Stepping up the game

Prospects bright for further growth in China-Africa trade

The global economic outlook continues to be grim this year as the negative impact of the US fiscal cliff, the European debt crisis and the sustained recession in Japan will continue to weigh heavily on recovery prospects.

The growing China-Africa trade, however, is one of the bright spots amid the global gloom. Though both sides are facing complex global challenges, they also have a rare opportunity to further accelerate trade relations this year.

Part of the reason why Africa holds such appeal is that the continent is witnessing a new round of rapid growth. African countries dominate the top 10 list of fastest growing economies released by the International Monetary Fund, and accounts for over seven positions.

African countries are actively involved in infrastructure construction, and also in developing basic industries such as agriculture and manufacturing. Interestingly, the African transformation comes at a time when China is also looking to revamp its industrial growth pattern.

Since both sides are undergoing economic and social transformation and upgrades, their development has also been more or less complementary, with engagements mostly aimed at enhancing cooperation for mutual benefit.

A major feature of China-Africa trade this year would be the finalization of the economic and trade agreements. The Fifth Ministerial Conference of the Forum on China-Africa Cooperation, held in Beijing in July 2012, saw President Hu Jintao announcing a new initiative to continue deep and pragmatic cooperation in five areas, including three in the field of trade and economic cooperation, namely expanding cooperation in investment and financing, adding more development assistance and support to African integration.

The initiatives specified for the next three years have provided direction to the development of China-Africa economic and trade relations, and enriched the form and content of the cooperation.

At the same time, the China-Africa trade structure will more or less be optimized this year. According to the Ministry of Commerce, from January to October 2012, China-Africa trade maintained a 20 percent growth rate, 14 percentage points higher than the national average growth rate of foreign trade.

A major highlight of the growth in China-Africa trade has been the growing proportion of imports from Africa. China's imports from Africa have grown at significantly higher rates than its exports to Africa, a consistent feature in recent years, and also contributed to China's widened trade deficit with Africa.

From January to October 2012, China's trade deficit with Africa reached about $25 billion. To further improve trade structure and expand exports to Africa, 30 underdeveloped African countries that have established diplomatic relations with China have started to enjoy China's zero-tariff treatment for 60 percent of their exports. At the same time, the African Commodities Exhibition Center was set up in Yiwu, Zhejiang province, which, with favorable expense plans and other support policies, has attracted more than 2,000 types of products from more than 20 African countries. More African specialty products are also beginning to find favor with Chinese consumers.

China-Africa investment will, however, continue to maintain its growth momentum this year. From January to October 2012, China's foreign direct investment in Africa reached $1.5 billion, an increase of 17 percent from the same period in the previous year. Africa has become one of the emerging destinations for overseas investment for several Chinese enterprises. The number of Chinese enterprises in Africa is more than 2,000, and are involved in many areas such as agriculture, telecommunications, energy, manufacturing, and food and beverage services.

To further guide Chinese enterprises to expand investment in Africa, the government has been building investment platforms, such as the China-Africa Development Fund, economic and trade cooperation zones and through loans to SMEs in Africa. At present, Chinese enterprises have six economic and trade cooperation zones under construction across five African countries, and more than 140 enterprises have agreed to be part of this.

The China-Africa Development Fund has 50 projects in 30 African countries. The number of projects involving loans to support African SME development has surpassed 20.

Project contracts are another area in Africa that Chinese companies will look to cash in this year. At present, Africa is China's second-largest overseas project contracting market. During the first 10 months of last year, engineering contracts signed by Chinese companies amounted to $38.2 billion, while turnover was $28.9 billion, representing a year-on-year growth of 27 percent and 6 percent, and accounting for one-third of the total turnover of China's overseas contracted projects in the same period. The scope of cooperation covered diverse sectors such as electricity, telecommunications, water, roads, bridges and port construction.

With the cooperation deepening, the Chinese government has now begun to encourage big Chinese companies to make rapid strides in upstream projects such as planning, design and project management, operational guidance, financial institutions and feasibility studies on Africa's cross-border large-scale infrastructure construction.

The author is director and associate professor at the African Economics Center of the Institute of African Studies at Zhejiang Normal University based in Jinhua, Zhejiang province.

(China Daily 02/01/2013 page7)