China and India in Africa The making of the global hinterland.

China and India in Africa

The making of the global hinterland

Similarities between India and China High and sustained rates of growth of

aggregate and per capita national income For longer in China than India, but growth

accelerating in India recently Occurs in the context of integration through

trade, investment and financial liberalization Increased presence in the global economy

China and India’s contribution to global growth

2000 2001 2002 2003 2004

Global growth (% p.a.)

6.9 4.8 4.6 5.7 7.4

Percentage share of annual growth rates

China 15.8 23 25.2 23.4 19.9

India 6 7.3 8.2 9 7

India and China Relative to the World (Percentage Shares)

  1978 1985 1995 2000 2005

Exports of goods and services (Constant 2000 US$)

China 1.4 1.9 2.6 3.5 7.6

India 0.4 0.4 0.7 0.8 1.2

Imports of goods and services (constant 2000 US$)

China 0.86 1.94 2.60 3.14 5.53

India 0.38 0.49 0.81 0.81 1.00

GDP (Constant 2000 US$)

China 0.9 1.5 2.9 3.8 5.2

India 0.9 1 1.3 1.4 1.8GDP, PPP (Constant 2000 international $)        

China 2.9 4.5 8.8 11 14.3

India 3.6 3.8 4.9 5.4 6.1

Importance of exports

6.64

10.00

19.17

23.07 23.33

33.95

37.30 36.77

6.195.38

7.15

11.00

13.23

18.20

20.33

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

1978 1985 1990 1995 2000 2004 2005 2006

Exports of goods and services (% of GDP)

China

India

7.11

14.13

15.66

20.86 20.92

31.40 31.7432.90

7.77 7.838.56

12.20

14.15

20.02

23.29

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

1978 1985 1990 1995 2000 2004 2005 2006

Imports of goods and services (% of GDP)

China

India

14.31

22.83

32.55

38.58 39.57

59.77

63.3765.99

10.86 11.0313.11

18.4020.40

25.22

29.6432.50

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

1978 1985 1990 1995 2000 2004 2005 2006

Merchandise trade (% of GDP)

China

India

Related to differences in structure of growth Of the cumulative increase in GDP between 1991

and 2005, while 53 per cent was accounted for by industry in the case of China (with 40 per cent from services), as much as 62 per cent was accounted for by services in the Indian case (with 27 per cent from manufacturing).

Manufacturing growth strong in China accounting for 37 per cent of the increment in GDP in this period, whereas the comparable figure for India was just 16 per cent.

Implications of patterns of growth Fall-out of growth led by manufacturing in China in

terms of demand for non-manufacturing sectors, viz. agriculture, mining and services likely to be significant, if not strong

This is likely to impact on demand and growth within and outside China

This would not be as true of India’s services-led growth, which is likely to impact only on the demand for manufactures and other services

Trends in the sources of imports (%age distribution)

1980 1985 1990 1995 1999 2000 2005 2006ChinaINDUSTRIAL COUNTRIES 73.7 70.4 50.1 55.4 52.3 47.0 38.1 37.4DEVELOPING COUNTRIES 22.8 28.1 48.3 42.7 45.1 49.8 53.5 53.2OTHERS 3.5 1.5 1.6 1.9 2.6 3.2 8.5 9.4IndiaINDUSTRIAL COUNTRIES 46.5 52.7 56.9 48.5 44.7 40.5 33.3 34.8DEVELOPING COUNTRIES 52.8 46.6 42.5 45.5 55.3 36.1 36.4 39.3OTHERS 0.7 0.6 0.6 6.0 0.0 23.4 30.3 26.0

The evidence

A sharp shift away from imports from developed to developing countries starting in the mid-1980s in the case of China

The decline in imports from developed countries is true in the case of India too, though this is accompanied by a decline in imports from developing counties and an increase in unspecified categories.

China’s Developing Country Imports(as % of world imports)

1980 1985 1990 1995 2000 2005 2006DEVELOPING COUNTRIES 22.8 28.1 48.3 42.7 49.8 53.5 53.2OIL EXPORTING CTYS 1.4 1.4 2.5 2.9 6.0 5.8 6.5NON-OIL DEVELOP.CTYS 21.4 26.6 45.8 39.8 43.7 47.6 46.7WESTERN HEMISPHERE 3.7 4.3 2.4 2.1 2.4 4.0 4.2MIDDLE EAST 1.8 0.5 0.9 1.7 4.5 4.9 5.4DEV. CTYS: ASIA 8.7 16.7 38.3 33.7 36.7 38.0 36.8AFRICA 1.5 0.7 0.6 1.0 2.4 3.0 3.4DEV. CTYS: EUROPE 7.2 5.9 6.1 4.2 3.8 3.6 3.4

Sources of China’s imports

In the second half of the 1980s, the sharp shift in the sources of Chinese imports was in favour of developing Asia

Subsequently, the increases have been distributed to other part of the developing world

India’s Developing Country Imports(as % of world imports)

  1980 1985 1990 1995 2000 2005 2006

DEVELOPING COUNTRIES 52.8 46.6 42.5 45.5 36.1 36.4 40.3

AFRICA 1.4 2.4 2.8 4.6 6.1 3.2 1.5

ASIA 9.3 9.1 11.2 13.9 17.2 21.5 26.4

MIDDLE EAST 29.1 20.5 18.3 21.4 9.4 7.3 6.7

WESTERN HEMISPHERE 2.5 2.6 2.2 1.5 1.5 1.7 2.6

EUROPE 10.5 12.1 8.0 4.2 1.9 2.6 3.1

Pattern of India’s imports

In India’s case, prior to liberalization, oil played an extremely important role in shaping the sources of imports.

With liberalization, Asia’s role as a source of imports has been increasing rapidly, servicing India’s manufactured import requirements.

Areas other than Asia, especially Africa, seem to be dropping out, but there is a data problem here.

Cumulative post-1990 growth of imports from Africa in dollar terms

1990 1992 1994 1996 1998 2000 2002 2004 20060

1000

2000

3000

4000

5000

6000

7000

8000

China India

1990 1992 1994 1996 1998 2000 2002 2004 2006-200

0

200

400

600

800

1000

1200

1400

1600

1800

China India

Cumulative post-1990s growth of imports from Asia in dollar terms

Cumulative post-1990s Growth of Imports from Latin America

1990 1992 1994 1996 1998 2000 2002 2004 2006-500

0

500

1000

1500

2000

2500

3000

China India

1990 1992 1994 1996 1998 2000 2002 2004 2006-200

0

200

400

600

800

1000

China India

Cumulative post-1990s Growth in Imports from Industrial Countries in dollar terms

Possible explanation

Growth based on manufacturing in China needs more access to raw materials, whereas growth based on services in India may generate more demand for oil and final manufactures.

China’s demand for primary raw materials including agricultural raw material and metals would be increasing.

China’s consumption of Industrial Materials and Oil

1993–2002 2002–05World China's World China'sConsumption Contribution Consumption ContributionGrowth Growth (Annual % change)Per cent (Annual % change)Per cent

Metal Aluminum 3.8 38 7.6 48Copper 3.5 43 3.8 51Lead 3 42 4.3 110Nickel 4.4 12 3.6 87Steel 3.4 38 9.2 54Tin 1.3 34 8.1 86Zinc 3.4 42 3.8 113Oil 1.5 21 2.2 30Source: IMF (2006)

Impact on commodity prices

One major impact of the China boom has been a degree of buoyancy in commodity prices. While other factors have played a role, but for China’s presence, commodity prices may not have reflected the buoyancy they have.

Over the last five years there are signs of a reversal (however temporary) of the long term trend in global commodity prices. By the beginning of this decade commodity prices had fallen relative to consumer prices (as measured by the US Consumer Price Index) for over five decades. But from around 2002, commodity prices have been on the rise.

While exporters of oil have been important beneficiaries, the index of non-fuel commodity prices has also been rising.

Metal prices rose sharply because of demand from China

Agricultural Price Indices

Obvious importance of non-fuel commodities Non-fuel commodities have a higher share in world

trade (about 14 percent during 2000–04) than fuel commodities (7 percent).

Many developing countries are highly dependent on non-fuel commodities as a source of export earnings—36 countries have a ratio of non-fuel commodity exports to GDP of over 10 percent, and in 92 countries the ratio is over 5 percent. Indeed, in many low-income countries (including in Africa), a large share of export receipts is generated by just a few commodities.

Africa a major beneficiary

The major beneficiary of these trends in commodity demand and prices is Africa, in which China’s presence has expanded substantially. African exports to China started accelerating around 2000, and have since risen at an annual growth rate of more than 50 per cent. By 2004, African exports to China touched $11.4 billion, reflecting a more-than-threefold increase since 2000. By 2004 China accounted for 6 per cent of total African exports to the world.

0.29 0.91

18.05

66.23

0.99 1.79

25.93

64.20

2.85 3.95

28.10

63.84

7.89

0.87

30.94

67.67

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

China India Developing ctrs Industrial

Africa's exports as a percentage of its total exports

1991

1995

2000

2006

1.20 0.56

21.26

25.28

67.77

1.94 1.35

24.78

30.68

66.81

3.251.51

27.64

37.88

61.09

9.21

2.79

38.36

48.64 48.86

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

China India Non-oil developing ctrs Developing ctrs Industrial

Africa's imports as a percentage of its total imports

1991

1995

2000

2006

Africa’s exports to India and China

Implications for Terms of Trade One consequence of the rise in the volume and unit value of

commodity exports from Africa, are signs of the reversal (for the present) of the long-term deterioration of net barter terms of trade faced by developing countries dependent on primary products for their export revenues that go to finance imports of manufactured products.

With competition in manufactures export trade (influenced by China) moderating price increases in manufactured goods, and China’s demand driving up commodity prices, developing countries as a group and Africa in particular that are still substantially dependent on the exports of primary products, have experienced an improvement in their terms of trade.

ToT and Purchasing Power of Exports (2000=100)

Investment follows trade

Chinese FDI in Africa

Net Impact on Africa

The net result of all this is that the China boom has helped a continent like Africa.

Real GDP growth in Africa rose from an average annual rate of 4.2 per cent during 2001-2004 from 3.3 per cent during 1997-2000. Sub-Saharan Africa gained even more with its real GDP growth rate touching 5.4 per cent in 2004, which was an eight-year high.

The African Economic Outlook 2005 (AfDB/OECD 2005), among others, attributes this improvement substantially to the rise in commodity prices.

Further China’s interest in the region’s natural resources has resulted in huge flows of aid and foreign investment from China to Africa, bolstering the regions infrastructure and putting much needed investment into the natural resources sector.

Is this a challenge to the old Imperialism It is inasmuch as it gives other developing

countries a space to negotiate the process of development

Africa still remains the hinterland, but: With new partners other than the erstwhile

colonial powers On terms that are improving