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China's Influence on Africa

By:   •  June 19, 2014  •  Essay  •  1,641 Words (7 Pages)  •  1,637 Views

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At first glance the trade between Africa and China seems to be fair, however, when taking a closer look it is evident that is not the case. China mainly imports raw materials such as cobalt, copper, iron and oil. Africa imports mainly manufactured products such as textiles, chemical products and electronic goods. Oil, copper, iron and cobalt are all more valuable than clothing, chemical products and electronic goods. If what China is importing from Africa is more valuable than what Africa is importing from China, it means that China is receiving more than Africa in the trade relationship.

The China and Africa trade corridor was formed in the 1950s, however, trade between China and Africa began to peak after The Forum on China-Africa Cooperation (FOCAC) was established in October 2000. The main purpose of its establishment was to strengthen the relationship between China and the nations of Africa (African Development Bank 2011). In 1999 the total Sino-African trade volume was 6.5 billion USD. By the end of 2011 the trade volume had reach just over 155 billion USD. (Alessi C. 2012; PR Newswire 2011)

In 1978, Africa was important to China because they shared common qualities. They were both developing countries. They lacked developed transportation infrastructures, and both had suffered from the colonial era. Even though China was still also developing, it managed to assist Africa economically, financially and politically.

In the 1990's China's FDI improved, and they were competing with the Western countries. This was in part because private companies in China were encouraged to invest abroad. The country assisted its private companies with tax rebates and loans when establishing foreign business. During this period, for China, outward FDI became one of the major key ways to promote China's globalization and in 2000-2005; the country adopted a "Go Out" policy to promote competitiveness with other countries.

Also in the 1990's, unlike other Western countries, China saw many investment opportunities in Africa. During this period, China's economic involvement with Africa was for development assistance. These consisted of construction projects, and funding and training programs. African farmers transferred China's experience to Africa through training programs such as hydro-irrigation and small-scale agricultural production. All this played a role in enabling China to secure resources and investments in Africa.

There are close to 1 million Chinese nationals working or living in Africa. There are 2000 Chinese corporations doing business in Africa. They are mostly private companies which invest in improving infrastructures in various sectors such as manufacturing, energy, banking, transportation and telecommunications (China Daily.Com 2011).

Africa's main imports from China are food and chemical products; consumer electronics; solar and energy saving products; fashion accessories, garments and textiles; baby and children's products; and hardware and building materials; (PR Newswire United Business Media 2011) while Africa's main exports to China are raw materials such as oil, copper, iron, cotton, cobalt and cocoa (African Development Bank 2011)

Angola, Sudan, Nigeria, Algeria and Libya mainly export oil to China whereas Egypt, Morocco and South Africa trade in a various products, goods and services; while Benin's trade with China is mainly in agricultural products. Apart from the top 10 countries trading with China, there are a few other countries such as Zambia, Mozambique, Kenya and Namibia, where exports to China are growing. China is exploring copper in Zambia, copper and cobalt in DRC and aluminum in Mozambique and Guinea. China is investing heavily in raw materials in Africa while Africa is mainly buying manufactured goods and products from China. Africa's importing of these goods has the risk of threating local business in that particular country.

There are a number of complaints from local business owners. For example, Ethiopian farmers are starting to complain that the Chinese are buying vast tracks of land in their country in order to grow food and send it back home. In Zambia, poultry farmers are complaining that what seemed to be a good investment from China in the beginning is now turning into competition as the same Chinese who came to invest are now selling the chickens themselves. However, the Chinese defend these claims by saying that they are keeping the market healthy. (Cossau,2011). Another controversial issue is China selling military arms to Sudan (a country accused of war crimes) during the crisis in Darfur. Despite the complaints, China has helped towards the development of infrastructure in Africa in numerous business areas, such as health, manufacturing, transport, sports and education.

Along with a high demand for energy in China, food security is also a growing concern. With an increase in population, the loss of agricultural land to industry as well as an increasing consumption amongst urbanizing people, Beijing a needs to obtain an ongoing source food. One solution has been the use of genetically modified crops. Another is Chinese investment in agriculture, fisheries and with that the secondary production facilities used for those. China's Ministry of Foreign Trade and Economic Co-operation (MOFTEC) has sought to encourage Chinese investment in Africa, stating that ‘Chinese-invested companies engaged in the production of farm machinery, agricultural processing and small product trading targeted for the world market, will find immense business potential [in Africa]' (Shelton 2001). An example of this would be that Chinese investors have set up jointly in fish processing in Gabon and Namibia, with some of the richest fisheries in the world, and have also leased agricultural land in Zambia, Tanzania and Zimbabwe.

Africa's Political economy is favorable for foreign business because of individualism, democracy and a free market. Another reason for China to establish new markets and investment in Africa is the overall attractiveness of Africa to FDI.

Although Africa is a relatively small consumer-goods market, trade with China has had a major impact in two ways. China has been able to find a market for low-value consumer goods brought in by Chinese-dominated import companies and sold through a growing network across urban and rural Africa. In the words of one Chinese trade analyst, ‘Chinese products are well suited to the African market. At the moment, China is in a position to manufacture basic products at very low prices and of satisfactory quality.'(Zhaoming 2004). A South African government law condition makes it easy for China to establish their businesses.

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