What do China’s economic reforms mean for Africa?

OUTSIDE CHINA, the country has been portrayed as an authoritarian dictatorship mostly by western based media but events in the last two weeks here in Beijing seem to suggest that the second largest economy on earth is also one of the world’s most misreported and misunderstood nations.
Although Africa imports a lot of goods from China, it hardly exports any locally made product to China. (File)
Although Africa imports a lot of goods from China, it hardly exports any locally made product to China. (File)

OUTSIDE CHINA, the country has been portrayed as an authoritarian dictatorship mostly by western based media but events in the last two weeks here in Beijing seem to suggest that the second largest economy on earth is also one of the world’s most misreported and misunderstood nations.

Wednesday marked the end of two weeks of what’s known as ‘China’s political season’ which has close likeness to Rwanda’s National Dialogue (Umushikirano), an event that has been widely reported both locally and internationally.

This political season is about two important concurrent meetings — one by the the National People’s Congress (NPC) which forms China’s national legislative arm with 2,987 deputies, the world’s largest parliamentary body; and on the other hand, Chinese People’s Political Consultative Conference (CPPCC) a forum of over 2,000 delegates whose role is to advise government on pertinent issues of interest to the Chinese people.

During the same occasion, the Communist Party of China (CPC) government also presents its annual performance report for the previous year and also announces its plans for the current year; a function that was performed by China’s current Prime Minister Li Keqiang.

One could say that while African states take orders on how to build ‘perfect’ democracies, China is running what you could call a hybrid democratic system with Chinese characteristics, defining its own political structures to suit its local situation and it appears to be working.

This year’s political season has seen the NPPCC handing over 6,000 proposals reflecting the voices of the people on various aspects ranging from environmental protection policy to social security and housing; these will be screened and forwarded to the concerned government departments for action.

The word ‘reform’ however took centre-stage of every speech given and everyone in and outside China is discussing their significance. “We must pursue economic structural reform as a key step within deeper comprehensive reforms in all areas,” said Chinese Premier Li.

China is driving a Ferrari speeding on a highway of comprehensive reforms but what do they mean to Africa? As the second largest economy, the world has its eyes set on China while China also has its focus trained on Africa but is the continent alert?

During the Chinese Premier’s speech, the word ‘develop’ was mentioned 119 times, ‘economy’ received 81 mentions while ‘reform’ got 77 mentions meaning that China’s attention is firmly set on ‘development of economic reforms.’

In 2014, China is targeting a growth rate of 7.5% and the word market was mentioned 28 times in Premier Li’s speech; it should be noted that China’s economy is export-driven (though part of the reforms is to increase domestic consumption) and Africa is a   leading destination of Chinese exports.

Actually, bilateral trade between China and Africa in 2013 exceeded $200billion and it’s expected to surpass $300billion by 2015 according to Cheng Zhigang, the secretary-general of the China Africa industrial cooperation during the third China-Africa industrial cooperation and development forum held last year in Beijing.

However, critics have flawed this trade relationship as imbalanced; that while a lot of Chinese exports are enjoying a huge market in Africa, the continent is not sending much to China; the question then would be what can Africa do to make this relationship more mutually beneficial?

Some people have pointed out that it’s hard for Africa to negotiate a general trade deal given that the continent is not organized into a single economic block such as European Union (EU) in order to negotiate favourable terms for members because currently, most countries are engaging with China on bilateral terms.

In Africa, China is mainly involved in government to government business such as managing multi-million dollar infrastructural projects, it’s also heavily involved in the extraction industry for minerals and oil exploration among others; but there’s very little people-people trade opportunities so far to enable African investors or exporters to exploit Chinese market.

In other words, there’s a need to bring the Africa-China trade relationship to lower levels in order to benefit small scale enterprises/exporters by opening up market opportunities for them in China; this is yet to be achieved.

However, there’s one interesting reform that has been announced; major Chinese state-owned enterprises (SOEs) will start restructuring and opening up for private capital investment and this is one major development for African investors to watch closely as it’ll make it possible for them to own shares in the highly profitable Chinese firms operating in Africa.

For instance China’s biggest petroleum firm, Sinopec Corp is planning to divest up to 30% of its fuel marketing business to the private sector in a multibillion-dollar restructuring that’s expected to unlock massive investment opportunities for private investors that Barclays estimates will amount to over $20 billion.

SINOPEC which has operated in Africa for the past twenty years had assets worth $20billion as of June 2013 in over fifteen countries where it’s active and in East Africa; it’s involved in Uganda’s young oil industry.

While the firm is not listed on any of the region’s stock market, Fu Chengyu SINOPEC’s chairman told Chinese press last year that the oil giant will invest $20billion over the next five years to deepen its operations in Africa; this future investment is likely to take the new reforms in tow which would see private investors get an opportunity to be part of the highly profitable firm.

Is a Sino-Africa currency deal possible?

Meanwhile, other experts note that while Africa is China’s largest trade partner, the two parties still have to transact trade using the American dollar and they argue that it’s high time Africa and China reached a currency pact to cement their trade ties.

Such a pact would see African states using the Chinese currency Renminbi (RMB) to pay for Chinese imports rather than use the more expensive dollar.

“There is no doubt that Renminbi-denominated products will blossom in Africa, but the speed may vary from country to country with Mauritius, Nigeria and Kenya ahead of others,” says Windsor Chan, deputy general manager of China Construction Bank in South Africa.

Though the Renminbi usage is still in its infancy in Africa the increasing trade volumes between the two parties, experts note, is fertile ground for a currency pact that would also give Africa two currency reserve options, the Dollar and the RMB.

But as already noted such a deal would raise questions of who signs for Africa? While it’s possible at bilateral country level or even regional blocks say between China and EAC, it’s hard to negotiate as a continent given the African Union’s limitations.

For instance in 2012, RMB settlement deals in Africa accounted for only 0.5 percent of the continent’s total trade transactions with China, valued at around $200 billion, according to Peter Sun, managing director for transaction banking, Africa, at Standard Chartered.

By 2015, Standard Chartered Bank projects that nearly 40 percent of trade transactions between China and Africa will be settled with RMB but how this will happen without a far reaching currency pact is hard to say.

In 2012, Li Dongrong, vice-governor of the People’s Bank of China indicated that China was keen on using the RMB for trade settlement and investment in Africa and urged African central Banks to increase their Yuan assets. And in July last year, African central banks were given access to Renminbi-denominated bonds for the first time after China Development Bank Corp allocated them a purchase quota of three-year bonds.

While there are obviously major hurdles to overcome, Chinese reforms mean a lot for Africa.

 

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