China’s African strategy shifts from extraction to investment

by MMC
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By Lauren JohnstonSenior Research Fellow, South African Institute of International Affairs and Associate Professor at the China Studies Centre, University of Sydney

China has experienced a massive economic boom in the 1990s and 2000s, which increased its demand for resource imports, such as oil, from Africa. This led to a development finance model in which China financed African countries’ infrastructure in exchange for access to resources. This approach became known as Angolan modelbecause it all started with an infrastructure-for-oil partnership between China and Angola in 2004.

Within a decade, however, a change in China’s approach was necessary, for several reasons.

First, African countries are vulnerable to shocks and they struggle to cope with increasing debt repayments. For example, in The case of Angola, the price of oil fell from a high of 115 US dollars to less than 50 US dollars in mid-2014. More recently, the impact of COVID-19 economic shutdowns and war-related supply shocks in Ukraine have taken a toll.

Second, China’s domestic needs are changing. During the last years, climate change And change your diet have put pressure on China’s domestic food supply. This sparked interest in partnerships that might help. China is also moving away from being an exporter of heavy industry and energy-intensive manufactured products. It focuses more on growth areas, such as higher value-added sectors. agriculture And manufacturing. Geopolitically, he also wants sustain Africa’s development and its own food security.

My study of these changes revealed a changing relationship between China and Africa, moving beyond a focus primarily on oil and extractive products. The new focus is more on industrial production, job creation, investments that lead to African exports, and productivity-enhancing agricultural and digital opportunities.

This model, called the “Hunan Model», owes its name to the province in southern China which is leading this campaign. African bureaucrats, researchers, trade associations and businesses should understand what is happening in Hunan. This will help them seize new opportunities and ensure that African businesses are competitive.

What is the “Hunan Model”?

The Hunan model aims to support Vision 2035 for Sino-African cooperation by pushing for:

  • poverty reduction and agricultural development
  • cultural and people-to-people exchanges

The achievement of these objectives is done under the aegis of the China-Africa Economic and Trade Fair and a pilot zone for in-depth economic and trade cooperation between China and Africa. Both are centered on Changsha, the capital of Hunan province.

Hunan province was chosen as the new frontier of China-Africa relations, in part because many competitive Chinese industries are based there. These include large agri-tech companies, a major Chinese electronic vehicle manufacturer (BYD Changsha), and manufacturing equipment and construction sector companies. Many of these companies have a long-term presence and strategy in African markets.

China-Africa Economic and Trade Fair

The China-Africa Economic and Trade Expo offers numerous activities and events held in major exhibition centers. This makes it possible to establish new commercial partnerships with speed and logistical ease. In a 2023 event bringing together 10,000 Chinese and 1,700 foreign participants, It has been reported that 120 projects, with a total value of $10.3 billion, were signed. The 53 African countries with which China maintains diplomatic relations were present.

Pilot area

The China-Africa In-depth Economic and Trade Cooperation Pilot Zone is a large area that was developed with the aim of expanding bilateral trade, overcoming bottlenecks in trade and cooperation, and improve logistics between the two regions. Examples of typical bottlenecks include market access, finance, logistics, talent, and services such as marketing and legal.

Some of the initiatives that can be found in the pilot zone include vocational and educational training and a digital services center that supports Chinese companies in their economic engagement efforts in Africa. The area includes a permanent exhibition platform and a demonstration park.

Some implications of the change

The Hunan model focuses specifically on agriculture, heavy industry equipment and transportation like automobiles and electric trains. These are areas in which Hunan is a leader in China. And these are growing industries in many African countries.

For China, this could lead to new sources of food security as well as new markets for food products. technology products and opportunities to establish technological standards. This approach thus places Africa in an important position to seize new opportunities and shape related areas of cooperation – domestically, with China and globally.

The Hunan model also aims to support more efficient trade. New commercial crossings by rail, river, air and ocean are being forged to better connect Hunan with African countries, particularly trade hubs.

Efforts are also being made to resolve issues of access to currencies and encourage greater use of local currencies. Currently, a large part of international trade is conducted in US dollars, as it is widely accepted in all countries. But many developing countries struggle to accumulate dollars if they do not have a product to export such as oil or gas. Small and medium-sized traders (SMEs) particularly face difficulties and are less able to bear foreign exchange risks relative to the value of their own local currency. The Hunan area includes a center i.e. testing commercial payment systems based on other currencies. This could become a broader model for SME local currency trading.

Ultimately, China’s Hunan agenda will have different meanings for different African countries and will evolve over time. This is a recent change, especially since 2018, but beyond its potential to improve food security and production capacity in China and African countries, there will be other important implications. It could facilitate digital logistics and communications for trade between China and Africa, as well as research on technology, industrial and trade standards, and trade flows and trends.

This article was originally published on The conversation.

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