Reserve market: how the economic strengthening of China in Africa will help it reduce the damage from US trade bans

In the first half of 2019, the Chinese economy grew by 6.3% to 45 trillion yuan. This is stated in the report of the State Statistical Office of China. At the same time, if in the first quarter GDP growth was 6.4%, then already in the second figure it dropped to 6.2%. The value has been minimal since 1992.

Experts say that one of the main reasons for the slowdown in the economy of the country in recent months is the intensification of the trade war between Beijing and Washington. So, after a series of successful negotiations in early 2019 in May, the States raised duties on Chinese goods to the amount of $ 200 billion and threatened to additionally impose tariffs on products at $ 300 billion. Beijing, in turn, introduced retaliatory duties in the amount of $ 60 billion from June 1, and technological US companies began to stop cooperation with the Chinese giant Huawei.

Although at the G20 summit in June, the parties again agreed to resume negotiations, experts still fear a rise in the tariff conflict. At the same time, experts say that China has a trade "airbag" in the event of another exacerbation of relations with the States. Thus, in recent years, the Asian Republic has significantly increased its economic influence on the African continent and thus managed to gain new markets for its products.

As previously stated by the Deputy Minister of Commerce of China, Qian Kemin, for the past ten years, China has consistently remained the largest trading partner of African countries. At the same time, in 2018, the Asian Republic's trade with the countries of the region grew by 20% and amounted to $ 204 billion. Moreover, according to the UN Conference on Trade and Development (UNCTAD), from 2007 to 2017 the volume of direct investment from China to Africa increased almost ten times - up to $ 43.3 billion

“The African continent for China is both a source of direct access to resources (aluminum bauxite, ferrous metal ores, forests, graphite deposits for the production of industrial diamonds), and a large market for consumer goods (clothing, fabrics, electronics, home appliances, and many other ), which looks very advantageous in the context of the ratio of price and quality in the eyes of the mass buyer and retail chains, ”said Pyotr Pushkaryov, analyst at TeleTrade, in an interview with RT.

According to the analyst, by 2020 the volume of trade between China and African states may increase by another third. In many ways, the positive dynamics will be associated with the planned elimination of trade barriers between the countries of the region.

So, in July, 54 of the 55 countries of the African Union agreed to launch the African Continental Free Trade Area (AfCFTA). As expected, the agreement will be the largest in the entire history of the WTO (since 1994) and will reduce customs tariffs by 90% for all goods of the countries participating in the contract.

According to UNCTAD, from 2015 to 2017 in the total volume of African countries' trade turnover, about 15.2% fell on the trade of the states of the region with each other. At the same time, the creation of a free trade zone will allow an increase in the rate to 52.3% by 2020. This is stated in the report of the UN Economic Commission for Africa.

It is noteworthy that at the time of signing AfCFTA, China has already managed to conclude bilateral trade agreements with 40 countries in the region. In addition, due to its influence in the region, Beijing became a mediator in the negotiations between the countries of the continent in the process of creating an agreement. This was previously mentioned by the head of the Asian consulting company Dezan Shira & Associates Chris Devonshire-Ellis.

According to the representative of the Chinese Ministry of Foreign Affairs Gen Shuang, the new agreement will be the basis for the development of partnership relations between China and Africa. According to him, China is also ready to combine AfCFTA with the Chinese project "One Belt - One Way," reports Xinhua. According to experts, the elimination of customs barriers between the countries of the continent will greatly facilitate the supply of Chinese products to the region.

“AfCFTA will in itself contribute to an increase in the export of Chinese goods to Africa due to the unification of procedures and closer connection of local markets,” said Oleg Remyga, head of the China department of the Moscow School of Management Skolkovo, in an interview with RT.

• Reuters
• © Jason Lee

It's a question of time

According to statistics from the General Administration of Customs of China, in 2018, the Asian Republic's trade with the United States almost three times exceeded the volume of trade with Africa and amounted to $ 633.5 billion. As noted by Peter Pushkarev, at the moment from the point of view of China, the American and African markets are in different "Weight categories" and significantly differ in the range and cost of production.

At the same time, as the expert notes, over time, revenues from Chinese shipments to Africa and their own enterprises on the continent will still be able to partially replace lost profits from the US tariff restrictions. At the same time, one of the main competitive advantages of Beijing in the region is the ability to actively sell high-quality goods at more attractive prices for buyers.

“The same Chinese smartphones - and not only Xiaomi or Huawei, which are actively pressured by the States, but also other quite high quality products from the cheaper price segment - are already conquering the African market. The population with relatively low average incomes has low demand for expensive iPhones. And the widespread use of communications will help to significantly increase the revenue of Chinese Internet sites in the African region, ”explained Pushkarev.

It is curious that in the coming years, China intends to further strengthen its influence in the region at the expense of financial support from the countries of the continent. For example, in September 2018, Chinese President Xi Jinping promised to provide Africa with about $ 60 billion in investment, loans, and, in part, grants. According to analysts, Beijing’s actions not only make it possible to extract economic benefits, but also further strengthen the country's geopolitical position in the world.

“From a political point of view, China’s investment can also pay off. At the moment there is at least one Chinese military base in Djibouti, and in 2018, the PRC conducted joint exercises with other countries. Thus, in addition to the active extraction of resources, the Chinese can count on the support of their actions in the international arena from African countries, ”Gennady Nikolayev, an expert at the Academy of Financial and Investment Management, said in an interview with RT.

In addition, the economic expansion of China to Africa is also intended to strengthen the position of the yuan in the international foreign exchange market. About this in an interview with RT said the head of the department of macroeconomic analysis of Saxo Bank Christopher Dembik.

“In my opinion, the creation of AfCFTA will contribute to the further internationalization of the Chinese yuan. This was made possible by concluding swap contracts with many African countries, ”the expert explained.

According to the terms of swap contracts, countries buy currency from each other and after a certain time sell back at a fixed rate. Such an operation allows participants to avoid financial losses in case of exchange rate fluctuations.

Chinese trap

According to analysts, initially, China’s interest in the African continent was associated with the region’s rich oil and gas fields and the relative cheapness of natural resources. According to the UN Economic Commission for Africa, about 90% of the total exports of the continent's countries to China come from the supply of raw materials.

“Chinese business in the country is traditionally interested in natural resources - Beijing needs access to cheap sources of raw materials to maintain domestic economic growth. In exchange, African countries have access to cheap Chinese loans, investment and technology, ”Oleg Remyga said.

From 2000 to 2017, China provided loans to African countries in the amount of $ 143 billion. This is stated in the report of the Chinese-African research group of the American School of Advanced International Studies. Beijing's money goes to building railways, highways, pipelines, hospitals, schools and other infrastructure facilities.

Meanwhile, as Oleg Remyga points out, often when financing local projects, the eastern lender and African borrowers underestimate financial risks. As a result, the countries of the continent are increasing their debts, but have no opportunities for a refund. Thus, according to experts, the states find themselves in political and economic dependence on Beijing.

“China is actively lending to other countries and in the event of non-payment of debt, states have to surrender entire industries to the Asian republic. Zambia is often remembered, which owes China about $ 12 billion (with a GDP of $ 25 billion) and was forced to transfer control over key facilities, such as the railway to Tanzania, the largest power station and television channel, to the possession of Chinese companies, ”added Gennady Nikolayev.