If China Sneezes, Africa Can Now Catch a Cold
IMF Blog, March 20, 2014
Source details
- Canonical URL
- If China Sneezes, Africa Can Now Catch a Cold
Other formats
Bibliographic details
- Authors: Paulo Drummond, Estelle Xue Liu
- Published: March 20, 2014
Summary of the relationship
- China has become a major development partner of sub-Saharan Africa: the subcontinent’s largest single trading partner and a key investor and provider of aid.
- The relationship is reinforced by China’s reorientation toward new markets (including Africa) and by the natural-resource intensity of China’s economic growth combined with sub-Saharan Africa’s natural resource abundance.
- Links expose sub-Saharan African countries to potentially negative spillovers from China if China’s growth slows or the composition of its demand changes.
Trade concentration and composition
- Overall, sub-Saharan Africa has maintained a slight trade deficit with China.
- Fewer than half of the African countries have a trade surplus with China.
- China’s trade with sub-Saharan Africa is highly concentrated: five countries—Angola, South Africa, the Democratic Republic of the Congo, the Republic of Congo, and Equatorial Guinea—account for about 75 percent of the subcontinent’s exports to China.
- Africa’s exports to China are heavily concentrated in primary products, mainly oil:
- By 2008, mineral fuel and related materials accounted for about 45 percent of all sub-Saharan African exports to China.
- By 2008, mineral fuel and related materials accounted for more than 84 percent of exports to China if South African exports are excluded.
Empirical findings on spillovers from Chinese investment
- Analysis uses panel data covering 1995-2011 to measure how changes in Chinese investment affected exports from Africa.
- A 1 percentage point change in China’s real domestic fixed asset investment growth would alter sub-Saharan Africa’s export growth rate on average by 0.6 percentage point.
- The intensity of this effect varies by country group defined by natural-resource endowments:
- Resource-thin countries: changes in Chinese investment do a little.
- Non-oil resource countries: changes in Chinese investment have an appreciable effect.
- Oil-exporting countries: changes in Chinese investment have a much larger effect.
- For the top five resource-rich sub-Saharan African countries ranked by exports to China as a share of GDP (Angola, South Africa, the Republic of Congo, Equatorial Guinea, the Democratic Republic of the Congo), a 1 percentage point change in China’s domestic investment growth would be accompanied by a 0.8 percentage point change in their export growth rate.
Mechanisms of the China effect
- Indirect channel: Chinese investment affects global growth and commodity prices, which in turn affect African exports.
- Direct channel: Bilateral trading links—especially in primary products—transmit Chinese demand shocks quickly to resource-rich African exporters.
Implications
- The chart referenced in the source shows which African countries will experience the biggest spillover effects from changes in China’s economic performance, with oil exporters most exposed.
- Regions and countries most dependent on China for export demand—especially oil exporters—face the largest risk if China’s growth slows or demand composition shifts.
Source: If China Sneezes, Africa Can Now Catch a Cold — Paulo Drummond, Estelle Xue Liu, March 20, 2014
Content in this bundle
- 中国一打喷嚏，非洲现在就可能得感冒; 作者：Paulo Drummond和Estelle Xue Liu; iMFDirect博客;2014年3月20日
