Southern African Regional Poverty Network (SARPN) SARPN thematic photo
Regional themes > Trade Last update: 2020-11-27  

 Related documents

Institute of Development Studies (IDS)

The impact of China on sub-Saharan Africa

IDS Working paper 291

Raphael Kaplinsky, Dorothy McCormick and Mike Morris

Institute of Development Studies (IDS)

November 2007

SARPN acknowledges IDS as a source of this document:
[Download complete version - 903Kb ~ 5 min (51 pages)]     [ Share with a friend  ]

Executive summary

The challenge: maximising opportunities and minimising threats

Although SSA’s trade with China is relatively small in comparison to its trade with the industrialised countries, it has grown very rapidly, especially since 2001. There is a danger of overestimating the historic and present impact, and underestimating the potential future impact of China on SSA.

  1. At a general level, China’s impact on SSA:
    • Involves three primary types of links – trade, production/FDI and aid;
    • Is in some cases complementary to growth and poverty alleviation, in other cases it is competitive;
    • Is both direct (in bilateral links between individual countries and China) and indirect (with the impact being felt in third-country markets);
    • Reflects a mix of strategic, political and economic factors, and involves a range of stakeholders, both within China and in SSA.
    Since these varied impacts are unevenly felt within and between countries, it is important to maintain a comprehensive perspective if the opportunities are to be maximised and the threats minimised in such a way as to sustain poverty alleviation and to enhance income distribution.

  2. More specifically, with regard to the trade channel:
    • China has predominantly imported a limited number of products – mostly oil and hard commodities – from a limited number of SSA economies. In return, it predominantly exports manufactures, mostly final consumption goods.
    • Most is known about the direct trade links, in which China now has a growing trade surplus with SSA. These direct trade links combine complementary impacts (notably enhancing consumer welfare through cheap goods), and competitive impacts where there is evidence that domestic manufacturers are in some countries being squeezed by China-sourced imports.
    • The indirect trade links, arising through Chinese participation in global markets, are more difficult to assess. In general, it would appear that SSA economies gain from these indirect links, since the price of many of SSA’s imports are falling due to growing Chinese competitiveness, and China’s imports of commodities are pushing up the prices of SSA exports. However, in some sectors, notably clothing and furniture, there is persuasive evidence that China’s growing competitiveness in global markets is having a very harmful impact on poor SSA exporting economies. Lesotho, Swaziland, Madagascar and Kenya have all been badly hit, and there have been particularly damaging impacts on South Africa. Employment loss has been high, with very severe distributional and poverty impacts.

  3. With regard to the FDI, production and aid vectors:
    • The Chinese presence in SSA appears to be driven primarily by the strategic search for raw materials rather than for final markets or for low-cost production platforms.
    • Chinese firms work to longer time horizons than Western and Japanese firms, in part because many are state-owned and do not appear to be subject to the same short-term profit-maximising imperatives, and in part because of their access to low-cost capital.
    • There is increasing Chinese participation in the energy and resource sectors, particularly in fragile states such as the Sudan, Angola and the DRC. This is linked to attempts by some fragile states to evade pressures by western donors and NGOs to promote more transparent and better governance.
    • Other realms of activity are in infrastructure development (Chinese firms appear to have costs which are one-quarter to one-half less than Western and South African firms); in small enterprises in some countries (for example Sierra Leone); in trading (for example, Namibia); and in farming (for example, as is emerging in Mozambique).
    • Chinese aid is growing throughout the region, particularly in recent years, and appears to be carefully targeted to complement its commercial activities, including in fragile states.
What we don’t know

Whilst these major policy challenges are clear, important key knowledge gaps exist which need to be filled if policy responses are to be appropriately nuanced for individual country circumstances. The major knowledge gaps are with regard to:

  • The need for baseline studies to assess the changing future impact of China on SSA;
  • Analyses of the determinants of SSA competitiveness and the steps required to enhance productivity (for example, in clothing, textiles, footwear and furniture, as well as in export-oriented food crops);
  • A more thorough assessment of indirect impacts of China’s trade on SSA, facilitating the development of appropriate policies for providing special and differential treatment to low income SSA economies in global markets;
  • Determining the impact of China on consumer welfare, income distribution and absolute poverty levels in SSA, through an analysis of the consumer bene fits derived from cheaper imports, and the distributional implications of a switch in specialisation away from labour-intensive manufactures to capital intensive commodities;
  • Distinguishing generic from sub-regional and country-specific impacts, aiding the classification of different types of SSA economies;
  • Identifying likely future areas of threat and opportunity;
  • Determining the drivers of China’s strategic engagement with SSA and their impact on transparent and better governance on the continent.

This growing Chinese presence raises six major policy challenges for SSA if the manifold opportunities are to be grasped and the threats minimised:

  1. It poses particular threats to the manufacturing sector. Here the outlook is not entirely bleak, but SSA countries need to take explicit steps to counter act the dangers posed to existing and future capabilities in industry.
  2. Although the commodity boom favours some SSA economies, it poses very severe problems of economic management. Poorly-handled, a resourceboom can easily become a resource-curse. Much can be learned from the experience of other countries (including in SSA) in handling these resourcebooms.
  3. Notwithstanding the welfare gains to the poor from lower import prices, the expansion of capital-intensive mineral production and the decline of labour-intensive manufactures pose severe challenges for poverty-alleviation and income distribution. There is, moreover, the additional problem that resource-production is closely associated with violence, corruption and fragile states. Policies to ameliorate these potential adverse poverty-related impacts need to be addressed.
  4. Linked to this, China has actively forged closer links with fragile states and this has undermined attempts by the global community to enhance transparency and better governance. There is also emerging evidence that attempts to foster better corporate and environmental governance are also being undermined by China’s presence in some SSA countries.
  5. African economies are being pulled in different directions with regard to their linkages with other economies. One pressure is to sustain historical links with the EU and North America, cemented by various preferential trading agreements. Another pressure is to strengthen links with other SSA economies, particularly in southern Africa. A third pressure is to enhance links with Asia in general, and China in particular. Scarce administrative and strategic capabilities may require SSA economies to choose how they respond to these various pulls. There are strong arguments for a concerted ‘look East’ policy.
  6. The key capability which SSA economies require is the development of dynamic capabilities to scan changing environments, to develop appropriate strategic responses and to implement these strategies effectively. Unless these capabilities are built – in government, in the corporate and farming sectors, and in civil society – the opportunities offered by Chinese growth may be overwhelmed by the threats which are raised. This applies particularly to emerging sectors of Chinese demand (for example, imports of food products).
All of this poses severe challenges for a variety of stakeholders:

  • for governments, firms, farms and civil society within SSA;
  • for Chinese stakeholders who may be insufficiently aware of their impact on SSA;
  • for DFID and other bi- and multi-lateral agencies who have much to offer in helping to build appropriate (dynamic) capabilities, and to mediate between different governments and stakeholders.

Octoplus Information Solutions Top of page | Home | Contact SARPN | Disclaimer