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Chinese Investment in Africa Falls by 40%

by Saibal Dasgupta November 25, 2015

China's Commerce Ministry recently caused a stir when it publicly admitted that Chinese investments to Africa had fallen by 40 percent in the first half of this year. Some saw the sharp decline as a sign of the broader impact of China's slowing economy. Others, however, say it is more related to Beijing's changing approach to investments overseas.

Chinese President Xi Jinping's could clear up whether Beijing's overseas investment strategy is changing when he speaks at the Forum of China-Africa Cooperation in Johannesburg on December 4-5.

Analysts are also asking if Western countries and companies will take this time to recover some of the business ground in Africa they had lost to Beijing in recent years.

'China's needs are changing. In the past, it has been more concerned about investing in natural resources, but it now wants to invest in technology and innovation as well as investing in mature markets, rather than any slowdown in foreign direct investment,' said Graham Robinson, director of the London-based consultancy Global Construction Perspectives.

The sharp decline in African investments is a reflection of the broader impact of China's slowing economy, analysts said. The simple fact is that China's need for natural resources, including minerals produced in Africa, is much less than what it was in the past.

"Chinese foreign direct investments are down because the major investment sector is minerals and oil, and prices of these commodities are sharply down. This means that any costly FDI is likely to be postponed until prices rise and the investment again looks feasible,' said Deborah Brautigam, director at China-Africa Research Institute and Bernard L. Schwartz Professor of International Political Economy at Johns Hopkins University.

In its new five-year plan, China has adopted a different development stance focusing more on the services sector, and reducing its reliance on heavy industries that consume huge amount of resources, and cause massive carbon emissions.

Explaining the changed circumstances, author and business consultant Robert Lawrence Kuhn said, "There are a number of trends that go against Africa as an investment destination for Chinese enterprises… But China will remain committed to Africa, and continue to support projects in African countries."

China is conscious about the political influence of African countries in terms of membership at the United Nations as well as its own 50-year long relationship with Africa, Kuhn said.

He expects Xi to announce a new infrastructure project during the coming summit. "Xi has not gone empty-handed in any country. He will definitely offer something useful to Africa."

China is often criticized for releasing opaque or unreliable statistics about its economy. So when the Chinese Commerce Ministry's revealed a somewhat negative story about reduced investments ahead of the China-Africa Forum analysts said Beijing was trying to signal to African leaders to soften their expectations.

"Large scale investment, especially in infrastructure and mining, is by its nature very lumpy. This year some investment decisions may also have been deferred until face-to-face and cross-regional meetings can be held with ease at the Forum on China on Africa Cooperation," Lauren Johnston, research fellow at the Melbourne Institute of Applied Economic and Social Research, said.

Johnston said the shift in Chinese demand for natural resources is not a China-Africa story but a global commodity story that affects a range of economies, including Australia.

A new trend has emerged in recent months with Chinese leaders successfully tapping collaborative projects in Europe and Latin America. Chinese companies are also eyeing major projects like high-speed rail in the United States. The creation of the BRICS bank, and the Asian Infrastructure Investment Bank with Beijing playing a pivotal role has also opened up new doors for Chinese companies.

This was evident on Tuesday when Chinese premier Li Keqiang addressed a summit attended by heads of Central and Eastern European nations in the southern Chinese city Suzhou.

Li said China was ready to provide more flexible funding conditions to these countries to upgrade their infrastructure, as long as they use Chinese equipment and products, according to the state paper.

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