Chinese Firms Surge into Africa in Search of Customers, Contracts, Jobs

Photo: AP/Alfred de Montesquiou

China Merchants Port Holdings has invested $400 million to build China’s first port in Africa. The massive project, now under construction in Djibouti, will serve China’s commercial and naval ships and deepen China’s economic and security interests in the African continent. As well, the project will create jobs for Chinese engineers and local labor and help Chinese construction companies compete for contracts in the world market. Chinese firms earn $50 billion a year building ports, highways, and airports across Africa, according to the China Africa Research Initiative at Johns Hopkins SAIS.

The project illustrates how China’s economic interests in Africa have shifted from primarily resource extraction to feed its factories to direct investment and money-lending for infrastructure projects. As China’s economy has evolved from basic manufacture to high-value manufacturing and services, and as median incomes in Africa have risen, Chinese firms increasingly view Africa as a market for their construction services and exports.

Financial transactions between Chinese and African firms have not always gone smoothly. In some places, corrupt businessmen and officials have taken advantage of weak laws and enforcement mechanisms. “The lesson for African countries is that you want government and civil society to have strong oversight of infrastructure and mining projects,” David Dollar, a senior fellow at the Brookings Institute, told the Cipher Brief. “China may take a lesson as well, that lending to countries with poor governance leads eventually to debt write-downs and losses for China.” However, in governments with strong oversight and transparency, economic arrangements tend to work to each party’s mutual benefit.

Many African economies have become increasingly attractive as investment destinations for Chinese firms. As China’s population ages and as its industrial growth slows, its firms are looking for new markets for goods and services. “China has over-invested at home and needs to invest abroad now,” Dollar explains, “to employ construction companies and deploy the country’s savings.”

In the near future, Chinese firms could begin relocating portions of their production chains to Africa to capitalize on Africa’s growing workforce. Africans might command higher wages, while Chinese firms would achieve larger profit margins.

More than one million Chinese citizens reside in Africa. The large Chinese expatriate population and billions of dollars in Chinese investments give Beijing a vested interest in the peace and stability of many African nations.

The collapse of the Qadaffi regime in Libya in 2011 and resulting civil war forced China to evacuate almost 36,000 Chinese nationals. Smaller evacuations occurred in Libya in 2014 and South Sudan in 2015.

In recent years, China’s security interests have extended well beyond protection of its own people and assets. It is now an essential contributor to regional stability coalitions such as the African Union and United Nations peacekeeping operations.

China built a headquarters for the African Union in Addis Ababa as a gift valued at $200 million. In 2015 Chinese President Xi Jinping announced a donation of $100 million to the African Union for its rapid response African Standby Force and the African Capacity for Immediate Response to Crises. China has offered to train African Union  personnel stationed in Somalia and Darfur.

China contributes more personnel to UN peacekeeping operations in Africa than any other permanent members of the U.N. Security Council. Some 2400 Chinese soldiers are stationed at six of the nine U.N. missions in Africa. David Shinn, an adjunct professor at George Washington University and the former U.S. ambassador to Ethiopia and Burkina Faso, told The Cipher Brief that, because of its many efforts, “China gets good marks for its support of African peacekeeping operations.”

In addition to its land-based security contingents, China is expanding its naval presence in Africa. It has contributed to international anti-piracy missions off the Horn of Africa and, like the United States and several European countries, will soon have a naval base in Djibouti. The port facilities will be used for commercial vessels and People’s Liberation Army Navy ships. As China expands its commercial maritime activities, its navy will follow to provide protection.

Beijing sees its prodigious growth in forging economic partnerships with African nations as just the beginning. China’s commitments to security and peacekeeping signal it has a long-term interest in the continent’s future prosperity and stability crucial for business. While the track record of Chinese firms is mixed and has been at times exploitative, but it has improved over time.  China’s contributions to economic prosperity and security in Africa have been, and are expected to be, mutually beneficial.

Will Edwards is an international producer at The Cipher Brief. Follow him on Twitter @_wedwards.