Economic and trade cooperation between China and Africa is the basis of the Forum on China-Africa Cooperation (FOCAC). Established in the autumn of 2000, the first FOCAC was held in Beijing, with ministers from China and 44 African countries in attendance. This triennial event has acted as a consistent platform from which the Chinese Government has been able to announce its future plans for engagement with Africa. At the latest forum in November 2009, Chinese Premier Wen Jiabao announced eight new measures to promote cooperation between China and Africa. Amongst the eight measures is one which opens Chinese markets to African imports by applying a zero tariff treatment.

China announced a zero tariff treatment to 95% of products imported from the least developed African countries having diplomatic relations with China (i.e. those that do not recognise Taiwan). This tariff removal is being phased in with 60% of imports to be tariff-free from 1 July 2010, and the whole 95% of products to be tariff-free by 2013. By 2013, the tariff exemption list will have been expanded from its initial 478 products in 2006, to 4,700 kinds of products. As part of its official interpretation of the measure, the Chinese Ministry of Commerce states its purpose to be to “further open market access to Africa and to increase the competitiveness of African export.”(2)

However, Africa has been the beneficiary of similar preferential access agreements with similar aims from other countries. The United States of America (USA) implemented the African Growth Opportunity Act (AGOA) in 2000, and the European Union (EU) created Everything but Arms (EBA) in 2001. In order to assess the potential impact of China’s free access agreement, this article will consider the degrees of success achieved by existing trade agreements, the make-up of trade between Africa and China and finally, Africa’s potential to develop an export-oriented manufacturing sector.

Forum on China-Africa Cooperation

The FOCAC emphasises equality and mutual benefit in its approach to seeking common development and this is something that is persistent in China’s approach to Africa. Whilst Western interaction with Africa is often described using the analogy of a doctor-patient relationship, China is intent on treating Africa as an equal - hence the emphasis on ‘common development’. The FOCAC demonstrates this approach as China uses it to make clear multi-year pledges and commitments, which makes financial support increasingly predictable, whilst offering a self-imposed monitoring mechanism in the form of the very next FOCAC. This inbuilt mechanism increases the likelihood that commitments will be fulfilled and has become a model for other Southern partners.(3) Should this commitment to mutual benefit be genuine then it would be expected that the trade agreement would be reflective of this too, in that there will be real benefits accruable to African countries.

In May 2010, China’s Ministry of Commerce proclaimed that the tariff exemptions initiated after the Beijing Summit in 2006 advanced more than US$ 1 billion worth of African exports to China. To further support the increasing list of tariff exempt products, China has promised to establish an African commodities trade centre to promote African products in China. In addition, China will contribute to the improvement of African business facilities by supporting relevant Chinese enterprises to set up three to five full-service logistics centres in Africa.(4) Commitments to provide access to credit, support to SMEs and the continuation of investment in infrastructure will all help to boost Africa’s capacity to export.

Africa Growth Opportunity Act

In contrast to China’s Ministry of Commerce, a report by Standard Bank claims that African countries have yet to benefit from the preferential access accorded in the 2006 FOCAC, placing blame on poor communication.(5) And in relation to AGOA and EBA, the Chinese product list is actually significantly smaller, even when it reaches the full 95% of imports target. However, neither AGOA nor EBA have been able to develop a more diverse trading relationship as desired.

Taking AGOA as an example, in 2007 total exports from approximately 40 AGOA beneficiary countries were valued at US$ 64.5 billion, of which US$ 42.2 billion qualified for duty-free access under AGOA, not including those that fell under the USA’s Generalised System of Preferences (GSP). Approximately US$ 40.1 billion (95%) consisted of energy-related exports, mainly oil. The remaining US$ 2.1 billion worth of exports were made up largely of clothing (60%) and motor vehicles and parts (22%).(6) Thus, it can be seen that the major success countries are those that exported clothing and apparel such as Madagascar. Unfortunately, the majority of growth in trade under AGOA has resulted from increased energy-related products.

In a similar fashion to exports from Africa to the USA, exports from Africa to China appear to be concentrated in one sector - mineral products. The top 20 products China imported from Africa in 2009 represented 94% of China’s total imports from all African countries for the year. There is a greater concentration of trade in a few primary resource-based products as reflected by China’s imports composition in which, the top five products accounted for 91% of total African imports. These were mineral products (79%), base metals (5%), precious stones and metals (4%), wood products (2%) and textiles and clothing (1%). In stark comparison, the top 20 products China exported to Africa in 2009 represented only 36% of the total China exports to Africa. This clearly demonstrates the diversity of China’s export products, which are largely value-added manufacturing products comprising of machinery (6%), transport equipment (5%), textiles and clothing (3%), footwear (2%) and plastic products (2%).(7)

Since the USA and China’s import relationships are similarly heavily dependent on a few products, it is difficult to anticipate the preferential access agreement offered by China performing much differently to AGOA. That arguably has brought some benefit to some countries, but has not gotten close enough to realising the envisaged diversified trade relationship between the USA and Africa. However, there are differences in Sino-African trade relations compared to those between USA and Africa, and these stem predominantly from the fact that both Africa and China are still developing.

Sino-African trade

Simplistic ‘implicit transfer’ calculations show that the overall economic value of the preferential access granted by China amounts to US$ 10 million per year.(8) In the context of Sino-African trade, this is a rather humble sum. The value of trade between Africa and China has increased tenfold between 2000 and 2009(9) surpassing the US$ 100 billion mark. Although the value of trade between Africa and China may appear to be similar to that of trade between Africa and USA, there is a stark difference in the trade relationship, and this lies in the trade balance. The structure of trade between Africa and developing countries, and Africa and developed countries is markedly different in that Africa has a trade deficit with developing countries, but a surplus with developed countries. So whilst China boasts of continuing trade growth between Africa and China, it is important to take into account that this trade growth is largely made up of China exporting largely value-added manufactured goods to Africa. In comparison, trade growth between developed countries and Africa, such as under AGOA, is largely down to US importing from Africa.

A troubling trend highlighted by a United Nations Conference on Trade and Development (UNCTAD) publication is that of primary products increasing as a share of African exports to non-African developing countries. There was a rise from 55% in 1995, and then a staggering 75% in 2008. Over the same period, the share of resource-based manufactures in African exports to non-African developing countries fell from 27 to 15% and that of low, medium and high technology manufactures from 18 to 10%.(10) It has been identified that somewhat flourishing manufacturing sectors have diminished in African countries with the influx of cheap Chinese goods. An oft cited case is that of the garment sector in Kenya, which saw a dramatic reduction in the number of operating factories over the past few years. With a quarter of China’s tariff-free product list being agricultural produce, there is a concern that more people will turn to producing primary products for export.

Africa’s reliance on primary exports is of concern, because it is potentially detrimental to its long-term growth prospects. It has been suggested that exporting is not in itself a growth strategy, but what really matters is what is exported. For instance, China has had success exporting goods such as consumer electronics; an export basket much more sophisticated than what would be expected for a country of its income level.(11)

This is the direction in which African countries need to move - producing goods that are value added. This is in addition to goods “that have a production structure that is more strongly linked to the rest of the economy that produces them.”(12) As previously mentioned, African countries have suffered in certain manufacturing sectors due to the influx of cheap Chinese goods. However, China’s free access agreement could be the indication of real opportunity in Africa. On the list of goods that will be tariff-free, approximately three quarters are industrial goods including plastic products, ball-point pens, table lamps, refined copper products and more. The Chinese Government has expressed its wish for companies within China to move up the value-chain, and the products on the list are mainly from entry-level industries that Chinese planners are looking to move beyond.(13) This leaves space for other developing countries to produce some of the low technology manufactured goods.

Therefore, although the estimated economic value of the agreement is relatively low, there may be scope for substantial future growth. However, there is also every chance that Chinese companies may themselves simply locate in Africa (a process that has already begun), thus almost negating many benefits that may have accrued to Africa.

Diplomatic leverage and non-tariff barriers

Taken at face value, the free access agreement and surrounding measures are methods to boost trade and economic ties between Africa and China. However, this move can also be viewed as a powerful diplomatic lever.(14) It would work in two ways, firstly to gain favour from African leaders and Africans in general. Bilateral relations with many African states may be considerably enhanced, especially since many of the products on the list have been carefully selected to suit particular African economies. Secondly, it would serve to further rebalance views of China as a credible alternative to Western donors. Many African leaders continue to prefer China’s ‘no-strings attached’ approach to aid and investment over Western donors demands for political accountability and transparency.

Viewed as simply a diplomatic tool rather than a genuine opening of Chinese markets, the Chinese free access agreement can further lose its credibility when non-tariff barriers are taken into account. A typical non-tariff barrier that has hindered success for EBA and to an extent AGOA, is that of the rules of origin. In China’s agreement the rules of origin are relatively strict - 40% of value must be added in country - but seeing as the product list consists predominantly of primary commodities or simple manufactures, this is not too limiting.(15)

Unfortunately, other non-tariff barriers do exist. Sanitary and phytosanitary measures (SPS) and discretionary import prohibitions could affect primary imports from African countries on the basis of health and environmental concerns, given that many of the duty-free products are of animal origin and that capacity for quality control in such countries is weak.(16) This could potentially be countered with the other measures that China is implementing along with the free access agreement, which include the set-up of agricultural technology centres and teams of Chinese technical experts.

Conclusion

Whether China’s preferential access agreement is viewed as a brilliant foreign policy tool, or a genuine commitment to African development, it is one that offers some hope to African countries. The estimated US$ 10 million per year has the potential to grow to be much higher should China pursue and succeed in moving up the global value chain. This move will leave space for companies in Africa (be they Chinese or African) to start manufacturing and exporting those goods that China leaves behind. The next two FOCACs will act as milestones at which the agreement will be acknowledged and reviewed by the Chinese and African Governments.

There is an equal measure of hope and scepticism in anticipation of the full product list, but it appears that the benefits for African countries will hinge on complementary measures and support offered by China. The focus should be on African economies becoming less dependent on primary commodity exports, and moving up the value chain. This will foster greater opportunities for diversified export markets and in goods that have high income elasticities of demand,(17) in turn leading to growth and employment. 

NOTES:

(1) Harvir Mattu is an Analyst in Consultancy Africa Intelligence’s Asia Dimension Unit ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )
(2) China Ministry of Commerce, ‘An Interpretation of new Measures on Economic and Trade Cooperation from 4th Ministerial Conference’, Forum on China Africa Cooperation, 24 May 2010, http://www.focac.org.
(3)United Nations Conference on Trade and Development, ‘South-South Cooperation: Africa and the New Forms of Development Partnership’, Economic Development in Africa Report, 2010, http://www.unctad.org.
(4) China Ministry of Commerce, ‘An Interpretation of new Measures on Economic and Trade Cooperation from 4th Ministerial Conference’, Forum on China Africa Cooperation, 24 May 2010, http://www.focac.org.
(5) Freemantle, S. and Stevens, J., ‘The rise of the Chinese consumer: Opportunities for Africa presented by the next phase of China’s economic growth’, Economics BRIC and Africa, 7 April 2010, http://ws9.standardbank.co.za.
(6) Naumann, E., ‘AGOA at nine: some reflections on the Act’s impact on Africa-US trade’, Inside Southern African Trade, January 2009, http://www.satradehub.org.
(7) Trade Law Centre for Southern Africa, http://www.tralac.org.
(8) Alves, P., ‘China’s preferential trade policy as a foreign policy tool’, New Impulses from the South: China’s engagement of Africa, 2008, http://www.ccs.org.za. 
(9) United Nations Conference on Trade and Development, ‘South-South Cooperation: Africa and the New Forms of Development Partnership’, Economic Development in Africa Report, 2010, http://www.unctad.org.
(10) Ibid.
(11) Rodrick, D., 2006. ‘What’s so special about China’s exports?’ China & World Economy, 14(5),pp.1-9.
(12) United Nations Conference on Trade and Development, ‘South-South Cooperation: Africa and the New Forms of Development Partnership’, Economic Development in Africa Report, 2010, http://www.unctad.org.
(13) Brautigam, D., China in Africa: The Real Story, 13 April 2010, http://www.chinaafricarealstory.com.
(14) Olander, E., ‘In the Battle for Influence in Africa, China Turns to Agriculture’, China Talking Points, 30 June 2010, http://www.chinatalkingpoints.com. 
(15) Alves, P., ‘China’s preferential trade policy as a foreign policy tool’, New Impulses from the South: China’s engagement of Africa, 2008, http://www.ccs.org.za. 
(16) Ibid.
(17) United Nations Conference on Trade and Development, ‘South-South Cooperation: Africa and the New Forms of Development Partnership’, Economic Development in Africa Report, 2010, http://www.unctad.org.