## _wp07211

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### Introduction — framing and objectives
- China’s fast-growing economic ties with Africa drew attention at the Forum on China-Africa Cooperation (FOCAC) summit in Beijing in November 2006 and the Annual Meetings of the African Development Bank (AfDB) in Shanghai in May 2007.
- Key questions:
  - What roles exactly has China played?
  - What drives China’s trade and financial involvement in Africa?
  - What are the implications of the relationship for Africa’s other development partners?
- Paper aims to quantify and synthesize: merchandise trade, state-supported trade credit, official development assistance, debt relief, FDI, and contract labor services.
- Structure overview:
  - Section II: multiple dimensions of China-Africa economic relations.
  - Section III: role of government policies and China’s public sector, particularly state financial institutions.
  - Section IV: China’s private traders and investors and corporate expansion in Africa.
  - Section V: other factors behind China’s growing role in African development.
  - Final section: summary of main findings.

### Trade and capital flows — overview and trajectory
- China’s roles: market for Africa’s exports; donor; financer and investor; contractor and builder.
- Transition over time:
  - Official financial and technical assistance predominated historically.
  - Commercial activities have increased rapidly and are now dominant in financial terms.
- Data caveats: data sources and problems summarized in Annex I; assessments subject to data limitations.
- China’s policy goal: doubling two-way trade with Africa to US$100 billion by 2010.

### Merchandise trade — key findings and statistics
- Acceleration and levels:
  - Trade began to accelerate around 2000.
  - Between 2001 and 2006, Africa’s exports to China increased at an annual rate of over 40 percent.
  - Africa’s exports to China rose from US$4.8 billion to reach US$28.8 billion in 2006.
  - Africa’s imports from China quadrupled to US$26.7 billion in 2006.
- Regional composition:
  - In 2006 Sub-Saharan Africa (SSA) exports to China amounted to US$25 billion, about 85 percent of all African exports to China that year.
- Trade balance:
  - For 2004–06 Africa ran a small trade surplus with China, about US$2 billion each year (according to statistics compiled by China).
- Composition and terms of trade:
  - Africa’s exports to China in 2006: Fuel 62 percent; Crude materials (excl. fuel) 13 percent; Manufactured goods 8 percent; Other 17 percent.
  - Africa’s imports from China in 2006: Machinery and transport equipment 31 percent; Manufactured goods 45 percent; Other 24 percent.
  - Rough estimates suggest Africa’s terms of trade in relation to China improved by 80 to 90 percent between 2001 and 2006, primarily due to rising international prices for oil and minerals.
- Relative shares:
  - In 2006 China accounted for 16 percent of total African exports (19 percent of exports from SSA).
- Figure references (as presented): Figure 1, Figure 2 (Index, 2000=100), Figure 3, Figure 4.

### Official development assistance (ODA) and contracted projects
- Stock and flow estimates:
  - Chinese Academy of Social Science reported a stock figure of 44.4 billion yuan (US$5.7 billion) for more than 800 aid projects (He, 2006).
  - Last officially reported flows (government) for 2002: China reported it provided US$1.8 billion in economic support to Africa.
  - Assuming Chinese aid, including technical assistance, is about 50 percent of the value of contracted projects, China’s ODA to SSA could amount to US$1.0–1.5 billion annually for 2004–05 (Figure 5).
  - Historical averages: China’s aid flows to Africa averaged about US$310 million annually for 1989–1992; average for 1980-87 was about US$290 million a year (Taylor, 1989).
- Composition and focus:
  - ODA follows principles established in early 1960s: no conditions or demand for privileges; grants, interest-free or low-interest loans (preferential loans with an interest subsidy); repayment rescheduled if necessary.
  - Components: technical assistance (emphasis on agricultural technology and training), hospitals, schools, low-cost housing, sport venues, library and government buildings; often delivered in kind.
  - Of more than 800 aid projects: 133 for infrastructure construction; 137 for agricultural development.

### Debt relief and concessional commitments
- Debt forgiveness and pledges:
  - First China-Africa Cooperation Forum (October 2000): write off overdue obligations on 156 loans totaling 10.5 billion yuan (US$1.3 billion); pledge fulfilled ahead of schedule (He, 2007).
  - November 2006 announcement: cancel another 10 billion yuan (US$1.3 billion) in debt—168 interest-free government loans matured by end-2005 owed by 33 heavily indebted and least developed African countries.
  - By mid-May 2007 China had signed debt forgiveness agreements with 11 of these countries and expected to conclude agreements with the other 22 by end-2007.
  - Debt relief included all interest-free loans that had matured by the end of 2005, as announced in November 2006.

### China Exim Bank, trade credits, and other debt-creating flows
- Scale and activity:
  - China Exim Bank total export credit and international guarantee business: increased to US$19.8 billion in 2006, from US$15.2 billion in 2005.
  - By end-2005 China Exim Bank had approved more than 50 billion yuan (US$6.5 billion) for projects in Africa, accounting for close to 10 percent of the Bank’s total approvals at that time.
  - World Bank staff estimates for China Exim Bank loans to SSA for infrastructure alone amounted to US$12.5 billion by mid-2006.
  - As of September 2006 there were 259 China Exim Bank projects in 36 African countries; 79 percent of its commitments to Africa were for infrastructure (Ellis, 2007).
  - China Exim Bank’s annual reports indicate export buyers’ credit accounted for only 10 percent of its new commitments in 2005–06.
- Reported single projects (2005–06, not necessarily confirmed):
  - US$2.3 billion to Mozambique for Mepanda Nkua dam; perhaps another US$300 million for Moamba-Major dam; possible US$1.2 billion in new loans to Ghana (including US$600 million for Bui dam); US$1.6 billion for an oil project in Nigeria; US$200 million in preferential buyers credit for Nigeria’s first communication satellite; a US$2 billion line of credit to Angola with possibility of another US$9–10 billion; possible loans and export credits for projects in Congo-Brazzaville, Sudan, and Zimbabwe.
- 2007–09 Beijing Summit commitments (President Hu Jintao):
  - Preferential credits: US$5 billion (US$3 billion concessional loans and US$2 billion export buyers credits).
  - Direct investment: US$5 billion China-Africa Development Fund to support Chinese FDI in Africa.
  - Grants and debt relief: doubling of 2006 assistance to build hospitals, malaria prevention and treatment centers, and rural schools; cancellation of all interest-free loans owed by eligible countries that had matured by end-2005.
  - Technical assistance: training for African professionals; agriculture experts; agriculture technology demonstration centers; doubling Chinese government scholarships for African students.
  - Note: commitments do not include trade and project financing by Chinese banks on commercial terms.
  - May 2007 China Exim Bank officials reportedly planned to provide about US$20 billion in infrastructure and trade financing to Africa over the next three years.

### Foreign direct investment (FDI) and private investment
- Reported flows and stocks:
  - Reported Chinese direct investment in Africa (National Bureau of Statistics of China): US$392 million in 2005, up from US$317 million in 2004.
  - Other sources: in 2004 Chinese FDI estimated at more than US$900 million; total FDI in Africa was US$15 billion.
  - China’s Ministry of Commerce: China’s direct investment to Africa for 2000–06 at US$6.6 billion.
  - Among the 800 Chinese enterprises investing in Africa, about 100 are state-owned; the rest are private.
  - Example: CNOOC bought a 45 percent stake in a Nigeria oil and gas field for US$2.3 billion (2006) — an instance not fully captured in official statistics.
- Characteristics:
  - Chinese private enterprises rely heavily on retained earnings and informal arrangements rather than capital markets and bank borrowing, possibly causing under-recording of FDI.
  - FDI flows are two-way: Chinese statistics show a large share of African FDI in China is from Mauritius; South African firms have been expanding into the Chinese market.

### Contract labor, services, and tourism
- Infrastructure contracting:
  - Since 2000 Chinese enterprises contracted to build more than 6,000 kilometers of roads, 3,000 km railways, and 8 large- and medium-sized power plants in Africa.
- Contracted projects and labor services:
  - Official Chinese statistics: sum of “contracted projects,” “labor cooperation,” and “design consultation” in Africa increased from US$4 billion in 2004 to US$6.3 billion in 2005.
  - 2006 turnover on contract labor service rose to US$9.5 billion, representing 31 percent of China’s offshore contracted projects and exceeding the total in 1998–2002 (PBC and CBD, 2007; Yang, 2004).
- Tourism: by September 2006, 17 African countries had become destinations for Chinese citizens and tourist groups; number of African tourists to China accelerating.

### State financial institutions: roles and scale
- China Exim Bank:
  - Founded in 1994; wholly state-owned; sole bank handling Chinese government concessional loans.
  - Tasks: promote exports and foreign investment; export credits focus on infrastructure; investment loans target energy, mining, industrial sectors.
  - Main source of funding: bond market; government does not guarantee the bank’s liabilities.
  - Business (excluding concessional loans) almost quadrupled in 2001–06.
  - In May 2007 signed memorandum of understanding with the World Bank to improve cooperation starting with road and energy projects.
- China Development Bank (CDB):
  - Established in 1994; mission to build China’s infrastructure and support national Going Global strategy.
  - Launched China-Africa Development Fund to support Chinese FDI in Africa through equity participation and other means.
  - 2006 balance sheet: 2.3 trillion yuan, about US$290 billion.
  - Outstanding loans more than doubled between 2002 and 2006.
  - Provides loans in both yuan and foreign currencies; main source of funding is the bond market; enjoys same credit rating as China’s sovereign ratings.
- SINOSURE (China Export and Credit Insurance Corporation):
  - Started operations in 2001 to insure against buyer and country risks.
  - Volume of new business reached US$29.4 billion in 2006, up from US$2.8 billion in 2002.
  - In 2006 only 3 percent of its short-term insurance was for Africa, but Africa accounted for near 30 percent of SINOSURE’s medium- and long-term business, second only to Asia.

### Commercial policies and trade facilitation
- Special Preferential Tariff Treatment (SPTT), implemented January 2005:
  - Removes tariff from some 190 items exported to China from 25 least developed African countries.
  - Value of goods imported from Africa under SPTT reached US$380 million in 2005 — year-on-year increase of 88 percent, about 50 percentage points higher than growth of China’s total imports from Africa in the same year.
  - November 2006 package increased number of tariff items affected by SPTT to over 440.
- June 2006: China announced launch of free trade area (FTA) negotiations with the Southern African Customs Union.
- China has set up more than 100 trade processing projects in Africa and committed in November 2006 to establishing three to five trade and economic cooperation zones in Africa by 2009.

### Private sector examples and dynamics (Box 1 highlights)
- Selected investments and projects:
  - Since 1997 Chinese businessmen have invested US$24 million in a textile mill in Zambia.
  - Chinese investors have put more than US$300 million into mines, manufacturing projects, construction companies, and agriculture.
  - COBEC plans to rehabilitate Kamatanda copper and cobalt mines and three processing plants in Katanga province, Democratic Republic of Congo, in a deal worth US$27.5 million.
  - Huawei Company: sales in SSA countries exceeded US$1 billion; largest wireless technology CDMA product provider in the region.
  - ZTE Corporation International: agreement to invest US$400 million to build Angola’s telecom network and construct a mobile phone factory.
  - Hashan Company tripling its investment in Nigeria to US$6 million for the shoemaking industry.
  - Global Trading spent US$10 million to renovate the Bintumani Hotel in Sierra Leone.
- Corporate identity and state/private distinctions:
  - Differentiation between state-owned and private FDI is becoming more difficult and less meaningful.
  - Government actively encourages private firms to invest in Africa.
  - Differences between state and private enterprises in access to state-supported financing have been progressively reduced.
  - 2005: China and the UN Development Program established the China-Africa Business Council to promote private Chinese businesses in Cameroon, Ghana, Mozambique, Nigeria, South Africa, and Tanzania.
- Contractors and labor:
  - Private Chinese construction companies are numerous and growing; competition is fierce.
  - Typically, state-owned companies arrive with their own workforce; study found locals accounted for 85–95 percent of total workforce of Chinese construction companies examined (CFCS, 2006, pp. 79–80).
  - Chinese authorities identified 78,000 Chinese on the continent (ECOWAS–SWAS/OECD, 2006).

### Drivers of growing China–Africa ties and policy implications
- Drivers highlighted:
  - Markets for exports: China’s total imports of goods close to US$800 billion in 2006 and real GDP growth in double digits; China’s imports from Africa grew at an annual average rate of over 40 percent between 2001 and 2006.
  - African demand for infrastructure: large unmet demand; infrastructure constraints (power outages, transport delays) cited as major drag on African firms.
  - China’s financing approach: grants and quasi-grants for public goods; trade credit and commercial loans for revenue-generating projects; using aid to facilitate investment; concessional financing often part of larger commercial financing packages.
- Policy priorities and recommendations implied:
  - Improve the investment climate in African countries to attract and sustain mutually beneficial private-sector engagement.
  - Strengthen regulatory frameworks in Africa to achieve win-win outcomes from growing trade and investment ties.
  - Address issues of debt sustainability, governance reform, and environmental protection associated with new lending and investment through shared information, collaboration, and coordination between host country authorities and development partners.
- Research gaps:
  - Impact of possible changes in Chinese demand on African terms of trade, trade patterns, and economic prospects merits further research.

### Annex II — Estimation of Africa’s terms of trade with China (methodology and indices)
- Methodology:
  - Africa’s terms of trade with China = ratio of Africa’s export price index to its import price index.
  - Indices estimated as weighted average of prices of Africa’s top three export and import products.
  - Weights based on average share of these groups in Africa’s exports and imports in 2005–06.
  - Formula presented: ∑ = j t j i t i t M X TOT β α, where ∑ =1 i α and ∑ =1 j β. X_i (M_j) from UNCOMTRADE; α_i (β_j) are weights.
- Commodity breakdown and weights:
  - Africa Export Price Index:
    - Mineral fuels, lubricants, and related material — Share (percent) 75 — WEO commodity fuels energy index
    - Crude materials, inedible, except fuels — Share (percent) 16 — WEO commodity metals price index
    - Manufactured goods classified chiefly by material — Share (percent) 9 — WEO manufactures index
  - Africa Import Price Index:
    - Machine and transport equipment — Share (percent) 41 — Proxied by USA capital equipment index
    - Manufactured goods classified chiefly by material — Share (percent) 36 — WEO manufactures index
    - Miscellaneous manufactured articles — Share (percent) 24 — WEO commodity non fuel price index
  - Note: "More than 92 percent of total trade is captured by the six commodities used in the terms of trade estimation."
- Merchandise trade annual percentage changes (selected series as presented):
  - Africa Exports to China (China Customs Statistics annual percentage change by year): 2000 5.6, 2001 4.8, 2002 5.4, 2003 8.4, 2004 15.6, 2005 21.1, 2006 28.8.
  - Africa Imports from China (China Customs Statistics annual percentage change by year): 2000 5.0, 2001 6.0, 2002 7.0, 2003 10.2, 2004 13.8, 2005 18.7, 2006 26.7.
  - Trade Balance (China Customs Statistics annual percentage change by year): 2000 0.5, 2001 -1.2, 2002 -1.5, 2003 -1.8, 2004 1.8, 2005 2.4, 2006 2.1.
- Memorandum items and tables: UNCOMTRADE, National Bureau of Statistics of China, and IMF Direction of Trade Statistics used as sources; some level series in the original text are presented as contiguous strings in the source tables.

*Source: _wp07211 — IMF working paper excerpts and annexes provided.*

### References..............................................................................................................

### _wp07211 - References

### Contents and Annexes
- References................................................................................................................................24
- Annex I.  Data sources and Problems ......................................................................................26
- Annex II. Estimation of Africa's Terms of Trade with China .....................................27
- Tables:
  - 1. Africa: Merchandise Trade with China, 2000–06................................................................28
  - 2. Foreign Direct Investment Flows to Africa, 2002–05 .........................................................29
  - 3. China Export and Credit Insurance Corporation (SINOSURE) Major Activities, 2002–06 ................................................................................................29
  - 4. Major Aid by Donor, 2005...................................................................................................30
- Figures:
  - 1. Africa: External Trade, 2000–06 .........................................................................................6
  - 2. Africa’s Terms of Trade with China, 2000-06:  ..................................................................7
  - 3. Africa: Composition of Trade with China, 2006 .................................................................7
  - 4. Geographical Composition of China’s External Trade, 2000 and 2006 ..............................8
  - 5. Official Development Assistance to Sub-Saharan Africa by Major Donors, 2006 .............9
  - 6. Africa’s FDI to China, 1995–05 ........................................................................................11
  - 7. China and Africa: Bilateral Tourism, 2000–04..................................................................12
  - 8. China Export-Import Bank, Main Operations, 2001-06........................................14
  - 9. Major Export Credit Agencies, Selected Activities, 2006 .................................................15
  - 10. SINOSURE: Breakdown of Operations by Continent, 2006.............................................16
- Boxes:
  - 1. Private Chinese Direct Investment in Africa: Some Examples ...........................................18
  - 2. Summary of Africa-China Economic Relations: Trade, Aid and FDI, 2006.......................22

### Introduction — framing and objectives
- China’s fast-growing economic ties with Africa drew attention at the Forum on China-Africa Cooperation (FOCAC) summit in Beijing in November 2006 and the Annual Meetings of the African Development Bank (AfDB) in Shanghai in May 2007.
- Key questions posed:
  - What roles exactly has China played?
  - What drives China’s trade and financial involvement in Africa?
  - What are the implications of the relationship for Africa’s other development partners?
- The paper aims to:
  - Examine evidence relating especially to China’s state financial institutions.
  - Quantify and synthesize merchandise trade, state-supported trade credit, official development assistance, debt relief, FDI, and contract labor services to paint a broader picture of Chinese-African economic relations.
- Relation to prior work:
  - Reviews and studies referenced include Alden (2005); Edwards and Jenkins (2005); Kennan and Stevens (2005); Jenkins and Edwards (2006); Goldstein et al. (2006); Broadman (2007).
- Structure overview:
  - Section II: multiple dimensions of China-Africa economic relations.
  - Section III: role of government policies and China’s public sector, particularly state financial institutions.
  - Section IV: China’s private traders and investors and corporate expansion in Africa.
  - Section V: other factors behind China’s growing role in African development (complementary trade pattern, Africa’s demand for infrastructure, China’s financing approach to social needs and business development).
  - Final section: summary of main findings.

### Trade and capital flows between China and Africa — overview
- The analysis recognizes China’s multifaceted influence: as market for Africa’s exports, donor, financer and investor, and contractor and builder.
- Transition over time:
  - Official financial and technical assistance predominated historically.
  - Commercial activities have increased rapidly in recent years and are now dominant in financial terms.
- Data caveats:
  - Data sources and problems summarized in Annex I.
  - Assessments are subject to the usual caveats related to data limitations.

### A. Merchandise Trade — key findings and statistics
- Acceleration:
  - Trade between Africa and China began to accelerate in about 2000.
  - Between 2001 and 2006, Africa’s exports to China increased at an annual rate of over 40 percent.
  - Africa’s exports to China rose from US$4.8 billion to reach US$28.8 billion in 2006.
  - During the same period, Africa’s imports from China quadrupled to US$26.7 billion.
- Regional composition:
  - In 2006 Sub-Saharan Africa (SSA) accounted for the bulk of the Africa-China trade; SSA’s exports to China amounted to US$25 billion, about 85 percent of all African exports to China that year.
- Trade balance:
  - According to statistics compiled by China, for 2004–06 Africa ran a small trade surplus, about US$2 billion each year.
- Composition and terms of trade:
  - In 2006 oil and gas accounted for 62 percent of Africa’s exports to China, followed by nonpetroleum minerals and metals (13 percent).
  - Africa’s imports from China comprised mainly manufactured products (45 percent) and machinery and transport equipment (31 percent).
  - Rough estimates suggest that Africa’s terms of trade in relation to China improved by 80 to 90 percent between 2001 and 2006, primarily because robust world demand, lifted in part by China, drove up international prices for oil and minerals.
- Relative size and trajectory:
  - In 2006 China accounted for 16 percent of total African exports (19 percent of exports from SSA).
  - China’s share remains below that of the E.U. and the U.S.A., but China is catching up fast.
  - China’s imports from and exports to Africa are still smaller than its trade with the Middle East and developing countries in the Western Hemisphere.
  - China has set a goal of doubling two-way trade with Africa to US$100 billion by 2010.

### Figures and indices referenced (as presented)
- Figure 1: Africa: External Trade, 2000–06 — series for exports and imports by trading partner, contributions to Africa's export growth, and trade balance with China.
- Figure 2: Africa’s Terms of Trade with China, 2000–06 (Index, 2000=100) — plotted alongside fuel price index and manufactures price index; note refers to Annex II for details of calculations and assumptions.
- Figure 3: Africa: Composition of Trade with China, 2006 — Africa's exports to China: Fuel 62 percent; Crude materials (excl. fuel) 13 percent; Manufactured goods 8 percent; Other 17 percent. Africa's imports from China: Machinery and transport equipment 31 percent; Manufactured goods 45 percent; Other 24 percent.
- Figure 4: Geographical Composition of China’s External Trade, 2000 and 2006 — relative shares of Developing Asia, Middle East, Cent. and S.America, Africa in China’s imports by sources and exports by destination.

### Analytical points highlighted
- The improvement in Africa’s terms of trade with China is linked to both the composition of trade (heavy share of fuel) and rising prices for Africa’s main export commodities.
- The rapid growth in commercial activities (trade, FDI, trade credit) marks a shift from historical predominance of official financial and technical assistance.
- China’s policy goal to double two-way trade to US$100 billion by 2010 suggests continued rapid expansion of China’s share in Africa’s external trade.

*Source: _wp07211 - References (sections and excerpts provided).*

### 44.4 billion yuan (US$5.7 billion) for more than 800 aid projects, according to a researcher at

### _wp07211 - 44.4 billion yuan (US$5.7 billion) for more than 800 aid projects, according to a researcher at

### Official development assistance (ODA) and contracted projects
- Chinese Academy of Social Science reported a stock figure of 44.4 billion yuan (US$5.7 billion) for more than 800 aid projects (He, 2006).
- Last officially reported flows (government) are for 2002: China reported it provided US$1.8 billion in economic support to Africa.
- National Bureau of Statistics of China reports annual data on “contracted projects in SSA countries,” which include “projects financed by the Chinese government under its aid program.”
- Chinese technical assistance and aid in-kind are difficult to price because of problems in pricing Chinese labor.
- Assuming Chinese aid, including technical assistance, is about 50 percent of the value of contracted projects, China’s ODA to SSA could amount to US$1.0–1.5 billion annually for 2004–05 (Figure 5).
- Historical comparison: China’s aid flows to Africa averaged about US$310 million annually for 1989–1992; average for 1980-87 was about US$290 million a year (Taylor, 1989).

### Composition and focus of Chinese ODA
- Terms: ODA follows principles established in late Premier Zhou Enlai’s visit to Africa in early 1960s: no conditions or demand for privileges; ODA in the form of grants, interest-free or low-interest loans (preferential loans with an interest subsidy); repayment rescheduled if necessary.
- ODA components include technical assistance (emphasis on agricultural technology and training in Chinese institutions).
- Social and humanitarian focus: hospitals, schools, low-cost housing, sport venues, library and government buildings; often delivered in kind.
- Infrastructure and agriculture: 133 out of the more than 800 aid projects for infrastructure construction; 137 projects for agricultural development.

### Debt relief and grant commitments
- China pledged at the first China-Africa Cooperation Forum (October 2000) to write off overdue obligations on 156 loans totaling 10.5 billion yuan (US$1.3 billion); pledge fulfilled ahead of schedule (He, 2007).
- November 2006 announcement: cancel another 10 billion yuan (US$1.3 billion) in debt—168 interest-free government loans that had matured by the end of 2005 and were owed by 33 heavily indebted and least developed African countries.
- By mid-May 2007 China had signed debt forgiveness agreements with 11 of these countries and expected to conclude agreements with the other 22 by the end of 2007.
- Debt relief included all interest-free loans that had matured by the end of 2005, as announced by the Chinese government in November 2006.

### Other debt-creating financial flows (China Exim Bank and trade credits)
- Trade credits (some medium- and long-term) provided by suppliers or financial institutions; China Exim Bank is most active.
- China Exim Bank total export credit and international guarantee business: increased to US$19.8 billion in 2006, from US$15.2 billion in 2005.
- By end-2005 China Exim Bank had approved more than 50 billion yuan (US$6.5 billion) for projects in Africa, accounting for close to 10 percent of the Bank’s total approvals at that time.
- World Bank staff estimates (from public sources) for China Exim Bank loans to SSA for infrastructure alone amounted to US$12.5 billion by mid-2006.
- As of September 2006 there were 259 China Exim Bank projects in 36 African countries; 79 percent of its commitments to Africa were for infrastructure (Ellis, 2007).
- China Exim Bank’s annual reports indicate export buyers’ credit accounted for only 10 percent of its new commitments in 2005–06.
- Reported single projects (2005–06, not necessarily confirmed): US$2.3 billion to Mozambique for Mepanda Nkua dam; perhaps another $300 million for Moamba-Major dam; possible US$1.2 billion in new loans to Ghana (including US$600 million for Bui dam); US$1.6 billion for an oil project in Nigeria; $200 million in preferential buyers credit for Nigeria’s first communication satellite; a US$2 billion line of credit to Angola with possibility of another US$9–10 billion; possible loans and export credits for projects in Congo-Brazzaville, Sudan, and Zimbabwe.

### Foreign direct investment (FDI) and private investment
- Reported Chinese direct investment in Africa (National Bureau of Statistics of China): US$392 million in 2005, up from US$317 million in 2004.
- Other sources: in 2004 Chinese FDI estimated at more than US$900 million; total FDI in Africa was US$15 billion.
- China’s Ministry of Commerce puts China’s direct investment to Africa for 2000–06 at US$6.6 billion.
- Among the 800 Chinese enterprises investing in Africa, about 100 are state-owned; the rest are private.
- Example of large private-sector transaction: in 2006 CNOOC bought a 45 percent stake in a Nigeria oil and gas field for US$2.3 billion (noted as an instance of data not fully captured in official statistics).
- Chinese private enterprises rely heavily on retained earnings and informal arrangements rather than capital markets and bank borrowing, possibly causing under-recording of FDI.
- FDI flows are two-way: Chinese statistics show a large share of African FDI in China is from Mauritius; South African firms have been expanding into the Chinese market.

### Contract labor, services, and tourism
- Since 2000 Chinese enterprises contracted to build more than 6,000 kilometers of roads, 3,000 km railways, and 8 large- and medium-sized power plants in Africa.
- Official Chinese statistics: sum of “contracted projects,” “labor cooperation,” and “design consultation” in Africa increased from US$4 billion in 2004 to US$6.3 billion in 2005.
- 2006 turnover on contract labor service rose to US$9.5 billion, representing 31 percent of China’s offshore contracted projects and exceeding the total in 1998–2002 (PBC and CBD, 2007; Yang, 2004).
- Tourism: by September 2006, 17 African countries had become destinations for Chinese citizens and tourist groups; number of African tourists to China accelerating (Figure 7).

### China’s 2007–09 commitments and policy instruments
- Beijing Summit (November 2006) commitments for 2007–2009 announced by President Hu Jintao:
  - Preferential credits: US$5 billion, consisting of US$3 billion concessional loans and US$2 billion export buyers credits.
  - Direct investment: a US$5 billion China-Africa Development Fund to support Chinese FDI in Africa.
  - Trade: further opening China’s market to Africa by expanding the list of duty-free African exports and setting up trade cooperation zones in Africa.
  - Grants and debt relief: doubling of 2006 assistance to build hospitals, malaria prevention and treatment centers, and rural schools in Africa and a conference center for the African Union; cancellation of all interest-free loans owed by eligible countries that had matured by the end of 2005.
  - Technical assistance: training for African professionals and sending agriculture experts to Africa; setting up agriculture technology demonstration centers in Africa; doubling Chinese government scholarships for African students.
- These commitments do not include trade and project financing by Chinese banks on commercial terms.
- May 2007 China Exim Bank officials reportedly planned to provide about US$20 billion in infrastructure and trade financing to Africa over the next three years.

### State financial institutions: roles and scale
- China Exim Bank:
  - Founded in 1994; wholly state-owned; sole bank handling Chinese government concessional loans.
  - Tasks: promote exports and foreign investment; export credits focus on infrastructure; investment loans target energy, mining, industrial sectors.
  - Main source of funding: bond market; government does not guarantee the bank’s liabilities.
  - Business (excluding concessional loans) almost quadrupled in 2001–06.
  - Primary commercial operations in 2006 were larger than comparable institutions in major industrial countries (Figure 9).
  - In May 2007 signed memorandum of understanding with the World Bank to improve cooperation starting with road and energy projects.
- China Development Bank (CDB):
  - Established in 1994; mission to build China’s infrastructure and support national Going Global strategy.
  - Launched China-Africa Development Fund to support Chinese FDI in Africa through equity participation and other means.
  - 2006 balance sheet: 2.3 trillion yuan, about US$290 billion.
  - Outstanding loans more than doubled between 2002 and 2006.
  - Provides loans in both yuan and foreign currencies; main source of funding is the bond market; enjoys same credit rating as China’s sovereign ratings.
- SINOSURE (China Export and Credit Insurance Corporation):
  - Started operations in 2001 to insure against buyer and country risks.
  - Volume of new business reached US$29.4 billion in 2006, up from US$2.8 billion in 2002.
  - In 2006 only 3 percent of its short-term insurance was for Africa, but Africa accounted for near 30 percent of SINOSURE’s medium- and long-term business, second only to Asia.

### Commercial policies and trade facilitation
- Special Preferential Tariff Treatment (SPTT), implemented January 2005: removes tariff from some 190 items exported to China from 25 least developed African countries.
- Value of goods imported from Africa under SPTT reached US$380 million in 2005 — year-on-year increase of 88 percent, about 50 percentage points higher than growth of China’s total imports from Africa in the same year.
- November 2006 package increased number of tariff items affected by SPTT to over 440.
- June 2006: China announced launch of free trade area (FTA) negotiations with the Southern African Customs Union.
- China has set up more than 100 trade processing projects in Africa and committed in November 2006 to establishing three to five trade and economic cooperation zones in Africa by 2009.

### Role of the private sector and traders/investors
- Private traders: decentralization of trade since 1985; private and joint venture firms dominant in export and import.
- Individual small entrepreneurs traveling/migrating to Africa set up wholesale/retail outlets importing consumer goods (electronic appliances, textiles, clothing), competing with local traders; many team up with local businesses.
- Private investors: Chinese private enterprises investing in Africa across textiles, mining, services, agriculture, processing, and manufacturing.
- Noted that state-owned oil companies (CNPC, CNOOC, SINOPEC) receive attention, but millions of U.S. dollars are invested by private enterprises across sectors.

*Source: _wp07211 (excerpt) — IMF PDF content provided.*

### Box 1. Private Chinese Direct Investment in Africa: Some Examples

### Box 1. Private Chinese Direct Investment in Africa: Some Examples

### Examples of private Chinese investments (scope and scale)
- Since 1997 Chinese businessmen have invested US$24 million in a textile mill in Zambia.
- In recent years they have also poured more than US$300 million into mines, manufacturing projects, construction companies, and agriculture.
- COBEC, a Beijing-based company, plans to rehabilitate the Kamatanda copper and cobalt mines and three processing plants in Katanga province, Democratic Republic of Congo, in a deal worth US$27.5 million.
- Chinese companies have been operating in the Zambezi province of Mozambique, logging and shipping timber products to China.
- Guoji Group (Henan Province) has set up an economic cooperation zone in Sierra Leone that has attracted about 20 Chinese small- and medium-sized enterprises producing spring mattresses, roofing tiles, hair lotions, and other light manufactures.
- Huawei Company: sales in SSA countries exceeded US$1 billion; has become the largest wireless technology CDMA product provider in the region.
- ZTE Corporation International signed an agreement with Mundo Startel (Angolan fixed-line telecommunications utility) to sell telecommunications equipment; ZTE would invest US$400 million to build Angola’s telecom network, upgrade the military telecommunications system, and construct a mobile phone factory.
- Hashan Company (eastern Zhejiang Province) is tripling its investment in Nigeria to US$6 million to boost the local shoemaking industry.
- Global Trading (a subsidiary of a Beijing-based company) spent US$10 million to renovate the Bintumani Hotel in Sierra Leone; the renovated hotel began operating in early 2003. Global Trading was contracted to manage the hotel for 10 years, with an option to renew the lease at the end of the term.

### Corporate identity, state vs. private distinctions, and institutional promotion
- Differentiating between the FDI of China’s state-owned and of its private enterprises is becoming more difficult—and less meaningful, as restructuring and share sales in state-owned enterprises make shareholder structures harder to ascertain.
- Many large Chinese companies have considerable operational autonomy and increasingly base their investment decisions on profitability considerations.
- The government has been actively encouraging private firms, small and medium as well as large, to invest in Africa.
- Differences between state and private enterprises in access to state-supported financing have been progressively reduced.
- In 2005 China and the UN Development Program established the China-Africa Business Council to promote private Chinese businesses in Cameroon, Ghana, Mozambique, Nigeria, South Africa, and Tanzania.

### Private contractors and builders: market dynamics and labor
- Private Chinese companies compete actively for construction contracts in Africa; originally market entrants tended to be large and state-owned (examples: China Overseas Engineering Corporation, China Roads and Bridges Corporation, China Railway Construction Corporation, Harbin Power Corporation).
- The number, size, and capacity of private Chinese construction companies are growing rapidly; competition between Chinese companies is fierce.
- State-owned enterprises receive more assistance from the Chinese government in terms of access to African governments and information on market trends; private construction companies seem to be more efficient in implementing projects (CFCS, 2006, pp.77).
- Typically, state-owned companies arrive with their own workforce. A minority of these workers stay in Africa after the work is completed and become independent contractors.
- There are a variety of private Chinese contractors and builders in the African market, some as small as single-person operations established by Chinese nationals residing in Africa; some were originally private subcontractors for state-owned companies, specializing in plumbing, electrical engineering, or air conditioning.
- There are no reliable figures on the number of Chinese now working in Africa. A recent study notes that the Chinese authorities identified 78,000 of them on the continent (ECOWAS–SWAS/OECD, 2006).
- Footnote evidence from a Stellenbosch University survey and four case studies (Angola, Sierra Leone, Tanzania, and Zambia) found that “with few exceptions, locals accounted for 85–95 percent of the total workforce of the Chinese construction companies examined for the survey” (CFCS, 2006, pp. 79–80).

### Drivers of growing China–Africa ties (selected themes from the broader analysis)
- Markets for exports
  - China had total imports of goods close to US$800 billion in 2006 and real GDP growth in double digits.
  - China’s imports from Africa grew at an annual average rate of over 40 percent between 2001 and 2006—twice as fast as its total imports for the same period.
  - Since 2004 SSA has recorded growth in the 5–6 percent range, increasing attractiveness for investment and consumer goods.
  - WTO membership (circa 2001) reduced uncertainty about market access; regional integration in Africa (common currency and regional free trade arrangements) increased incentives for Chinese investors to exploit larger regional markets.
- African demand for infrastructure
  - Inadequate infrastructure is a top constraint to business in Africa; energy and transportation are main bottlenecks to productivity growth and competitiveness.
  - According to a study prepared by the staffs of the World Economic Forum, the World Bank, and the AfDB: African firms lose as much as 8 percent of sales due to power outages, and transportation delays can account for as much as 3 percent of lost sales (World Economic Forum, 2007).
  - There is large unmet demand for upgrading infrastructure; traditional donors allocate a relatively small proportion of funding to infrastructure, and private-sector investment in infrastructure in poor countries is high-risk.
  - Chinese enterprises are active in Africa’s infrastructure market, drawing on experience from projects since the 1960s and modernization of China’s own infrastructure; their technology tends to be less capital-intensive, labor and material costs lower, and access to substantial, long-term financing in China reinforces competitive position.
- China’s approach to financing
  - China differentiates official financial support between social services and business development projects: grants and quasi-grants (interest-free or low-interest-rate loans, with willingness to reschedule) are used for public goods or social services (hospitals, schools, public buildings, technical assistance).
  - For projects expected to generate revenue or export earnings, China provides trade credit and commercial loans through state financial institutions and enterprises, often with repayment linked to output of the projects (e.g., oil).
  - China uses aid to facilitate investment—only a small part of China’s infrastructure activity in Africa is outright aid. Concessional financing is often only part of a financing package for commercial projects.
  - China’s official financing seldom directly supports recurrent public expenditure; assistance to current spending is usually in kind (free medicine, medical services, training of professionals, scholarships).
  - Technical assistance tends to relate mostly to sectoral development rather than government functioning or external consultants for public service.
  - This approach—aligning debt financing with commercial projects, using aid to leverage nongovernmental financing, and focusing on capital expenditure and productive sectors—helps explain the changing financing mix and growing Chinese financial flows to Africa.
  - Example: In Gabon, the CMEC/Sinosteel consortium, with financing from China Exim Bank, is constructing a railway, a port, and a hydroelectric power station as part of the project to develop an iron ore mine (IMF, 2007, pp. 40). In Nigeria, oil rights secured in early 2006 are linked to plans to build power and other infrastructure.

### Future outlook and policy implications
- The China–Africa economic relationship is likely to expand as China-Africa ties become increasingly based on trade and investment, and as trade broadens beyond commodities.
- The private (corporate) sector, rather than government ministries, is increasingly the engine of economic exchange between China and Africa.
- The future of China–Africa economic relations will be shaped by shifts in comparative advantage and changes in global supply chains.
- Policy priorities and recommendations implied by the analysis:
  - Improve the investment climate in African countries to attract and sustain mutually beneficial private-sector engagement.
  - Strengthen regulatory frameworks in Africa to achieve win-win outcomes from growing trade and investment ties.
  - Address issues of debt sustainability, governance reform, and environmental protection associated with new lending and investment through shared information, collaboration, and coordination between host country authorities and development partners.
- Research gaps identified:
  - The impact of possible changes in Chinese demand on African terms of trade, trade patterns, and the economic prospects of countries in Africa are worthwhile topics for further research.

*Source: Box 1 and related sections from the supplied IMF working paper content.*

### ANNEX II.  ESTIMATION OF AFRICA’S TERMS OF TRADE WITH CHINA

### ANNEX II.  ESTIMATION OF AFRICA’S TERMS OF TRADE WITH CHINA

### Methodology
- Africa’s terms of trade with China are calculated as the ratio of Africa’s export price index to its import price index.
- The indices are estimated as the weighted average of the prices of Africa’s top three export and import products.
- The weight for each product group are based on the average share of these groups in Africa’s exports and imports in 2005–06.
- Formula as presented:
  - ∑ = j t j i t i t M X TOT β α, where ∑ =1 i α and ∑ =1 j β.
  - X_i (M_j) represents the export price index of product group i of Africa’s exports to China (product group j of Africa’s imports from China) as reported by UNCOMTRADE.
  - α_i (β_j) stands for the weight of the export (import) price index for product group i (j).

### Commodity breakdown and price indices (weights used)
- Africa Export Price Index (weights and price indices):
  - Mineral fuels, lubricants, and related material — Share (percent) 75 — WEO commodity fuels energy index
  - Crude materials, inedible, except fuels — Share (percent) 16 — WEO commodity metals price index
  - Manufactured goods classified chiefly by material — Share (percent) 9 — WEO manufactures index
- Africa Import Price Index (weights and price indices):
  - Machine and transport equipment — Share (percent) 41 — Proxied by USA capital equipment index
  - Manufactured goods classified chiefly by material — Share (percent) 36 — WEO manufactures index
  - Miscellaneous manufactured articles — Share (percent) 24 — WEO commodity non fuel price index
- Note: "More than 92 percent of total trade is captured by the six commodities used in the terms of trade estimation."

### Merchandise trade with China, 2000–06 (annual percentage change and levels)
- Africa Exports to China (annual percentage change; three data sources shown)
  - China Customs Statistics: 2000 5.6, 2001 4.8, 2002 5.4, 2003 8.4, 2004 15.6, 2005 21.1, 2006 28.8
  - IMF Direction of Trade Statistics: 2000 6.3, 2001 5.3, 2002 6.2, 2003 9.2, 2004 16.7, 2005 22.3, 2006 29.9
  - UN Comtrade: 2000 6.2, 2001 5.4, 2002 6.0, 2003 9.0, 2004 16.4, 2005 21.8, 2006 29.4
- Africa Exports to China — of which: Sub-Saharan Africa (annual percentage change)
  - UN Comtrade (subcomponent): 2000 5.3, 2001 4.2, 2002 4.6, 2003 7.2, 2004 13.6, 2005 17.5, 2006 24.8
- Africa Imports from China (annual percentage change; three data sources)
  - China Customs Statistics: 2000 5.0, 2001 6.0, 2002 7.0, 2003 10.2, 2004 13.8, 2005 18.7, 2006 26.7
  - IMF Direction of Trade Statistics: 2000 6.8, 2001 7.4, 2002 8.3, 2003 11.6, 2004 15.4, 2005 20.2, 2006 28.4
  - UN Comtrade: 2000 6.4, 2001 7.1, 2002 7.7, 2003 10.9, 2004 14.5, 2005 19.0, 2006 26.8
- Africa Imports from China — of which: Sub-Saharan Africa (annual percentage change)
  - UN Comtrade (subcomponent): 2000 4.8, 2001 5.4, 2002 5.6, 2003 8.2, 2004 10.5, 2005 13.4, 2006 18.9
- Trade Balance (annual percentage change; three data sources)
  - China Customs Statistics: 2000 0.5, 2001 -1.2, 2002 -1.5, 2003 -1.8, 2004 1.8, 2005 2.4, 2006 2.1
  - IMF Direction of Trade Statistics: 2000 -0.5, 2001 -2.1, 2002 -2.0, 2003 -2.4, 2004 1.3, 2005 2.1, 2006 1.5
  - UN Comtrade: 2000 -0.2, 2001 -1.7, 2002 -1.7, 2003 -1.8, 2004 1.9, 2005 2.8, 2006 2.6
- Trade Balance — of which: Sub-Saharan Africa (annual percentage change)
  - UN Comtrade (subcomponent): 2000 0.5, 2001 -1.1, 2002 -1.0, 2003 -1.0, 2004 3.2, 2005 4.1, 2006 5.9

- Memorandum items — Africa Exports to China (levels, Billions of US dollars; three data sources)
  - China Customs Statistics: 2000 134, 2001 -1413, 2002 5487, 2003 3537, 2004 (entry appears as)  (Note: source lists values in sequence "134-141354873537" in the original text)
  - IMF Direction of Trade Statistics: 2000 102-151648813434 (values presented as contiguous string in original)
  - UN Comtrade: 2000 104-131151813335 (values presented as contiguous string in original)
  - of which: Sub-Saharan Africa: 89-20958892842 (values presented as contiguous string in original)
- Source line accompanying table: "Source: UNCOMTRADE, National Bureau of Statistics of China, and IMF, Direction of Trade Statistics."
- Table title: "Table 1. Africa: Merchandise Trade with China, 2000–06 (Billions of US dollars) (Annual percentage change)"

### Foreign direct investment and insurance highlights (selected reported figures)
- Table 2. Foreign Direct Investment Flows to Africa, 2002–05 (selected figures as presented)
  - China official Statistics entries shown: 6.3, 2.3, 0.4, 0.3, ...
  - Total FDI to Sub-Saharan Africa entries shown: 0.6, 1.5, 0.0, 1.9, 3.4, 1.9 (presented in original sequence)
  - Country-level mentions with numbers in sequence: Angola, Equatorial Guinea, Nigeria, South Africa, Sudan (numbers associated in original text: 0.6, 1.5, 0.0, 1.9, 3.4, 1.9)
  - Additional yearly entries in original sequence: 2003 9.1 3.5 1.4 13.8 0.8 1.3; 2005 7.1 1.4 1.7 0.9 ... ECOWAS-SWAC/OECD 1 2.0 (presented contiguously in original)
- Table 3. China Export and Credit Insurance Corporation (SINOSURE) (Billions of US dollars)
  - Sum insured by year (2002–2006) presented in original as: 1 2.7 55.7 113.2 921.2 129.57 (original text string: "1 2.755.7113.2921.2129.57")
  - of which: short-term insurance: "1.754.2610.6316.9823.32" (presented as contiguous string in original)
  - medium and long-term insurance: "0.941.362.072.802.61" (presented as contiguous string in original)
  - Source line: "Source: SINOSURE Annual Reports, 2002–2006."
  - Note: "Includes short medium and long-term insurance; investment insurance; bonds and guarantee; and domestic insurance."

### Aid and donor usage snippet
- Table 4. Major Aid Use by Donor, 2005 (percent of Total ODA)
  - Data items and notes as provided:
    - "2684 4385 20238 203312 182122" (presented as contiguous string in original)
    - Footnotes: "2 Weighted average based on share in net ODA.", "3 Data for 2006, includes aid provided by IBRD.", "4 Data for 2006."
    - Sources: "Source: OECD/DAC; World Bank Annual Report 2006, Compendium of Statistics on Bank Group Operation 2007."
    - Additional notes: "OECD/DAC data are on a net disbursement basis. Other major use include humanitarian aid, and commodity aid."
    - Donor labels appearing in original: United States, Japan, Economic Infrastructure, Social and Administrative Infrastructure, IDA 3, AfDF 4, (Percent of Total ODA), Agriculture, Industry and Other Production, EU-15 2

*Source: ANNEX II.  ESTIMATION OF AFRICA’S TERMS OF TRADE WITH CHINA (prepared by Amar Shanghavi) from the supplied IMF PDF content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07211.pdf_