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China has had a strong economic relationship with Africa since the Chinese Communist Party (CCP) first came to power in 1949. Mao Zedong viewed Africa (along with Latin America) as the ‘First Intermediate Zone’ in which China's status as a non-white power might enable it to compete with and supersede both United States and Soviet Union influence. After the global financial crisis in 2008, China began to import commodities from Africa, which quickly led to a surge in Chinese manufacturing exports to Africa in return. China also increased its investment in the African region in the last decade.

Similarly, the European Union has long been an economic partner of Africa. When comparing Africa-China and Africa-EU trade relations, the EU dominates when it comes to trade and investment and is more favourable for Africa. This is because Africa holds a structural trade surplus with Europe, instead of a deficit, as is the case with China. The EU also remains a much larger foreign direct investor in Africa than China. There is however very little economic co-operation between Europe and China when it comes to Africa. 

Trade

In 1995, China's exports to Africa were only $1.8 billion, significantly lower than the EU's exports of $45 billion. However, China has increased its manufacturing capacity over the past thirty years and in 2022, its exports to Africa reached $164 billion. This is still 12% lower than the EU's exports to the region, which stand at $187 billion.  

Conversely, the importance of the EU and China as markets for African exports varies significantly. So far, the EU remains the leading market for Africa as Chinese imports are growing at a slower pace. Despite a much higher GDP growth than the EU, China's imports from Africa amounted to only $118 billion in 2022, whereas the EU’s imports from Africa increased to $247 billion in the same year.

Consequently, China held a substantial trade surplus of $40 billion with Africa in 2022, whereas the EU had a trade deficit of $61 billion with Africa. This asymmetric trade pattern points to an important geoeconomic reality. Notwithstanding China’s quest for commodities — such as fossil fuels, metals, critical raw materials and food — Africa is stuck with a large trade deficit with China. China’s growing industrial expansion recently encapsulated in the idea of the ‘New Production Forces’ does not bode well for this trade deficit, which is bound to grow. The idea of China increasing its manufacturing capacity in the African continent, through foreign direct investment (FDI), is still in its infancy. There has been some progress made in the battery industry in Morocco but much more would be needed to reduce the current deficit.

In the case of the EU, Africa’s surplus is mostly explained by the EU’s higher reliance on African fuels like oil and natural gas, especially after the strategic shift away from Russian energy after Russia’s invasion of Ukraine in early 2022. While China also imports fuels, ores and metals from Africa, it does so in a smaller amount. China has access to much cheaper fossil fuels from Russia which is also contributing negatively to African exports to China. In addition, the EU mainly exports medium- to high-technology intensive goods, showcasing the comparative advantage of EU producers, whereas China’s manufacturing exports to African encompass a much wider range, spanning from low- to high-technology intensive products, as well as other labour-intensive goods.

Foreign Direct Investment

Europe still has the largest stock of FDI into Africa, led by the United Kingdom ($60 billion), France ($54 billion) and the Netherlands ($54 billion). China’s FDI into Africa saw some boom years in the middle of the 2010s but it has decelerated quite drastically since. China was the most important lender for project finance because of its Belt and Road Initiative which includes a large number of African countries. However, China’s lending has reduced substantially since 2019.

In sum

When comparing Africa’s trade and investment relations with Europe and with China, one can see that Africa gains more from Europe in terms of a trade surplus and a larger stock of FDI. Regarding Africa’s economic relations with China, a large trade deficit and fleeting inflow of capital point to the drawbacks although there surely are other benefits which explain the increasingly close relations, from access to funding to building infrastructure. For the EU, sound economic relations with Africa are all the more important both because of geographical vicinity and divergent population trends, which call for more efforts to be put in to support Africa’s balanced growth, especially with more foreign direct investment into manufacturing. Africa clearly needs this investment in order to be able to move away from commodity dependence and China does not seem to have delivered so far. Whether the EU can help Africa get there more quickly remains to be seen.

ZhōngHuá Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

ZhōngHuá Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

This is an output of China Horizons, Bruegel's contribution in the project Dealing with a resurgent China (DWARC). This project has received funding from the European Union’s HORIZON Research and Innovation Actions under grant agreement No. 101061700.