|China's Trade Rush with Africa|
Author: Lu Yong
The BRICS leaders met at the third BRIC summit in Sanya, Hainan, on April 14. South Africa’s first official participation to this summit means the extension of the BRIC group to BRICS. Partnering with the largest economy in sub-Saharan region and the de facto leader of southern Africa will provide strategic access to the African market for the other BRICS countries.
China and African trade corridor was formed in the 1950s, but it only started to prosper since 2000. The trade between China and African countries reached a new high of 126.9 billion US dollars in 2010.
China-Africa trade figures are seemed to be relatively balanced, as China’s exports to African countries are almost equal to its imports from the African countries. However, the balance in the trade figures doesn’t necessarily mean a real balance. As a matter of fact, the trade between China and Africa is uneven in both terms of geographical distribution and commodity categories.
The trade volume between African countries and China varies from country from country. Angola is the biggest trading partner of China in Africa with an average annual trade of over 18.6 billion US dollars; next comes South Africa with an average annual trade of 16.7 billion US dollars. Among China’s top 10 African trading partners, 6 are oil exporters and 3 have diversified economy. The trade between China and its top 10 African trading partners accounts for 76% of the total trade between China and Africa, reflecting a significant concentration in China-Africa trade.
From China’s perspective, Africa may be a strategic provider of natural resources; but on the other hand, more and more African countries have become China’s export destinations with significant market potentials.
Concerning categories of traded goods, China's imports of natural resources from Africa is the driving force behind China-Africa trade boom. China's imports from Africa are dominated by primary products. Since 2004, China's import of primary products accounts for over 90% of total African imports. Among them, fuel accounts for the majority of Africa's exports to China (64% of the total China-Africa trade in 2009), followed by iron ore and metals (24%), other bulk commodities, food and other agricultural products (5%).
From 2000 to 2010, African oil production grew sharply from 7.11 million barrels to 9.25 million barrels per day. Despite the fact that the region's three traditional OPEC members, i.e. Nigeria, Algeria and Libya, have seen their oil production remain unchanged over years, Angola (joined OPEC in 2007), Sudan, the Democratic Republic of Congo, Equatorial Guinea and other oil-producing countries have made steady contributions to the growth of oil production in Africa. China has been a loyal buyer of the "new oil".
From 2000 to 2009, the share of iron ore and metals in China’s African imports increased steadily from 12% to 24%. Chinese companies are stepping up development of African market and exploring the copper market in Zambia, copper and cobalt market in Congo (DRC), aluminum market in Mozambique and Guinea. Especially over the recent five years, China’s share in the iron ore and metal exports of Africa has been rising sharply.
From the perspective of China’s export structure to Africa, it has experienced certain changes over the past years. In 2000, China's exports to Africa are nearly evenly distributed in several areas including textiles & clothing (accounting for 28% of the total African exports), machinery & transportation equipment (27%), and other manufactured goods (26%).
Since then, China's exports to Africa began to transform, upgrading from low-end textile and garment exports to high-end capital goods exports. In 2009, machinery & transportation equipment accounted for the largest share (41% of the total) in China’s exports to Africa, including communications equipment (20%), road transport vehicles (19%) and electronic machinery (18%).
Most African countries that have a trade deficit with China are paid back with access to low-cost capital goods export from China in favor of their respective national infrastructure investment; as lack of infrastructure is viewed as one of the greatest obstacles to African economic development. Africa will be able to significantly reduce economy operating costs and become more attractive to overseas investors if it could improve its municipal infrastructure facilities, which is consistent with the purpose of China's overseas investment.
China’s capital investment in sub-Saharan Africa’s infrastructure is experiencing exponential growth, up from 1 billion US dollars in 2001 to 17 billion US dollars in 2010 (including a 130-million-US-dollar special loan to Ghana) with infrastructure projects ranging from construction of power plants, highways, and railroads to airports.
Exhibit: China’s top 10 trading partners in Africa
Source: Edited by Capital Week