This paper intends to provide an assessment, based on fractional information, of China’s economic involvement in Africa and to identify the forces shaping burgeoning China-Africa economic relations. The study is undertaken against the background of a rapidly changing landscape of international trade and finance that has eclipsed traditional aid flows to middleincome countries, making Africa ever more central for development finance.
For Africa, China has been a market, a donor, a financier and investor, and a contractor and builder. While aid historically was of major importance, two significant changes have occurred since the turn of the new century. Because trade and investment have become much more significant in volume than aid flows, economic relations between China and Africa are clearly commercial rather than aid-driven. Meanwhile, the private sector has stepped to center stage. Here China’s foreign economic relations mirror changes in its domestic economy. China-Africa economic exchanges have become much more decentralized and broad-based.
The paper identifies four factors associated with recent changes in China’s economic engagement with Africa: Chinese government policies, growing Chinese and African markets for each other’s exports, Africa’s demand for infrastructure, and differential China’s approach to financing. China’s state financial institutions have been instrumental in cementing the new, commerce-based economic ties. In the process, they are helping correct chronic undervaluation of Africa by investors and helping fund new investments in Africa’s export and infrastructure sectors.
Africa will become an increasingly attractive market as incomes rise and progress in regional integration makes its markets even more attractive. It will also become a key destination for FDI, and it will continue to need infrastructure. Together these powerful market forces may put Africa-China economic relations firmly on a commercial footing. Both public and private sectors have a part in ensuring that the expanding trade and investment ties are mutually beneficial and contribute to sustainable growth and development in Africa. The impact of possible changes in Chinese demand on African terms of trade, trade patterns, and the economic prospects of countries in Africa are worthwhile topics for further research.
IMF Working Paper African Department What Drives China’s Growing Role in Africa?
Prepared by Jian-Ye Wang October 2007
To learn more about this author, visit International Monetary Fund's Website.
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