Is Chinese investment in Africa 1% or less of their investments globally?

China invest as little as 1% in Africa compared to the rest of the world, a UN official said at the end of 2015. Can that be?

On the face of it, Chinese President Xi Jinping arrived in Africa this week with pockets full of cash. He signed deals worth US$6.5 billion with South African president Jacob Zuma and although it’s not quite clear how this figure is arrived at, it points to a willingness by China to remain a big player on the African continent.

But despite its considerable trade with various African countries, China’s outward foreign direct investment in the continent ranks low in comparison to other countries and in comparison to what China invests elsewhere in the world.

But does it comprise as little as 1%, or even less than that? The executive secretary the United Nations’ Economic Commission for Africa, Carlos Lopes, surprised delegates attending the African Media Leaders summit in Johannesburg recently when he said: “Africa’s proportion of total Chinese foreign direct investment stock is less than 1%. All Chinese investment in Africa is less than 1% or equivalent of what they invest in the world.”

Does Chinese investment in Africa really amount to as little as that?

How is China’s foreign investment calculated?

African and Chinese leaders at the 5th Forum on China-Africa Cooperation at the Great Hall of the People in Beijing in July 2012. Photo: AFP/HOW HWEE YOUNG
African and Chinese leaders at the 5th Forum on China-Africa Cooperation at the Great Hall of the People in Beijing in July 2012. Photo: AFP/HOW HWEE YOUNG

Lopes was widely quoted, but Africa Check’s request to UNECA for how he arrived at the figure was not answered, even though the media office said it put in a request to their data department. (Note: We will update this report should we receive a response.)

The problem is that no one seems to be 100% sure that China’s official figures correctly capture how much it has invested outside its borders. For instance, the African Development Bank pointed out in a 2011 working paper that Chinese investments are frequently channelled via offshore entities in Hong Kong, the Cayman Island and others, making it difficult to track the flow of transactions. And because returning transactions aren’t counted, senior fellow for European economic think-tank Bruegel, Alicia García-Herrero, estimated that China’s outward foreign direct investments may be overestimated.

Dr Yejoo Kim from the Centre for Chinese Studies at the University of Stellenbosch told Africa Check other difficulties include that investors in joint ventures or the informal economy may not be counted. “Think about this, there is a myriad of Chinese shops all over the continent, and they are likely to be excluded,” she said.

The director of the China Africa Research Initiative at the John Hopkins School of Advanced International Studies in Washington D.C. said “it is one of the areas where we just don’t have very good information”.

However, Professor Deborah Brautigam added: “[These figures] can give you some way of comparing year to year and you can see some orders of magnitude in terms of certain changes.”

So what do the latest official figures show?

Taking all the limitations of China’s official figures into account, in 2012, China’s foreign direct investment stock was almost US$532 billion globally, of which $21.73 billion, or 4.1%, was in Africa. By the end of 2013, this reached $26.2 billion, dropping slightly to 4%.

More than half was in the following countries: South Africa (22%), Zambia and Nigeria (9% each), and Algeria, Angola and Sudan (6% each). The Chinese ministry of commerce reported that more than 2,000 Chinese companies were set up in Africa, employing over 80,000 local employees.

Still, China was only the seventh biggest investor in Africa then, behind countries like the US and even South Africa, according to the 2015 World Investment Report of the UN conference on trade and development.

(You may be wondering by now, but most of China’s foreign direct investment was in… Hong Kong.)

Less than 5% estimated for 2014

Chinese workers build a wall at a construction site in the capital of Sudan in February 2012. In 2013, the Chinese ministry of commerce reported that more than 2,000 Chinese companies operated on the African continent. Photo: AFP/ASHRAF SHAZLY
Chinese workers build a wall at a construction site in the capital of Sudan in February 2012. Photo: AFP/ASHRAF SHAZLY

At the moment, the latest figures we have of Chinese outward foreign direct investment stock in Africa are estimates. UK research firm BMI has put the figure for 2014 at US$32.4 billion, which represents less than 5% of China’s global total. The Chinese ministry of commerce has quoted this same figure without attribution ahead of the China-Africa summit.

Chinese vice commerce minister Qian Keming, however, warned that the figures for 2015 might drop, because of a slowdown in the world economy this year. China-Africa commentators have informally speculated that China’s outward foreign direct investment stock in Africa could currently be as low as 2% of its global total, but this isn’t official or thoroughly researched figures, of course.

Conclusion: Available data doesn’t support Chinese investment figure of 1% or less

It’s unlikely that China accurately captures its foreign direct investment stock in other countries because many transactions are channelled through intermediary destinations. An expert also told Africa Check that official figures are likely to exclude the ubiquitous Chinese shops found in many African towns, for example.

Yet official data does not support the claim by the executive secretary of the United Nations’ Economic Commission for Africa that all of China’s investment in the continent is 1%, or less than that, of what the country has invested globally.

 

Additional reading

Myth #2: China is Africa’s #1 investor

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