How China’s slowing economy will affect African countries

On October 18, the value of the South African currency fell 1.1% in response to worse-than-expected third-quarter data which revealed that the Chinese economy slowed to its slowest pace in a year.

The South African rand has long served as an early warning system for investors to assess the impact of Chinese economic news. And on October 18, alarms sounded when the value of the South African currency fell 1.1% in response to worse-than-expected third-quarter data which revealed that the Chinese economy has slowed at its fastest pace. slow in a year.

The economy grew only 4.9% in a three-month period between July and September, according to the National Bureau of Statistics, down sharply from the growth rate of nearly 8% in the second quarter. Industrial production, a key data point for African commodity-exporting countries, remained stable with growth of just 0.1%.

Although the Chinese economy has performed much better than other major economies in Asia, Europe and the United States throughout the era of the pandemic, this may no longer be true because a series of events have converged in recent months which together present the most serious economic challenge facing the Chinese government in years, if not decades.

Rising domestic debt levels, especially in the real estate sector, a lingering energy crisis that has resulted in power shortages in at least nine provinces, and a series of economic reforms have all helped to heighten concerns about the vitality of the world’s second-largest economy.

The latest economic data is undoubtedly being carefully studied today in finance ministries across Africa to assess the impact on a region heavily dependent on China’s strong demand for oil, timber and minerals.

How China’s slowing economy will affect Africa

  • Financing for development: China’s overseas development funding, especially from the country’s two largest political banks, has been slowing for years and is unlikely to resume anytime soon, as the Party will prioritize domestic economic revitalization over development. international.
  • Reduced demand: Although Chinese industrial production remained strong over the summer, the combination of power outages that have closed factories, disruptions to the global supply chain, and growing fears among Chinese consumers that their economies are at risk. on the real estate market will probably contribute to a reduction in demand for raw materials from African countries. and other points along the BIS.
  • Increase in subsidies:: China, like other major economies, will look to subsidies to support its industries in times of economic distress. This is particularly problematic for African countries seeking to add value to raw materials by processing them before export. But if the Chinese government increases its already generous public subsidies to cobalt, manganese and uranium processing companies (among others), then it will be virtually impossible for African companies to compete.

While Chinese officials will undoubtedly devote a lot of attention to Africa in the coming months due to the upcoming Forum on China-Africa Cooperation (FOCAC) summit scheduled to take place in late November, it is highly likely that the attention will then focus quickly fade away in the new year.

2022 will be a pivotal year for the Chinese Communist Party (CCP) as he prepares for the 20th National Party Congress in October, when General Secretary Xi Jinping is largely expected to serve an unprecedented third term, thereby locking in his position as the country’s supreme leader.

This means that the entire political apparatus will be focused on ensuring social stability at home, strengthening the national economy and reducing as many external risks as possible abroad. Foreign policy, especially in secondary theaters like Africa, is unlikely to be a major priority in the upcoming 2022 political season, especially if the economy is as fragile as it is now.

This article was published in partnership with The China-Africa Project.

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