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How China will spur Africa’s economic growth

China is now a clear leader in the race for Africa’s resources and can be expected to continue developing these interests for the mutual benefit of both Africa as well as China’s surging economy.

George Fang, Standard Bank’s Head of Mining and Metals China says: “The race for Africa’s mineral resources continues to gather momentum. Continued growth in consumption resources is being driven by growth in China and the rest of Asia. Chinese companies are increasingly acquiring assets, as are Indian companies, prompting other global miners into a race to secure mineral assets of their own. This movement for resources can be to the benefit of the African continent.”

China is again expecting growth of 10% plus, and for its exports to surpass the volume of pre-financial crisis in 2008. China has recovered from the global economic slowdown far faster than even the most ardent optimists could have anticipated. But the China of 10 years time will be a far different one than the export-based economy of today, as internal consumption accelerates.

Underpinning Standard Bank’s projection that growth will continue for decades and possibly still accelerate further, Fang says the rate of urbanisation in China is still well below the rate of other countries at a comparable period in their development. China’s urbanisation is 45%, compared to 73% in the US (at the comparable development era), 88% in the UK and 74% in Japan.

The scale of China’s urbanisation has never been seen before and is still accelerating. Every year approximately 27 million people move from the countryside to cities. China already has some of the biggest cities in the world, and people are increasingly being attracted not to the massive coastal cities, but to second and even third-tier inland cities. There are 90 cities in China with populations of one million, and these are beginning to feel the influx. Fang said some of the strongest economic growth was occurring here.

One symptom of this unprecedented growth is an almost insatiable demand for natural resources to feed expansion, and China has the capital to acquire them. “Historically, China has not been a major foreign investor in mining, but over the past five years that has changed. The number of deals that China is initiating has grown exponentially on every continent, but especially Africa,” explains Fang.

“China is adding infrastructure capacity to link resources in countries as diverse as Mauretania, Sudan, Nigeria, DRC, Gabon, Angola and Zambia. This type of strategy is key to China’s investment on the continent. Thus making the investment viable but also leaving a future economic legacy for the host country,” says Fang.

He says the major underpins of this extraordinary growth within China are urbanisation and infrastructure development, and in both cases they are rapidly accelerating. Some cities are growing at eight times the rate that Chicago grew at the height of its growth, a growth that author Mark Twain said made the city unrecognisable from one visit to the next.

“China is creating more dollar billionaires than any other country, and this is a sign of a consumer market of some buoyancy. China will soon overtake Japan as the second biggest market in luxury goods,” says Fang.

Even more startling in its scale, says Fang, is China’s ascent up the technology ladder. He believes China will accomplish within years what took other countries decades. This will not be achieved by original research, but by using its massive foreign currency resources to cooperate with foreign companies and their technology.

He gives the example of China’s auto industry. “Decades ago this industry barely existed, yet within three years there will be no significant gap in technology between Chinese domestic cars and their foreign counterparts, except in the luxury car market niche. China is also implementing green technology faster than any other country.”

It is this ascent that Fang believes will enable China to take its place as a global financial leader, as Chinese exporters start evolving into more value-added manufacturers able to command premium rather than discount prices.

It is this growth from which Africa will derive benefit. Now is Africa’s time. For many years Africa has been excluded from the economic growth experienced in the more developed world. However, Africa is resource rich, has a growing educated population, and will prove to be the engine that will provide growth to world economies for the next few decades. The benefits to Africa are clear. Resource and infrastructure investment will be followed by the development of a growing industrial and services sector.

Fangs says: “The African picture is changing. Spearheading Africa’s aggregate growth performance are the relatively low-cost providers of natural resources that have benefited from the surge in Asian demand. Along with this demand has come the reciprocal development of infrastructure by the likes of China. Physical infrastructure is essential to propel agriculture, manufacturing, services, trade and even human capital enhancements, while rising incomes and rapid industrialisation drive demand for electricity, transport, telecoms and housing. Resource and infrastructure investment will leave a legacy that will continue to build and enhance the economic status of the continent, drive economic growth and ultimately benefit the continent’s people.”

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