International Trade Between China and Africa

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Table of Contents

Introduction
Literature review
Problems facing the China-Africa Trade
Theory and methodology
Data analysis and results
Results
Recommendations
Conclusion
References

Introduction

Despite the collapse of Doha negotiations and world economic crisis, international trade is increasing rapidly. The move is even facilitated further by globalisation and development in information, communication and technology.

Different countries trade on comparative advantage and absolute advantage policies and aim to guarantee the availability of goods and service to consumers, when they need it. International trade is hampered sometimes by trade barriers like tariffs and quotas; it has become inevitable for sustainable growth and development in a country. Africa is one of the world developing continents, with an estimated population of 1.3 billion.

The continent though individual countries (it has 54 countries) or using economic bloc is participating in international trade. The continent level of industrialisation is lower than that of developed countries but it’s trying hard to improve its standards.

The continent has great potential in agriculture and its major exports are raw and semi processed goods (Krugman & Obstfeld, 2008). The main import of the continent is manufactured goods, machinery, motor vehicles and electronics. China on the other hand, assumed world’s second largest economy from Japan in September 2010.

The largest economy is United States of America. Its population is slightly higher than one billion and has taken over African trade from Western countries like Germany. Many African countries are willing to trade with China for a number of reasons. This paper evaluates trade between China and Africa.

Literature review

Current statistics

Despite the world being in a recession, trade between china and Africa is increasing daily. There are increased trade in terms of volumes between China and Africa. Despite the growth of trade, trade between Africa and other continents is on a flat rate or is decreasing.

According to African Development Bank (AfDB), statistic 2010, trade between Africa and china alone has hit the ten percent mark (total international trade in Africa has 10% trade with China). China assumed the largest trading partner with Africa in 2008, when it hit a total collection of 106.8 billion U.S. dollars.

This was up from an estimated value of $10 billion in 2000. The rate of increase in trade between the two partners is estimated to increases by a rate of 33%. The report went further and said that the trade as per September 2010 statistics amounted to a total of $114 billion with $52 billion as exports and the remaining $62 billion being imports (African Development Corporate Website, 2010).

This brings a trade deficit in Africa with China to $10 billion. Europe has for a long period being African largest trading partner but since 1990’s, the trade has reduced with over 50% and only enjoys slightly above 30% of trade exports with Africa; it still is the major importer but the trend is declining.

The trade is focused to China and not to other Asian countries for example trade with Japan is also declining. China sees Africa as a source of highly needed energy and food products and in return is willing to offer from the tinniest hair piece to complicated equipments and machinery. Both the countries see each other as a trade partner to benefit from the trade.

South Africa, the largest African economy is the largest trading partner with China, followed by Nigeria. They account for 20% of the total trade. There is also a growing interest in growing Rwanda economy after years of war. China is playing a great role in this development (African Development Corporate Website, 2010).

Mutual agreements and co-operation

The reason for the increased trade between China and Africa has been analysed by economists to be as a result of deliberate strategic moves made by the two partners to grow their trade relations. China has developed mechanisms to ensure that it has tapped the growing African market. Such strategies include the 2006, Beijing Summit which aimed at discussing trade relation between China and Africa.

One of the ways that was suggested by the summit to facilitate good relations among the two countries was facilitation of trade. In the negotiations mechanisms to ensure mutual benefit between the two partners was set. In a move seen to follow the requirements of the summit, an evaluation conducted in 2008, showed that there has been a total of over 5 billion dollars investments in Africa made by china.

The need to invest is seen as move to assist Africa recover successfully from the global financial crisis. The summit observed that Africa has for a long period relied on foreign aid, grants and investments where it has its own potential to undertake development. China has thus invested in infrastructures, local infrastructures and international African infrastructures, to facilitate transport of goods and services.

The country is currently working on a road development program in Kenya aimed at facilitating trade with the country. The trade between the country and many African countries has embarked on service and technology from China which is exported to African countries (Geda & Meskel, 2008).

Development interventions

Other than trade, China has embarked on developmental issues and activities in Africa. These include investment in Agriculture, mining, education and manufacturing industries. These investments have boosted African investment in a great deal. Such investments have assisted in creation of employment as well as economic developments. The government is involved directly in facilitating the trade with some major involvements being;

In 2004, China’s Sinopec engaged in a contract with Gabonese oil field; the contract offered that the country will be selling crude oil to china; this was the first time that oil from Gabon was getting its way to China. To facilitate the deal; terms of sale of the product was higher than what the country was getting from other international trading partners.

To facilitate it further, China made massive infrastructure development in road and port networks to facilitate the movement of the produce. On the ground it put technological developments to facilitate efficient oil exploitation project (African Development Corporate Website, 2010).

In 2005, Angola got a loan of $2 million from China which it used to develop its infrastructure. In the same year, they received a grant of $1 Billion to automate and increase efficiency in oil field. China benefited from the deal by importing crude oil from the country.

In 2006, China made its largest overseas acquisition when it took a share of Nigeria’s oil fields at a cost of $2.3 billion. This was followed by allocation of a tender to Chinese by Algerians worth $7Billion for road construction which was to link Tunisia to Morocco, the road was 1300kilimetres.

In 2006, after the Beijing Summit, show the negotiations and agreements reach another new level, this was when Chinese government through Chinese President Hu Jintao pledged $5billion to Africa in terms of grants, aids and loans and increasing the same to $10 Billion in 2009. This saw a signing of 16 agreements by 12 Chinese firms and 11 African countries. This has been termed as the largest trade agreement in the world.

One factor that is facilitating the trade is consistency between the two partners. They both honour the promise they made to each other and aim at developing mutual benefit among them. When the Chinese are making infrastructures, with their developed technology, they aim at assisting Africans gain the experience through subcontracting smaller African companies to make part of the infrastructure and offering internships to engineering students of the contracting country.

Comparative Advantage and absolute advantage trading

Africa is a developing continent and suffers lack of highly technologically developed infrastructures. This is so despite the continent having a high potential in natural resources. One of the resources that the continent has is climate. The continent has good climatic condition which facilitates growth of agricultural foods at an efficient and cheap manner.

It is also rich in minerals like oil but their level of exploitation is not very efficient. Africa has a comparative advantage in these sectors and uses the sector as its strong hold. On the other hand China is highly developed in technology. It exports technology and finished goods to Africa to assist in various developmental issues.

Major exports to China include Cotton, oil, horticulture and timber. Africa imports machinery, technology, education, electronics, textiles and hi-tech products. Tourism is also growing drastically between the two partners with Africa as the major beneficially (National Bureau of Statistics China, 2010).

Problems facing the China-Africa Trade

Despite the growing trade among the two partners, there are some problems faced. Some of the problems include;

Non tariff barriers

China has been accused of using non tariff trade barriers to control trade between the two partners. This is seen in terms of standard that they want to get from African exports. An example is the standards that the country has put on South African fruits. They are Sanitary and pyto-sanitary requirements; these are high standard that are seen as unnecessary and unattainable using the technology adopted by South Africa. When shipping the fruits, they are expected to go through grey channel (through Hong Kong) instead of going direct to China.

There is also a requirement to have a high cold chain sterilisation. This is seen as a barrier to effective trade since when fruits are kept under these conditions their quality is affected and they lose their competitiveness when they get to Chinese market. Despite this being raised again and again, China has held to such rules.

Brain wash/brain drain

China is highly developed in terms of technology, thus when called upon in African countries to develop a certain thing say a road network, it uses the high technology and leaves Africans as consumers of technology and never developers. The availability has made African professionals being denied the chance to develop strategies which would solve African issues.

The two partners have education exchange programs where African student/Chinese students can study in either partner state. This is through scholarships and information sharing. Though this is a good move, many are the times that African talented professionals fail to return to their home country after studies. This has resulted to an African continent with drained experts and professionals (WTO, 2003).

Theory and methodology

Information about China-African trade has been gotten from a wide review of academic journals, books and periodicals. To get an updated statistics, the researcher has utilised various current publications relating to current happenings between the two partners.

Of great assistance was report of a trade visit of President Hu Jintao to Africa a move that was seen to have facilitated trade between the two partners. In the visit, the president gave a detailed report on trade statistics between the two partners. A review of Beijing summit was conducted as it offered a platform to evaluate the policies set and how well they have been complied with.

The approach is a qualitative method of data collection which moved from a generally known fact; which is ”trade between China and Africa has been growing drastically in the recent past”, to a specific interpolation of what is happening in the trade. This is where specific data was collected. This is a deductive reasoning approach. Deductive reasoning approach is a systematic method of obtaining knowledge where one proceeds from a general point of view to a specific statement.

The research starts from the known and explains the unknown. It provides for a means of testing validity of a conclusion by having major premises and minor premises. A major premise is where there exists a previously established relationship and minor premises are the particular case under research for conclusion. Newspaper, Media reports and internet sources were avoided since it was difficult to authenticate their truthfulness (Neuman, 1997).

Data analysis and results

After collecting of data, qualitative and numeric, the data was analysed using a time frame analysis which assisted in getting a view of the China-African trade trend. The information was collected from late 1980s to the current 2010 statistics and evaluated accordingly. Different major trading countries were recognised from their growth rate in trade with China. This was derived from an analysis of trade data and statistics in those countries.

Data analysis followed the followed procedure;

Data understanding

This is an in-depth reading and understanding of data collected. When doing this, all information collected from all sources are merged to one document and give an overview of the trade situation in trading partners.

Focus the analysis

This stage similar data was merged together, the sorting was in terms of countries and products and services which are traded between the two partners. Sorting in terms of years that a certain statistic was collected assisted in interpolation of the trade trend over time.

Identify connections and patterns in codes

This was the final stage in the analysis where a pattern and more focused information were developed. In this stage, data that could be classified together and reported together was segregated from other data. A final report was then written (Neuman, 1997).

Results

Trade between China and Africa has been on the rise for the last two decades. The trade is facilitated by existence of comparative and absolute advantages in the two partners, a move that have facilitated the need for trade among them. Africa major export goods are raw materials mostly agricultural and mining raw and semi-processed goods. China on the other hand, exports hi-tech goods and services to the continents. It has also embarked on massive foreign direct investments in the continent. Both the countries benefit from the trade; Africa for instance has been able to develop high tech infrastructure through assistance offered by China, these is through contacts undertaken with the high technology , grants and aids. When china invests in African countries, they are assisting the countries in developing their economies. Chinese companies and malls have offered a big number of Africans jobs and exposures they can use to self develop themselves (International Monetary Fund, 2010).

Chinese have a wide range of products; when she is trading with Africa, market for the goods is guaranteed and this assists in making and development of better goods. Efficiency in China has been facilitated by existence of market. In making agricultural final products, China depends on supplies from Africa; this has assisted the country get raw materials for its industries.

Mining products have also boosted Chinese manufacturing industry. The major aim of international trade is to ensure that counties have adequate supply of goods and services for their consumption; China-Africa trading has resulted to attainment of this goal in both countries.

Good relations between the two partners have resulted to improvement in research and development as developers and researcher get a wide statistics about an issue they are looking into. Though the two partners have benefited from the trade, there are some problems facing the trade. They are mostly non tariff trade barriers (Ademola, Bankole & Adewuyi, 2009).

Recommendations

Although China-Africa trade is growing drastically and either party is benefiting, there is much that have not been tapped. To tap this China should aim at assisting Africa develop but not assisting it exploits its resources. Such a move can be attained when trade and non trade barriers have been removed from the partnership.

Having a well define framework of operation that will ensure that African goods are competitive in Chinese market will be of great help. On the other hand, Africa should not depend on grants, aids and foreign direct investments to automate and develop its manufacturing industry but must aim at developing better strategies of producing fully manufactured goods.

To avoid brain wash and facilitate technology transfer, the two partners should develop measures to ensure that professional who study in China get back to their country of origin to assist them develop (Maswana, 2009).

Conclusion

China is world fastest growing economy, and the second largest economy in the world. The country has embarked on massive international trade with the most noted one as trade with Africa. In 2008, the country became the largest trading partner with Africa.

This was after the Beijing summit in 2006, which was seen as the major international summit that forged a way forward to facilitate trade between the partners. Africa trade as individual countries and as trading blocs like EAC (East African Corporation), SADDAC and ECOWAS. Good infrastructures in information, communication and transport, good corporate relations are some of the factors which have facilitated the trade.

Good from Africa are mostly agricultural produce like fruits, cocoa, coffee, cotton and flowers. Imports by Africans are mostly hi-tech goods like machinery, electronics and technology. The trade has been beneficial to both partners as they are able to develop their economies from goods and services from each other.

References

Ademola, O., Bankole, A., & Adewuyi, A. (2009). China-Africa Trade Relations: Insights from AERC Scoping Studies. European Journal of Development Research, 21(4), 485-505. Web.

African Development Corporate Website. (2010). Web.

Geda, A., & Meskel, A. (2008). China and India’s Growth Surge: Is It a Curse or Blessing for Africa? The Case of Manufactured Exports. African Development Review/Revue Africaine de Developpement, 20(2), 247-272. Web.

International Monetary Fund. (2010). Data and Statistics. Web.

Krugman, P and Obstfeld, M. (2008). International economics: theory & policy. Pearson Education. Web.

Maswana, J. (2009). Can China Trigger Economic Growth in Africa? An Empirical Investigation Based on the Economic Interdependence Hypothesis. Chinese Economy, 42(2), 91-105. Web.

National Bureau of Statistics China. (2010). Web.

Neuman, W. L. (1997). Social Research Methods, Qualitative and Quantitative approaches. Boston: Allyn and Bacon.

WTO. (2003). Trade by region. INTERNATIONAL TRADE STATISTICS 2002. Web.

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