Africa's Burgeoning Ties with China

• Author: Jian-Ye Wang and Abdoulaye Bio-Tchané
• Position: Deputy Division Chief/Former director in the IMF's African Department
• Pages: 44-47

Maximizing the benefits of China's increasing economic engagement with Africa

Page 44

AFRICA and China have been trading partners for centuries. But in recent years, the level and intensity of their relationship have increased dramatically. In the early 1990s, official development aid and government ministries dominated the relationship. Now, however, as the relationship has evolved to center on markets for each other's exports and Africa's demand for infrastructure, the Chinese corporate sector and joint ventures have supplanted government agencies. In other words, for Africa, China is now a major market, financier, investor, contractor, and builder-as well as donor.

In general, this tighter economic friendship has been welcomed. After all, reducing poverty tops the global community's Millennium Development Goals for 2015. But concerns are increasingly being voiced about how China's growing presence might affect Africa's development. Many African nations worry about its possible impact on local industries and employment. And major industrial nations worry about the lack of donor coordination and rebuilding of debt burdens in poor countries that have benefited from their recent debt write-offs.

To date, there have been relatively few systematic studies of the growing economic relations between China and Africa. that is why the IMF has undertaken a study to quantify- pulling together available information, which is far from complete-China's economic engagement with Africa. the hope is that through a better understanding of the relationship, we can identify how African countries might best position themselves to reap the biggest possible gains.

Trade is growing

Two-way trade flows between Africa and China have been growing rapidly. Between 2001 and 2006, Africa's exports to and imports from China rose on average by more than 40 percent and 35 percent, respectively, significantly higher than the growth rate of world trade (14 percent) or commodities prices (18 percent). In dollar terms, for both imports and exports, the increase in that period was from about $10 billion to more than $55 billion (see Chart 1). China is now Africa's third largest trading partner after the United states and the European Union. Its share in Africa's annual export growth has almost doubled since 2000 (see Chart 2).

Chart 1. Surging trade

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Chart 2. The partnership deepens

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The terms of trade have moved in Africa's favor. It is estimated that Africa's export prices relative to the price of imports from China improved by 80-90 percent between 2001 and 2006, the result of rising world prices for oil and raw materials, Africa's main exports. those increases have been driven in part by strong demand from China. Bilateral trade, meanwhile, has been fairly balanced. Africa in 2004- 06 ran a small, $2 billion a year trade surplus with China. the composition of goods traded between Africa and China is similar to that between Africa and its other major trading Page 45 partners (see Chart 3). In 2006, oil and gas accounted for over 60 percent of Africa's exports to China, followed by nonpetroleum minerals and metals at 13 percent. Africa's imports from China comprised mainly manufactured products and machinery and transport equipment, which together accounted for about three-fourths of total imports. the similar composition of goods traded between Africa and its main trading partners suggests that the recent surge in Africa-China trade largely reflects the comparative advantages of each partner, given their stage of economic development, rather than any unilateral interest by China in...