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Digital Subscriptions > Cities Today > The State of African Cities 2018 > Chapter 2 China’s Foreign Direct Investment into Africa

Chapter 2 China’s Foreign Direct Investment into Africa

From 2003-2014, China’s FDI stock in Africa increased from USD491 million to USD32.4 billion
©Wang Pan
ICBC’s USD5.4 billion acquisition of a 20% stake in Standard Bank of South Africa caused a huge spike in Chinese FDI into Africa in 2008
©Alexey Novikov

Introduction

Using recent Chinese data, this section focuses on Chinese FDI into Africa. It first shows the historic development and distribution of China’s FDI into Africa and next how this has become more diverse in terms of enterprise ownership; source and recipient regions; and industrial sectors. In this section, it is argued that, due to the complexity and diversity of Chinese FDI in Africa, it would be misleading to revert to simplistic broad statements on whether Chinese investments have positive or negative impacts on the development of the African continent. Host countries’ attributes and their political and economic affiliations with China co-determine the spatial distribution of Chinese FDI.

Since the late 1970s, when China opened its door to global investment capital, it became a popular destination for inward FDI. Driven by its “Bring in FDI” policy and export-oriented industrialization, China achieved rapid economic growth. More recently, China took up a policy of encouraging Chinese capital to “go global” as a component and target of its Tenth Five-Year Plan (2001-2005). This policy was reasserted in China’s Eleventh Five-Year Plan in 2005. Subsequently, China’s outward FDI flows grew from USD2.7 billion in 2002 to USD123.1 billion in 2014. Its outward FDI stock increased from USD22.9 billion in 2003 to USD882.6 billion in 2014 and China’s share in total global FDI increased from 0.3% to 3.4%. Chinese capital has, indeed, significantly expanded its global FDI footprint and now reaches out to 186 countries/regions.

Over the 2003-2014 period, China’s FDI stock into Africa increased from USD491 million to USD32.4 billion. China’s ballooning influence in Africa has caused widespread debate about its impacts on institutional change and economic development in African countries. Some argue that these FDI flows into Africa have largely been shaped by China’s own political and diplomatic considerations, given the dominance of state-owned enterprises (SOEs) in these outward FDI flows (Buckley et al., 2008). Others claim that the motives behind China’s FDI into Africa can be explained by conventional FDI theory, including market-seeking, resource-seeking and calculated risk aversion (He et al., 2015).

Since China often takes a non-interventionist political approach and offers investments without attaching further conditions, some argue that China’s FDI into Africa has a negligible impact on political governance and/or sustainable economic growth (Brooks, 2007). Others emphasize that Chinese capital offers an alternative source of financing to develop African nations’ economies (Cheung et al., 2012). Chinese government aid, investments and infrastructure loans have played a positive role in improving infrastructure, increasing productivity, boosting economic growth and raising living standards in many African nations. The reason for the many unsettled debates with respect to China’s role in Africa or the motives behind Chinese capital provision is that most studies tend to presume a homogenous China and a homogenous Africa (Kaplinsky and Morris, 2009). Matters are not as simple as that, since Chinese firms in Africa are different from one another in terms of ownership type, investment motives and investment plans. This section seeks to direct attention towards the complexity and diversity of Chinese FDI into Africa.

Since China often takes a non-interventionist political approach and offers investments without attaching further conditions, some argue that China’s FDI into Africa has a negligible impact on political governance and/or sustainable economic growth

Development of China’s FDI flows into Africa

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About Cities Today

The State of African Cities 2018 is published by IHS-Erasmus University Rotterdam and UN-Habitat in partnership with the African Development Bank. The aim of the report is to contribute to development policies that can turn African cities into more attractive, competitive and resilient foreign direct investment (FDI) destinations. Attracting global FDI is highly competitive and crosses various geographic scales, therefore regional cooperation by cities and nations is critical. But FDI is not a panacea since it has both positive and negative effects and careful choices need to be made by cities in their pursuit of FDI, if it is to lead to inclusive economic growth. This report aims to provide guidance on these choices and to facilitate understanding of the complexity of global investment in Africa.