China, the world’s second-largest economy has been in decline since the end of the pandemic. And this decline is not only limited to the Chinese economy. It also affects other markets, especially African markets because China has been the world’s largest creditor. In 2023 alone, China’s net international investment position reached $2.75 trillion. Thus, whatever happens in the Chinese economy has a direct or indirect impact on the world.
The relationship between the Chinese economy and African markets is quite intertwined. China is Africa's largest trading partner, accounting for over 20% of Africa's total trade in 2022. Africa exports a variety of commodities to China, including oil, minerals, and agricultural products. In return, Africa imports manufactured goods from China. China is also Africa's largest source of foreign direct investment (FDI). In 2022, Chinese FDI in Africa totaled $50 billion. Chinese companies have invested in a wide range of sectors in Africa, including infrastructure, energy, and mining.
The dependence of African markets on the Chinese economy has both positive and negative implications. Surely, trade and investment from China have helped to boost economic growth in Africa. Chinese FDI has helped to create jobs and develop infrastructure. But the problem with dependence is that when the entity on which we depend is not performing well, our own abilities are, consequently, impeded due to this dependence. And the decline of the Chinese economy is distorting African markets on many levels.
China is a major importer of African commodities, such as oil, minerals, and agricultural products. A slowdown in the Chinese economy could lead to a decrease in demand for these commodities, which would hurt African economies that depend on exports to China.
Furthermore, Chinese companies have invested heavily in Africa in recent years, in sectors such as infrastructure, energy, and mining. A decline in the Chinese economy could lead to a decrease in Chinese investment in Africa, which would slow economic growth and development on the continent.
We must also realize that African and Chinese currencies are linked. The Chinese yuan is a major global currency, and it is used by many African countries to peg their own currencies. A decline in the value of the yuan could lead to a decline in the value of African currencies, which would make imports more expensive and exports less competitive.
China's economic growth has led to increased demand for natural resources, such as oil and minerals. This has led to increased competition for these resources between China and other countries, including African countries. A decline in the Chinese economy could lead to a decrease in competition for resources, which could benefit African countries.
However, it is important to note that the impact of China's economic decline on African markets will vary depending on the specific country and the sector of the economy. For example, countries that are heavily dependent on exports to China, such as Angola and Zambia, are more likely to be affected by a decline in the Chinese economy than countries that are less dependent on exports to China, such as Kenya and Ethiopia. Additionally, sectors of the economy that are closely linked to the Chinese economy, such as mining and infrastructure, are more likely to be affected by a decline in the Chinese economy than sectors of the economy that are less linked to the Chinese economy, such as agriculture and tourism.
Some critics argue that China's economic engagement with Africa has led to neocolonialism. They argue that Chinese companies are exploiting African resources and labor, and that Chinese aid is being used to promote China's own political and economic interests. It is important for African countries to diversify their economies and reduce their dependence on China in order to mitigate the impact of a decline in the Chinese economy.