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China set to play bigger role in Africa trade

2014-04-28 14:17 Shanghai Daily Web Editor: Si Huan
Jerry Zhang - Chief Executive Officer of Standard Chartered China (Photo source: Shanghai Daily)

Jerry Zhang - Chief Executive Officer of Standard Chartered China (Photo source: Shanghai Daily)

Admiral Zheng He's seven seafaring expeditions in the early 15th century to Arabia and the eastern coast of Africa are legendary. What is less widely known is that China had been trading with Africa for centuries before those voyages.

The earliest historical records date back to 200 BC, and subsequent accounts by African, Arab and Asian scholars and travellers refer to a thriving trade in porcelain, silk, cotton, gold, ivory and iron. This trade, which lasted through the Tang, Song, Yuan and Ming dynasties, was profitable for both sides and flourished until the 1500s. China then withdrew from the rest of world for the next four centuries — until the new People's Republic under Chairman Mao Zedong started building ties with other developing nations and reviving the Indian Ocean shipping route. It was a slow start. China's trade with Africa surpassed US$1 billion only in the 1980s. Since the establishment of the government-led Forum on China-Africa Cooperation in 2000, trade has ballooned 29-fold to US$210 billion in 2013.

While recent growth has been impressive, there is scope for further expansion. Based on Standard Chartered's experience in financing trade and businesses in both China and Africa for over 150 years, we see the China-Africa partnership evolving across three mutually supportive channels.

Biggest trading partner

First, we see trade broadening beyond raw materials and low-priced items to higher-value goods and services as both economies rise up the value curve. Second, we expect trade and investment ties to encompass a larger number of African countries with the rise of the consumer class across the continent. Finally, we envisage the renminbi becoming a core currency for making payments, raising capital and as a store of value across Africa by the end of this decade. Let's examine these trends in more detail.

China is set to become Africa's largest trading partner in a few years, eclipsing the continent's centuries-old ties with Europe. Yet for all the growth in recent years, this trade has been largely confined to exports of oil and other mineral resources from Africa and, until recently, exports of textiles, clothing and low-value machinery from China.

The components of this trade are changing fast, however. China's exports to Africa of high-end machinery, telecommunications devices, electronics and electrical equipment, and road vehicles have risen sharply in the past few years. These high-end items now account for the majority of the country's exports to Africa. They support China's growing involvement in building infrastructure and its rising investments in Africa's energy and minerals exploration.

In the other direction, resource exports are likely to dominate Africa's exports to China in the coming years, given China's growing appetite for energy and its push to diversify its energy and mineral sources away from the Middle East. A third of China's oil imports are now sourced from Africa. While China's demand for African resources is welcome across the continent because it brings in much-needed funds, African governments are also taking steps to reduce their excessive reliance on raw-material exports to fund their budgets.

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