Media Briefings

AFRICAN EXPORTS TO CHINA: Benefits and dangers

  • Published Date: April 2014

Preferential market access to China is providing an important growth-enhancing outlet for African exporters that find it difficult to break into industrialised countries’ markets. But there remain dangers that current export structures and national capacity constraints may further entrap Africa given its comparative advantage in primary resources and China’s comparative advantage in manufacturing products.

These are among the findings of research by Catherine Co and Ralitza Dimova (University of Manchester) to be presented at the Royal Economic Society’s 2014 annual conference. Their study explores the impact of China’s preferential market access programme on the volume, concentration and sophistication of exports from Africa to China. According to the report:

• Between 2008 and 2010, China’s imports from sub-Saharan Africa increased, especially those in key categories such as textiles, manufactured goods and machinery.

• China’s imports from sub-Saharan Africa are still mainly primary products, but this is changing.

• Between 2002 and 2010, sub-Saharan African countries increased the variety of goods they exported.

• But China’s trade preference programme failed to increase Africa’s competitive edge over other exporters into the Chinese market.

The authors comment:

‘Our research highlights some potential benefits of the trade arrangement for Africa, though warning African policy-makers that national capacity contraints are a barrier to successful economic collaboration with not only China, but also alternative trading partners.’

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There is little disagreement among academics and policy-makers that export diversification and continuous movement of producers up the international value chain is key to economic survival and competitive edge in a world of increasing segmentation of production and rapidly changing competitive dynamics.

But while reaping the advantages of industrial production and exports at several different skill levels has placed emerging markets on an upward-sloping development spiral, most of Africa has continued to depend for more than half of its export earnings on a limited number of primary commodities.

Over the years, a number of preferential trade agreements were designed to address this issue. But complex rules of origin and competition from Asian countries in areas of potential comparative advantage like garments have challenged the significant expansion and diversification of Africa’s exports into industrial countries’ markets, while capacity constraints reduced their ability to benefit from initiatives like the phased out Multifibre Agreement and America’s African Growth and Opportunity Act.

This research project is the first to explore the issue of whether China’s preferential market access programme provides a growth-enhancing alternative for Africa. The researchers look at its impact on the volume, concentration and sophistication of exports from Africa to China.

The results challenge a conventional perception that economic collaboration with China further entraps Africa into primary exports. But they do indicate that capacity constraints reduce the ability of Africa to benefit from the Chinese preferential trade arrangement in a way similar to those of earlier initiatives.

Context and research questions

In 2005, China provided duty-free access for 190 items from 25 least developed sub-Saharan African (LDC SSA) countries (thereafter referred to as Phase I of the trade preference programme). Three years later, duty-free access was extended to 454 items from 31 SSA LDCs (Phase II). The researchers use detailed commodity trade statistics for the 2002-10 period to find out whether:

• Preferential market access enhanced Africa’s relative exports into the Chinese market.

• The preferential market access programme led to export diversification and movement up the value chain among African exporters

Simple descriptive statistics indicate that during Phase II of the programme (2008-10), the growth rates of China’s imports from SSA LDCs, especially those in key categories like Textile and Apparels, Other Manufactures and Chemicals, Machinery and Other Equipment increased (see Figure 1a below). But these product groups remain a small proportion of China’s imports from SSA LDCs, which continue to be dominated by primary products (see Figure 1b).

Preliminary evidence further indicates that between 2002 and 2010, export concentration decreased and export sophistication increased for the majority of SSA countries involved in the agreement (see Figure 2). But it is not ex ante clear to what extent the agreement itself was responsible for these patterns.

Using sophisticated methodology that helps disentangle the effect of the preference programme on Africa’s exports to China from other factors, the study finds that:

(i) The programme failed to increase Africa’s competitive edge over other exporters into the Chinese market;

(ii) But it increased diversification in SSA LDCs export bundle to China;

(iii) There is no evidence supporting the hypothesis that political economy considerations (for instance including on the preference list only products that complement, but do not compete with items of Chinese comparative advantage) define the drafting of the programme.

Conclusion and policy implications

While China’s recent engagement in Africa has received a large degree of attention in both the popular and academic press, interest has mostly centred on Chinese firms building infrastructure in Africa. China’s trade with Africa has remained largely ignored despite important potential controversies, related to it:

(i) Providing an important growth-enhancing outlet for African exporters that find it difficult to break into industrialised countries’ markets;

(ii) But holding dangers that current export structures with Africa’s comparative advantage in primary resources and China’s comparative advantage in manufacturing products may further entrap Africa.

The project highlights some potential benefits of the trade arrangement for Africa, though warning African policy-makers that national capacity contraints are a barrier to successful economic collaboration with not only China, but also alternative trading partners.

ENDS


Notes for editors:

‘Preferential Market Access into the Chinese Market: How good is it for Africa?’ by Catherine Co and Ralitza Dimova

For further information, contact:

Ralitza Dimova, University of Manchester: Ralitza.Dimova@manchester.ac.uk, +44 161 275 0818

Romesh Vaitilingam: romesh@vaitilingam.com, +44 7768 661095

Figures 1a and 1b

Figure 2: Change in product concentration and export sophistication indices