Two banking acquisitions last October by China highlighted a new phase in the country’s position in Africa.
That month the Industrial and Commercial Bank of China took a 20% stake in South Africa’s Standard Bank for $5.6 billion. It was one for the record books. It was the largest foreign acquisition by a Chinese commercial bank and one of the biggest foreign direct investments in post-apartheid South Africa.
Also that October, state-owned China Development Bank agreed to buy the United Bank for Africa, one of Nigeria’s top banks.
“The last two years, we have seen a radical deepening of Chinese engagement in Africa,” says Lucy Corkin, projects director at the Centre for Chinese Studies at Stellenbosch University in South Africa.
By gaining a foothold into Africa’s growing investment-banking and insurance industries, these deals provide Chinese banks with vehicles to gain exposure to the continent’s growing economy. “The acquisition will help build a foundation for ICBC to become a global bank,” said its chairman Jiang Jianqing at the time.
These partnerships usher a new era for China allowing it to tap the continent’s economic potential. To date its main strategy was of offering cheap loans in exchange for the right to extract its oil and mineral wealth.
Nevertheless, while financial investments are in its infancy, trade still lies at the heart of the Sino-African courtship.
Between 2001 and 2006, sub-Saharan African exports to China increased by 40% a year, rising from $4.8 billion to $28.8 billion in 2006, according to an October 2007 IMF report. African imports quadrupled to $26.7 billion.
The report estimates that Chinese aid amounted to around $1.0 billion to $1.5 billion between 2004 and 2005. Rapacious resource extraction and high world commodity prices have given Africa a trade surplus with China. In 2006 oil and gas accounted for 62% of Africa’s exports to China, followed by minerals and metals (13%). Africa’s imports from China consists mainly of manufactured products followed by machinery and transport equipment.
In addition, Chinese state-owned financial institutions push more cash to the continent through preferential export credits and foreign direct investment support via China Exim Bank and China Development Bank.
China’s president Hu Jintao agreed these state-sanctioned financial commitments during the Beijing Summit of the Forum on China-African Cooperation in November 2006.
Between 2007 and 2009, the Chinese government committed itself to $5 billion in preferential trade credits, a $5 billion China-Africa Development Fund to support Chinese FDI, and to open up a list of duty-free African exports. These commitments were combined with so-called soft development assistance to boost health, education and technical assistance.
Corkin suggests that it is unclear whether China has delivered on these commitments due to infrastructure bottlenecks in the continent, bureaucratic delays, and poor technical expertise.
Nevertheless, as these commercial ties have become increasingly broad based and deep, it has “intensified the issues of debt sustainability, governance and sustainable development that China has not yet addressed,” says Corkin. — S.V.