China in Africa: Rough Waters Ahead?

From 2-5 December, African heads of state will gather in Johannesburg, South Africa for the sixth Forum for China-Africa Cooperation (FOCAC), which also will be attended by Chinese Premier Xi Jinping and other senior Chinese officials.  Held every three years since 2000, FOCAC has since its inception been a venue for Chinese announcements of large-scale investments on the continent, notably in the area of infrastructure development; the last summit in 2012 yielded the announcement of $20 billion in soft loans for African infrastructure development, for example.  This year, Chinese sources suggest Xi will announce new initiatives focused on food security, public health, and industrialization, reemphasizing the noble intentions of Chinese involvement on the continent. 

Beijing’s attention to the continent over the past 15 years is not surprising.  Chinese trade with the continent reached a whopping $220 billion in 2015, up from just $10 billion in 2000.  China has gobbled up Africa commodities to fuel its frenetic, occasionally double-digit economic growth.  This is reflected in the trade numbers, with hydrocarbons accounting for 75-80 percent of exports and minerals a significant portion of the rest.  China has invested billions more in infrastructure projects.  Although China portrays them as selfless ventures to promote African development, they are generally designed to move commodities to market more cheaply and efficiently, absorb Chinese workers (up to a million reside in Africa), and benefit Chinese construction firms.  Africa also benefits China as a destination for a range of manufactured products, from textiles to automobiles. 

However, the continued upward trajectory of the China-Africa relationship looks more in doubt than at any time in recent memory.  On both sides of the equation, the bloom is off the rose; both Africans and Chinese are starting to see their partners’ warts and flaws more clearly.  Africans—particularly from labor and civil society groups—are increasingly wary of Chinese involvement, particularly Chinese firms’ often blatant disregard for local environmental standards, labor standards, and property rights.  Notably in Zambia, Chinese supervisors and local miners have clashed—with deaths on both sides—over alleged Chinese refusal to accede to basic safety standards.  Labor unions across the continent (particularly in South Africa) also allege that cheap Chinese textiles undermine local manufacturing.  Chinese principals from both industry and government, meanwhile, have privately expressed frustrations with their African partners ranging from poor quality of workers to government fecklessness in enforcing agreements. 

These mutual concerns are exacerbated by a host of international and local factors that conspire against continued rapid development of ties.  Foremost among them is the state of the Chinese economy, which is finally showing signs of a slowdown after years of rapid growth.  Most projections show Chinese annual growth in the 6-7 percent range over the next five years; still robust, but well off the 8-10 percent growth seen in the past 15 years.  The impact of this downturn already has been evident in the past year with the downturn in many international commodity prices, which have been held down by declining Chinese demand.  China’s downturn also has been a significant contributing factor to the fall in oil and gas prices, which are devastating African oil exporters like Nigeria, Angola, and Equatorial Guinea, which have seen the value of their petroleum exports decline by more than 50 percent in the past year.  Meanwhile, nascent African gas producers on the east coast, notably Mozambique and Tanzania, have seen large-scale projects delayed until prices rebound.  China is not solely to blame for hydrocarbon price decreases—growing US production and global advances on renewables are equally, if not more, important—but the situation is likely to be a concern for the next several years.

Already, the impact of these conditions on the China-Africa economic relationship is evident.  According to the Financial Times, Chinese foreign direct investment (FDI) in Africa declined 80 percent in the first half of 2015 from a year prior.  One should not overstate the importance of this figure; Chinese FDI, like that of other nations, fluctuates wildly between years, with mega-projects driving it up.  However, China is unlikely to invest in large-scale transport infrastructure or extractive projects while demand and prices are low.  Given the steep decline in oil prices, trade figures are likely to soon reflect a sharp decline in the value of African exports.  Heretofore the China-Africa trade balance has been largely equal; with price shocks throwing this out of balance, African leaders may start waving protectionist flags to correct the imbalance.

Ultimately, one should not expect radical shifts in the China-Africa relationship in the next couple of years—the stakes are too high on both sides to upset what are generally mutually beneficial ties.  They are slowly expanding beyond the economic realm, with China recently announcing it would open a naval base in Djibouti for counter-piracy operations and logistical support.  But equally clear is that the era of Chinese dominance and rapid expansion on the continent are coming to an end.  China will be more savvy and selective about where it does business.  African states, meanwhile, will take advantage of mounting global interest in the continent to find the trade and investment partners it needs.  While China remains the continent’s top trading partner, Indian trade with Africa topped $100 billion last year, and both Western and emerging markets are boosting their African engagement.  Opportunities abound on the continent, and firms from around the world will have the chance to take advantage.

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