It is commonly assumed that the reason for all Chinese investment in Africa’s infrastructure answers to the logic of natural resource extraction. With an estimated $900 billion infrastructure deficit, many countries in Africa have only very limited railroads and highways, it only makes sense for China to help feed its resource thrust by paving the way towards successful extraction itself. It may very well be just the opposite.
It is, of course, undeniably true that China needs an ever growing pool of raw materials to feed its massive economy, but there is a fallacy in explaining Chinese credit lines for infrastructure in Africa, or elsewhere for that matter, as merely facilitating mining operations.
The truth is: China is using African infrastructure to keep its construction firms busy. For the Middle Kingdom, construction has become a priority in itself; it has become one of China’s major exports. In August last year, China Daily was reporting new finance mechanisms for infrastructure overseas were a key part of government’s plan to boost the construction sector.
Real Estate Construction constitutes roughly one quarter of China’s 10 trillion dollars economy. And it is slowing down alarmingly. A 2015 EU SME report (European Union small and Medium Enterprise Initiative) puts the figure at 26,4 % of China’s GDP.
However, much of the double digit growth has come from investment in construction (that is not only in construction, but construction material and services). With Xi Jinping’s promotion of the ‘New Normal Theory’ which proposes a much slower growth to foster a more sustainable model, construction is expected to decrease significantly in China, which is tricky because much of the Chinese growth has been made possible because of construction. According to Joe Zhou, head of research in China at JLL real estate consultancy, China has already passed the peak of construction activity in 2013, with construction output expected to grow at 3.9% annually – less than one third of its rate between 2005 and 2014.
The truth is: the construction market in China is saturated. Stories about ghost cities in China have led some to believe Chinese growth during the past two decades was based on building houses for nobody. In July last year, Forbes wrote ‘planned obsolescence on a grand scale’. There are hundreds of new empty cities in China, and dozens more being built, in a scheme often presented as a way to absorb China’s next generation of retirees.
Which brings us back to Africa. While it may very well have been the case about 10 years ago, the Chinese are no longer funding routes and railways for the sake of extraction, but because they can no longer do it at home. And they need the money. Infrastructure construction in Africa has now become an end in itself.
Deborah Brautigam published a thorough article questioning conventional wisdom on China’s dedication to natural resources. She takes example of a joint venture formed by the Democratic Republic of the Congo and two Chinese companies to bring an abandoned copper mine back to life. The joint venture then negotiated a 6 billion commercial loan with China’s Export-Import Bank, with a repayment guarantee based on profits by the mine. It was later revealed that the business plan was purely about the benefits of construction. It wasn’t the mine that justified the road, but the other way round.
Cases of such investment shifts are growing. In fact, Foreign Policy was reporting on December 4 that in 2014 alone, Chinese companies had signed 70 billion in construction contracts in Africa.
With more than 3,000 projects in Africa, Chinese companies have reached an unprecedented level of activity on the African construction sector. Chinese companies now dominate the African construction sector, with a market share larger than those of France, Italy and US combined. And it is just the beginning. The scope of Chinese construction sector remains gigantic: it is expected to represent more than 25% of construction worldwide.
In fact, China has already showed the world its intention of constructing abroad by stepping up in Russia’s historical imperial zone of influence, Central Asia, as part of it ‘One-Road, One Belt Policy. There is no reason to believe the recent plan to invest 60 billion dollars in Africa doesn’t serve the same purpose of keeping Chinese construction firms afloat.
Pierre-Olivier Bussieres is Editor in Chief of Republic of the East. He is a graduate from the Institute of Eastern European, Russian and Eurasian Studies at Carleton University.
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