is in the process of reducing its reliance on manufacturing and is becoming more consumer and services oriented. With Africa’s large, growing population – and cheap labour – China wants to use Africa as a manufacturing base. Chinese investment is already one of the top three job creators in Africa (along with Turkey and India). Moving manufacturing facilities to Africa also helps China’s pollution problem.
Also, Africa is a potentially big market for everything that China, or Chinese companies, makes. After Asia, Africa is the world’s fastest-growing continent. As Africa’s economy grows, China wants to help meet Africa’s rising demand for goods and services.
China’s recent economic slowdown is no reason to think it will abandon Africa. China has a long-term plan that likely won’t change because of a short-term slowdown. Africa will continue to play an central role in China’s economic development for the next decade, and decades, to follow.