Assignment with large natural resources endowments. China’s engagement

  Assignment 02  –Seminar Group No 06 Name – Dushyanthi JoachimChina has become a major economic partner of Africa.

 Total merchandise trade between China andAfrica surpassed to more than US$ 200 billion in year 2014, making ChinaAfrica’s largest trade partner. In terms of foreign direct investment (FDI), toAfrica has extended up to US$ 2.52 billion in 2012 which has shown an annualgrowth of more than 20 percent from year 2009 turning China into the largestdeveloping country investor in Africa. Additionally, Chinese aid initiatives inAfrica in the form of economic or technical cooperation have also increasedremarkably in the last decade. According to the “The Huffington Post” it isunderstood that the China’s venture restored on powerful three-pronged approachof trade, foreign direct investment, and aid largesse.

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Africa’s growthperformance has improved significantly. Various factors have contributed toAfrica’s better growth performance, including a marked improvement ininstitutions and infrastructure. It is understood that the China’s major economicactions have made a significant economic growth in Africa’s overall trade, foreigndirect investments and aid.

In contrast to these positive effects, Chinese involvementin Africa is driven mainly by the quest for material inputs (oil, steel/iron andother primary commodities) required for its infrastructural investments andbooming manufacturing sector. China has an enormous demand for rawmaterial. The expansion in the trade has created a demand for Africa’s rawmaterials.

Chinese foreign direct investments mainly flows to African countrieswith large natural resources endowments. China’s engagement in Africa couldhave negative consequences for economic growth as well. Partly due to China’sstrong demand for raw materials, African exports are more and more concentratedin the primary sector. This enhances the risk of encountering the resourcecurse in African countries. Extracting and exporting natural resources couldlead to rent-seeking and corruption.Even though the consumers in Africa are benefited from importsof low cost manufactured products from China and African producers are alsotaking advantage of low-cost Chinese inputs in their production process.

Chinesemanufactured firms could displace their African competitors in case theyproduce similar goods. China threatens African suppliers in manufacturing inparticular to textiles, furniture, footwear, or ceramic products. China haschanged its investment patterns and started to invest heavily in African countrieswith weak institutions. It is understood without doubt that China’s interventionsin Africa have opportunities like growth in economy, increase in GDP and improvementinfrastructure. And also negative impacts like encountering in natural resourcecurse and adverse effects in manufacturing trade within the country.

So Summingup, there are opportunities and risks that arise from China’s variousactivities in Africa.

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