How is bilateral trade with Africa offsetting a drop in Chinese investment

Despite global supply chain challenges, the value of trade between China and Africa rose to record levels in 2021. The increase partially reflected a shift in China’s policy away from government-backed investment towards enhanced trade and cooperation. According to the Chinese Customs Agency, the value of the country’s trade with Africa rose by 35% to $254bn that year, driven by an increase in exports to the continent.

Looking to the future, trade volume looks set to continue this expansive trend, with trade constituting a key element in a joint plan released at the November 2021 Forum on China-Africa Cooperation (FOCAC) meeting.

FOCAC & Trade

Launched in 2000, FOCAC has given rise to an ever-closer relationship between China and the African continent in both diplomatic and economic terms. However, the Covid-19 pandemic prompted a change in direction. The 2021 FOCAC conference saw China announce a pivot away from the government’s role as a direct financer of projects in Africa. This was reflected in President Xi Jinping’s pledge that year of $40bn to the continent – a 33% drop on the $60bn pledged at the preceding conference in 2018, and the first time that the sum committed by China decreased.

There was notably no concrete budget assigned to concessional lending, which has traditionally been the principal vehicle by which China has invested in infrastructure projects. It would seem that China envisages that trade and private investment will offset the drop in government-backed funding.

The FOCAC conference also saw the launch of the 2035 Vision for China-Africa Cooperation, the first midto long-term cooperation plan jointly developed by the two parties. Echoing China’s own Vision 2035, this document laid out eight areas of cooperation, among them development, trade and industry. In terms of trade, a key element was China’s promise to work to close the trade gap by importing $300bn of goods from Africa through 2024. This will be facilitated by the opening of green lanes for African agricultural exports, an easing of inspection and quarantine procedures, and a broadening of the number of products on which no tariff is charged. This reflects a growing Chinese appetite for products from Africa, with agricultural goods doing particularly well: between July 2020 and July 2021 the value of exports of rubber, cotton and coffee doubled.

Meanwhile, in September 2021 the second China-Africa Economic and Trade Expo took place in Changsha City in central China, with some $22.9bn worth of agreements inked, according to government sources. Nonetheless, $300bn in three years represents a relatively modest target, considering that in 2013 China imported $100bn of goods from the continent, although the figure has dropped in the years since. Furthermore, this is substantially less than the value of goods imported from the EU.

Infrastructure Gap 

China’s reduction of state funding may be a source of concern to African governments, given the traditionally important role China has played in developing infrastructure projects.

According to the Centre for Global Development, between 2007 and 2020 China’s two main overseas development banks were among the top-three lenders to the African continent. The Export-Import Bank of China invested the largest sum over this period, at $20.1bn. The next-biggest lender was the African Development Bank (AfDB) ($4.5bn), followed by the China Development Bank ($2.9bn).

The combined $23bn invested by the two Chinese banks was $8bn higher than the total of the eight other top lenders to the continent, among them the World Bank and the AfDB. Combined lending to Africa stood at around $9bn per year as of mid-2022. This was, however, still far below the level of infrastructure funding that the continent requires to complete future initiatives. According to the AfDB, Africa’s infrastructure investment needs are valued at $130bn-170bn a year, with a financing gap of between $67.6bn and $107.5bn to support and accelerate further economic expansion.