Slowing growth and rising debt at home may affect Beijing’s ability to keep up its vast investments in the developing world. Concerns over Chinese growth could spell problems for Africa and other parts of the developing world.
Beijing funded an overseas investment boom in the past few decades as it strove to become the world’s second largest economic superpower, while also buying vast amounts of the natural resources produced by emerging nations.
The scale of the expansion forms part of China’s multibillion-dollar “Belt and Road” Initiative, a state-backed campaign to promote its influence around the world, while providing stimulus for its own slowing economy. The transcontinental development project, launched by China’s president, Xi Jinping, in 2013, aims to improve infrastructure links between Asia, Europe and Africa, with the aim for China to reap the benefits from increasing levels of global trade.
Mounting tensions between China and the US, however, have acted as a handbrake on rising levels of world trade. The International Monetary Fund forecasts Chinese growth will slow to 6.2% this year from about 6.6% in 2018, due to escalations in the trade dispute that erupted last year. There are also rising fears over the rapid growth of debt in China used to fuel its expansion over the past decade.
With Chinese investment in some African nations worth more than some of those states own domestic spending, analysts fear the prospect of weaker investment in future and fading demand for commodity exports.
Figures from the United Nations’ development agency, Unctad, show that weakness in global commodity prices in 2014 and 2015 caused foreign direct investment flows into Africa to fall from $55bn in 2015 to $42bn in 2017, showing how Africa might be hit by a Chinese slowdown.
Richard Kozul-Wright, director of the division for globalisation and development strategies at Unctad, said: “China has been slowing down gradually for the last two or three years, coinciding with continued expansion abroad. Whether the current shocks linked to trade and growing concerns about debt will be significantly worse, I guess we are not sure yet. That’s a big uncertainty.”
“More than four fifths of the amount China spends on construction overseas goes to low- or middle-income economies”
Craig Botham, an emerging-markets economist at the City Investment firm Schroders, warned that weaker Chinese demand for commodities could have a negative impact on emerging markets: “It should mean slower growth for anyone with an export link to China.”
The overseas lending from China’s two main development banks reached $675bn at the end of 2016 – more than twice the size of loans from the World Bank, which has a remit to tackle poverty in the developing world, with African development a focus of the Chinese institutions.
More than four fifths of the amount China spends on construction overseas goes to low- or middle-income economies. According to Unctad, China holds the fourth-largest stock of foreign direct investment in Africa at $40bn, behind the US at $57bn, the UK at $55bn, and France at $49bn.
The investments run from aid projects to infrastructure, including help to upgrade more than 18,000 miles of highways, 1,200 miles of railways, and raising ports capacity by about 85 million tonnes per year.
According to Deloitte, China is the most visible single-country funder and builder of infrastructure projects in Africa, having spent about $11.5bn a year on average since 2012 – about a third of all African government spending, worth an average $30.1bn.
Despite the risks facing developing nations from China’s slowdown, experts say Beijing is likely to remain significantly influential. Officials committed late last year to spending $60bn in Africa over the next three years, although there are fears the project may saddle developing countries with too much debt just as the world economy begins to falter.
Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said it “would have to be a very severe slump” to affect Africa. The consensus forecast for China’s GDP growth is 6.2%: “that is still a very healthy pace of growth.”
Kozul-Wright at Unctad said: “China’s weight in the global economy is going to continue to grow and its footprint will continue to grow. Maybe not in the same way as the last 20 years. But the idea that Trump can put the genie back in the bottle seems rather naive.”