China's size affords it an unfair advantage in negotiating ties with African states

Challenge: Accusations of Chinese neo-mercantilism are commonplace; implying that China takes selfishly what it needs with limited local consideration, extending limited gains to the host nation.

China has already had a major impact on Africa. The share of Africa's total imports originating from China increased from 5% in 2001 to 12% in 2008; the share of Africa's exports heading to China has increased, from 3% in 2001 to 10% in 2008. In contrast, Africa has had a far more muted impact on China. For instance, Africa only accounts for 4% of China's trade. The lop-sided distribution of economic power, of China over Africa, means that China does have an advantage in negotiating the rules of engagement. Gu and Humphrey (2008:2) warn: "All too often, the image presented, by Africans as well as outsiders, is that of a strong and strategic China facing a weaker less coherent group of African states."

Much like each of Africa's trade partners and African countries themselves, China's engagement is driven by national interest. Given the unequal distribution of power, it is assumed that the gains from the relationship are also likely to be skewed in favour of China. In particular, the gains from Chinese participation in Africa are frequently accused of having limited positive externalities owing to China's vertical integration formula. In short, a high rate of participation by Chinese firms and labour in the entire supply chain, from management, project designs, labour, materials and technology, implies that the technological and skill transfer during a project's lifespan is marginal (Le Pere, 2008a). In other words, Chinese projects are insulated from the country in which the project occurs. The situation is exacerbated, according to certain claims, by the fact that Chinese companies often use a large proportion of Chinese labour, which forms "closed enclaves" that are "insensitive to local customs, norms and social practices" (Le Pere, 2008a:18). Some even attest that state-owned Chinese companies prohibit any type of fraternisation between employees. Chinese companies that import their own labour limit the transfer of skills to the recipient African country.

However, local considerations have gained traction through learning-by-doing. According to Corkin and Burke (2008), apart from notable exceptions like Angola and Sierra Leone, approximately 85% of labour used by Chinese companies in Africa is sourced locally. In fact, five years ago Chinese enterprises looking to do business were entirely unaware of local considerations in summing up project feasibility. Today, local considerations routinely rank in the top-five considerations for expansion in the continent. Even in terms of corporate social responsibility, Chinese enterprises are becoming increasingly sensitive to broader local social responsibilities. For instance, at the 2009 FOCAC summit, Premier Wen Jiabao (2009) highlighted the need to train Chinese companies in corporate social responsibility, a concept which has only recently begun to gain traction in China.

China's investment and trade encourage economic growth. China's engagement in Africa has been paralleled with numerous African countries that experienced robust economic growth and made strides in alleviating poverty. For one, there is a strong complementary relationship between FDI and trade – specifically, a greater inward stock of FDI is associated with higher exports (Boardman, 2007). Therefore, if China's presence continues to grow, "China may eventually prove to be the new African growth engine that the OECD has hesitated to become" (Besada et al., 2008:4).

China has altered the way in which the rest of the world views prospects on the continent: not just advanced economies, but also other emerging economies, such as India, Russia and Brazil. Today, individual African governments have more bilateral partnership choice than ever before. To be sure, should the continent position itself right, the continent could gain a significant lift from this shift in perception.

China's expansive engagements have rejuvenated internal expectations across Africa. The hope is the elevated interest could lead to addressing the long neglected infrastructure deficit; intensify economic opportunity and activity; create new alternatives for diplomatic partnerships; and address the socio-economic challenges of poverty, AIDS and malaria (Gill et al., 2007).

In conclusion, China's economic growth is expected to be above 10% y/y in 2010. Trade will remain intimately part of its economic alchemy, despite what will prove to be an inevitable multi-year internal rebalance of the economy away from the export-orientated coastal areas to consumer-led growth. In addition, economic growth, industrialisation and urbanisation in the second tier cities will continue to fuel demand for Africa's resources. In the longer run, as Chinese income per capita rises and wages? share of the economy grows, both African markets and production are likely to take on an even greater relevance. We expect China-Africa trade to approach USD300 bn in 2012. And the upside risk to the forecasts are overwhelming, considering the fact that China's internal demand is anticipated to balloon. Despite the overwhelming nominal success of China-Africa trade and future potential, two questions continue to cast a shadow over Sino-African trade engagements.