Wenjie Chen, David Dollar and Heiwei Tang write: China continues to generate controversy with its rapidly growing investments in Africa. However, new research reveals that some of the West’s biggest concerns over Chinese investment—its true size, its focus on natural resources, and its disregard for good governance—are not always well grounded.
China has emerged as Africa’s largest trading partner, providing demand for the continent’s energy and minerals. At the same time, there is a growing volume of Chinese direct investment in Africa. Some of it has taken the form of high-profile natural resource deals in countries with poor track records of governance (e.g., Angola and Sudan). These developments have given rise to a number of ideas about Chinese investment in Africa: That it is on the same enormous scale as China’s trade; that it is aimed primarily at natural resources; and that it is concentrated in countries with poor governance.First, on the scale of China’s direct investment in Africa,
Chinese statistics on what they call “overseas direct investment” (ODI) show a stock of $26 billion in Africa as of the end of 2013. This number would amount to about 3 percent of total foreign direct investment (FDI) on the continentSecond, concerning natural resources, in our paper we examine the allocation across African countries of the stock of Chinese ODI and the stock of total FDI (which, as noted, mostly comes from Western countries). Other things equal, African countries that are more resource rich attract more Chinese investment. However, this effect is about the same for Western investment, and it is only one factor determining investment. For example, Chinese ODI is also influenced by the size of the domestic market, indicating that some of it is aimed at serving that market.
We go beyond the aggregate data and also work with the firm-level data compiled by China’s Ministry of Commerce (MOFCOM). capital-scarce countries, suggesting its importance as a source of external financing to the continent. China’s Investment in Africa
