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Source: www.asiaecon.org |

CHINESE INVESTMENT IN AFRICA


As China's population continues to rise and economic growth continues to soar, China will need to secure increasingly larger amounts of resources from outside its borders. Unlike most of the Western world, China has been looking toward Africa for its answer. Africa is extremely wealthy in natural resources, but political uncertainty, corruption and poor infrastructure have kept many countries away. China has used this uncertainty to enter Africa at a relative bargain and at the same time use Africa's resources to fuel its growth.


As China’s population continues to rise and economic growth continues to soar, China will need to secure increasingly larger amounts of resources from outside its borders. Unlike most of the Western world, China has been looking toward Africa for its answer. Africa is extremely wealthy in natural resources, but political uncertainty, corruption and poor infrastructure have kept many countries away. China has used this uncertainty to enter Africa at a relative bargain and at the same time use Africa’s resources to fuel its growth.

GDP growth and energy consumption tend to increase together. Over the past 25 years, energy consumption in China has risen on average 5.5 percent, including a 15 percent increase in energy consumption for 2007. As energy consumption increases, China has become increasingly dependent on its own supply of coal. Over the last few years 70 percent of China’s energy demand has come from coal. But in order to meet its ever increasing energy demand, China is creating relationships within Africa to extract oil. By diversifying its energy portfolio, China is no longer held hostage by volatile coal prices.

Besides oil, Africa provides numerous resources unavailable within Chinese borders. Trade between South Africa and China has increased dramatically in the last few years, specifically for gold. China has also been importing tropical timber in increasing amounts, and is now the largest destination for Africa’s timber, overtaking the European Union. Other key imports include cobalt and copper from the Democratic Republic of Congo, manganese from South Africa and uranium from Niger.

Even today amid the global financial crisis, China continues to invest heavily in Africa. Many investments that previously were high earners, are now producing more modest gains. Yet, many Chinese businessmen are taking a long-term approach and continuing to increase their investments in Africa. In fact, many businessmen are looking at 2009 as a huge opportunity. Knowing that they have the backing of the Chinese government, businessmen are hunting for bargains. One example is Zambia’s cobalt industry. Chinese firms have expressed interest in taking over the top cobalt producer, Luanshya Copper Mines, since it has stopped operations in December for financial reasons.

However, there have been some situations where China has pulled back investments. In some cases, it no longer makes economic sense to invest in the more risky ventures. One such example is the commodities boom in Democratic Republic of Congo. Foreign investment to access DR Congo’s rich, but long neglected, copper, cobalt and gold mines boomed after the post-war elections in 2006. But today most have closed because of slowing global demand and falling currency.

And now the much heralded $9 billion package of Chinese loans is expected to be scaled back to $6 billion because of fears of growing debt for the Congolese government. Although there are cases where China is scaling back its investments in Africa, as a whole, China continues to increase long term investment throughout the continent.

Furthermore, China is planning to expand its zero import tariff policy in Africa. Currently, there are no import tariffs on more than ten types of goods imported from 31 different African countries. China is looking to boost this number in order to stimulate trade between the two markets. As China has pumped in billions of dollars into Africa in the past few years, the trade deficit between the two has grown in Africa’s favor. China plans to remedy the situation by attempting to attract more imports to Africa.

However, China’s efforts are not paved in good intentions, but instead of pure economic self interest. China needs Nigeria’s oil, Zambia’s copper, South Africa’s platinum and the rest of Africa’s rich natural resources to flourish. The method in which China is able to obtain these resources has been called “soft power.” China invests in resources throughout Africa and offers loans in exchange for access to the resources.

Chinese investments have built roads in Ethiopia, schools and hospitals in Liberia and railways in Angola. China has invested staggering amounts of money into Africa, and its investments are paying off. As of the beginning of 2007, direct investment alone was at $6.5 billion. Perhaps even more impressive, trade between China and Africa reached an all time high of $106.8 billion in 2008. Compared to only $10 billion in 2000, trade between China and Africa has increased 30 percent per year. And if there is any question whether China’s investments had paid off, one only needs to note that over one-third of Chinese oil demand is now met through Africa.


Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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