Natural resources, oil to underwrite Chinese investment in Africa
Analysts say economic relations are strengthening as Beijing seeks to diversify its overseas spending away from heavy focus on Asian markets
Africa's importance to China's overseas investment agenda could become more significant as Beijing pursues a strategy of securing access to vital natural resources and takes big financial risks to get them.
Chinese foreign direct investment in Africa roughly doubled between 2009 and 2012 to US$2.5 billion from US$1.4 billion, while bilateral trade has soared, reaching US$198.5 billion last year, up 19.3 per cent on 2011's total.
It is bilateral business deals that signify the real depth of the relationship.
Last year, Chinese companies completed construction contracts worth US$40 billion in Africa, up 45 per cent over 2009, making up 35 per cent of all of China's overseas contracts.
Over 2,000 Chinese companies have invested in more than 50 African countries in all kinds of industries, mainly in agriculture, mining, construction and manufacturing.
Zhang Zhiwei, chief China economist at Nomura in Hong Kong, reckons that number could jump as Beijing seeks to secure access to Africa's oil resources.
China became the world's biggest net oil importer earlier this year, taking the position that had been held by the United States since the 1970s.
Chinese firms have invested billions of US dollars in the oil-rich nations of Angola and Sudan to secure access to oil. That means Beijing's influence on the continent, relative to the US, is likely to grow. Africa, projected to grow 5 per cent this year, gets 1 per cent of US foreign direct investment.
US companies tended not to invest heavily in Africa countries and focused on nations with better growth prospects instead, Zhang said, adding that China's state-backed economic model allowed its firms to take more risk.
A white paper released last week by the State Council, China's cabinet, underscored the deepening economic relationship. According to the paper, China-Africa trade volume made up 5.1 per cent of China's total foreign trade, an increase from 2.2 per cent in 2000. On the African side, it rose to 16.1 per cent last year from 3.8 per cent in 2000.
The continent, home to six of the world's 10 fastest-growing economies, has been China's second-largest overseas contract market since 2009.
The trend is likely continue, according to vice-minister of commerce, Li Jinzao, who said that China-Africa ties had reached a new historic high and would "enter the fast lane" this year. There were opportunities for deeper investment ties as African nations sought to upgrade their economic infrastructure, Li told a Beijing news conference when presenting the white paper.
The paper sees the two economies as being on highly complementary development paths but on "different rungs of the development ladder".
"What Africa is going through is generally what China went through … Now many African consumers are interested in Chinese products, so there's a lot of business potential," Li said.
Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, reckons the dominance of US investments in other parts of the world makes Africa attractive to Beijing as it seeks to gain influence.
"American investments are everywhere, so it's not easy for China to find a comfortable place where it can have economic sway, and that's how Africa has become so important for Chinese foreign investment," Lai said. "There's a stronger and stronger tie between China and Africa right now - it's in line with China's investment strategy because it's trying to diversify its investments, which are currently heavily focused on Asian markets," Lai added.
Data from the Heritage Foundation, a Washington-based think tank that tracks China's overseas investments worth more than US$100 million, shows that China has made US$688.1 billion of such investments since 2005. Of that, about US$173 billion has been in the Asia-Pacific region, roughly twice the level in North America.