Chinese Investment in Africa: How Much Do We Know?

Policy Paper
Published on 17 July 2019

Abstract

Many reports have described Chinese engagement in Africa as “neo-imperialism” and “authoritarian capitalism”, exploiting resources and local labour while undermining democracy. On the other hand, Chinese demand for natural resources has sometimes been credited with boosting growth and resource prices across the African continent. Using the best available data, we put these claims to the test and find three key results, which are briefly summarised in this article. First, Chinese investment is smaller, more diverse and more growth-oriented than is often believed. It still accounts for a small but increasing share of Africa’s inward Foreign Direct Investment (FDI) and a stagnant share of China’s outward FDI. The construction and manufacturing sectors play an increasing role in Chinese investment in African countries, contrary to perceptions that natural resources are the exclusive focus. Chinese investment is not limited to resource-rich countries, but also extends to some of Africa’s most promising, high-growth and economically diverse nations. These patterns are not unique to Chinese investment. Instead, the patterns of Chinese and Western countries’ investment in Africa appear to be converging. Second, investment is not the most important form of economic engagement between China and African countries. Trade is much more important for many African countries in monetary terms, whereas Chinese construction companies are highly involved in building Africa’s infrastructure. Third, Chinese investment on the continent has the potential to support growth and productivity if it creates jobs, supplies local markets and transfers knowledge to local firms. Future research should focus on understanding how African governments can best leverage this potential, while mitigating potentially harmful effects.

Authors

Xinshen Diao

International Food Policy Research Institute (IFPRI)