To rely too much on China, Africa could …

i GFM – (Dakar) – Very quickly China became the first partner of African trade, with a volume of nearly $ 114 billion at the end of 2016, and a market share of nearly 14% of the continent's trade. A positive dynamic that exploded while the middle empire was turned to investment. Today things are changing and Africa could count on rising Chinese consumption, to maintain and diversify certain income streams. But even this segment of partner No1's economy faces challenges.

China is now undoubtedly Africa's largest trading partner, with exchanges that, by the end of 2016, have $ 114 billion, or about 14% of international trade by the countries of the continent. However, raw materials continued to account for more than 80% of total Chinese imports from Africa. Manufacturing volumes remained low, at 7%, although their share was slightly up.

Thus, in their various diversification strategies, African countries bet on a China, which needed their minerals for the realization of many infrastructural investments. But this golden age seems soon outdated. The Chinese economy is facing a series of headwinds that could ultimately negatively impact the needs expressed for African commodities.

But this golden age seems soon to be over. The Chinese economy is facing a series of headwinds that could eventually negatively impact the needs expressed for African commodities.

Recent statistical indicators for this country show that the growth of investment in Chinese infrastructure was only 12% at the end of May 2018. A rating that, although positive, is significantly lower than the 20% growth observed over the same period in 2017. Thus, dozens of projects announced for the current year have been put on hold or suspended.

A drop in the pace of investment that will plummet Chinese demand for African raw materials

This drop in pace of infrastructure development in China is linked to several factors. One of them is that the government of President Xi Jinping, is evaluating the efficiency of the current infrastructure stock. The second is the desire to reduce the weight of the country's public debt.

In 2016, Chinese banks granted a record loan volume of 12.66 billion yuan ($ 1880 billion), with the government encouraging stimulus measures financed by credit to achieve its economic growth objective. At the end of March 2018, the total outstanding loans to public entities in China amounted to $ 5963.4 billion, representing 47% of gross domestic product. This sum is very often borrowed from the banks, also public, for the financing of investments, some of which serve mainly to increase the number of jobs and do not provide sufficient profitability to ensure the repayment of this huge public debt. [19659002AddedtothisproblemtheChinesegovernmentmustfacethetradewarthattheUSadministrationledbyDonaldTrumpdirectlytoldhimTechnicallythe$250billionofcustomsdutiesthatarenowimposedonChineseproductsenteringUSsoilarenotthebiggestproblemThechallengebehinditisthatinasituationwherethecentralgovernmenthastofindsolutionstothepublicdebtitwillbedifficultforittocontainthethreatofadropinitsimportswhichaccordingtoanalystsattheUSbankJPMorganindirectlyimpactsseveralsectorsinthevaluechainoftheproductsconcerned

Added to this problem, the Chinese government has to face the trade war that the US administration directly directed by Donald Trump has declared to it.

can be noted the recent trade agreement signed between the European Union and Japan, which may further isolate the Chinese economy.

The rise of Chinese consumption as an alternative? [19659002] Faced with these constraints that threaten China's investment ambitions, analysts at the US rating agency Moody's, have estimated that an opportunity for Africa, lies in the migration of this country to a consumer economy. But the benefits of this change will be felt differently by the countries of the continent.

Chinese demand for products such as copper, cobalt and aluminum will remain strong. These non-ferrous metals are widely used to produce cars, home electronics and transportation that can benefit from Chinese consumption. In addition, the "Made in China 2025" initiative is also expected to increase demand for these metals. Anything that will benefit countries like the Democratic Republic of Congo or Zambia.

Similarly, Moody's analysts say that food exports to China, such as oilseeds (vegetable oils), have also increased in recent decades and this should continue. This would benefit countries such as Senegal or Ethiopia, a country where China invests heavily.

The arrival of Chinese tourists in Africa remains low (1.5% of total Chinese outbound tourists), but they have increased by 30% per annum since 2012.

Finally, rising income levels in China also imply a shift in consumer preferences toward more sophisticated products and experiences, such as tourism.

International tourist arrivals to Africa have already increased by 8.1% in 2016 according to the World Tourism Organization. The arrival of Chinese tourists in Africa remains modest (1.5% of total Chinese tourists outgoing), but they have increased by 30% per year since 2012.

Consumption threatened by a significant increase in household debt

On this opportunity that Chinese consumption represents for Africa, still hangs a big mortgage. This is the structure of income and household debt in this country. According to Chinese official statistics, since 2007, China's share of Chinese domestic wealth production has declined from 46% to 42% of GDP. The rest of China's national income is mainly captured by government-controlled enterprises and their elite leaders. The share of household income has declined by about 1 percentage point in 2017 alone.

Since 2007, China's share of China's national wealth generation has declined from 46% to 42% of GDP . The rest of China's national income is mainly captured by government-controlled enterprises and their elite leaders.

Beside this, there has also been a decline in the value of stock market assets. Since the beginning of 2018, the main index of the Shanghai Stock Exchange was down 15.7% on July 16, 2018. Over the last three years, this decline is more than 32.8% according to indicators of the Trade Economics platform . Thus, even though the number of Chinese millionaires is increasing and individual incomes have also risen, the mass of consumers is facing declining employment and potential income generated by stock market gains.

But the biggest threat facing Chinese consumers is the rise in household debt, which has grown much faster than economic growth in recent years, at an average rate of about 23%. Thus, while incomes were multiplied by almost 3 in the country, the household debt was multiplied by 9.

The increase in household debt has grown much faster than economic growth in recent years. years, at an average rate of about 23%. Thus, while incomes were multiplied by nearly 3 in the country, the household debt was multiplied by 9.

In a report published by the International Settlement Bank, it appears that the weight of the debt as of March 31, 2018 was $ 6141.3 billion and represented a ratio close to 50% of Gross Domestic Product. When this debt is brought closer to the net income of Chinese consumers, it is realized that it represents 102% of the value.

Thus, the fall in Chinese investment could be offset by a subsequent rise in consumption, maintain African export flows to this country. But this consumption will have to be carefully monitored by African leaders, because it is threatened by an increase in household debt. A challenge, on which the Chinese authorities have not yet given any solutions.

Author: Ecofin