Over the past 20 years, China has become Africa’s single largest trading partner and a growing source of investment and lending in Africa, signaling deepening economic ties between the two partners (see Figure 1). To explore new developments in China and Africa’s evolving economic relationship, the IMF Africa Department released a paper earlier this year, entitled, “A Rebalancing Act for China and Africa: The Effects of China’s Rebalancing on Sub-Saharan Africa’s Trade and Growth.”
The paper examines the channels through which China’s new growth model may affect China-Africa trade and economic growth in sub-Saharan Africa. The authors theorize that China’s transition from an investment-led to consumption-led growth model will have varying effects on net-commodity-exporting countries in sub-Saharan Africa, based on whether they export investment-driven (such as ores and metals) or consumption-driven commodities (such as agricultural raw materials and foods) (see Figure 2). Exporters of investment-driven commodities, they suggest, will suffer from China’s declining investment (due to decreases in world prices and lower import demand), while exporters of consumption-driven commodities will benefit from both an increase in world prices and greater import demand from China.
To test these hypotheses, the authors employ growth regressions to explore China’s impact as a trading partner on the growth of sub-Saharan African countries, controlling for a number of explanatory variables. The empirical results indicate that China’s growth has a particular impact on sub-Saharan Africa’s growth, with a 1 percent increase in China’s growth disproportionately raising sub-Saharan Africa’s growth by more than 1 percent, as seen in Figure 3. A 1 percent increase in all trading partners’ growth generally, however, will only raise sub-Saharan Africa’s growth by 0.6 percent. The authors attribute sub-Saharan Africa’s excess dependence on Chinese growth to trade links, including a direct link through Chinese demand for African goods and an indirect link through Chinese demand for commodities, which in turn, buoys world commodity prices for sub-Saharan African commodity exporters.
Moreover, a 1 percent increase in China’s growth will increase growth among investment-driven net commodities exporters by nearly 2 percent (Figure 4). This supports the authors’ hypothesis that investment-driven commodity exporters are dependent on China’s growth.
Since the analysis suggests that spillover effects from China through the trade channel render sub-Saharan African growth dependent on Chinese growth, the authors question whether a slowdown in China and its rebalanced growth model may undermine Africa’s growth performance in the years to come. Citing existing studies, they contend that much of the current literature points to the fact that sound macroeconomic policies, strong institutions, and good governance have been the key determinants of African growth over the past several decades—not high commodity prices bolstered by Chinese demand.