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China's Largest Trading Partner In The Middle East, China-Africa Trade Volume Will Continue To Grow Strongly
Sep 06, 2018

China's economic growth affects large markets and helps African countries export


Razia Khan, chief economist for Standard Chartered Bank Africa and the Middle East, said that Standard Chartered Bank remained generally optimistic about global economic growth in 2018. Both China and the Eurozone achieved rapid growth last year, supporting more exports from Asia. It is expected that all major regions will grow. China's economic growth will improve the situation in large markets and help African countries export. The data shows that China's contribution to global GDP growth is based on market prices, and China's contribution to global market GDP reaches 26%.


In 2001, Africa easily surpassed the global average growth rate. That year coincided with China's accession to the WTO. China's demand for commodities has grown strongly, and the macroeconomic situation in Africa has stabilized, which is conducive to local economic development. From the outside, China’s demand for commodities has risen; internally, sub-Saharan African countries have fallen in inflation, private sector loans have risen, banks and intermediary services have deepened, the middle class has expanded, and consumption has become an economy. More important driving force.


In recent years, the decline in commodity prices has had a negative impact on many African countries. But in fact, two large economies in sub-Saharan Africa have a significant impact on Africa's average GDP growth. These two countries are South Africa and Nigeria, and the combined GDP of the two countries can account for 50% of the total GDP of sub-Saharan Africa. Razia Khan said that it is not the poor performance of African countries, but the economic performance of countries that are relatively directly affected by commodity prices.


The most important economy in the Middle East is the oil-producing country of the Gulf. Due to the decline in oil prices, economic growth has slowed down and it is now in the process of economic adjustment. The Belt and Road Initiative promotes trade relations between China and countries in different regions along the route, mainly in countries bordering the East Coast and Egypt. Egypt's economy has performed well. Pakistan has experienced the fastest economic growth since the 2008 financial crisis. This is due to China's investment in Pakistan. The construction of the China-Pakistan Economic Corridor has made economic activities more active.


China's largest trading partner in the Middle East, China-Africa trade volume will continue to grow strongly


African countries' demand for Chinese exports will increase, China-Africa trade volume will continue to grow strongly


In terms of trade data, China-Africa trade was less than $5 billion in the mid-1990s, and trade volume increased by 10 times in 2004-2005 to more than $40 billion. When commodity prices reached a high point in 2014, the trade volume between China and Africa was US$220 billion, and it declined with the adjustment of commodity prices. According to Razia Khan, the rise in commodity prices is not the only factor driving this round of trade growth, and demand for African countries, including African countries, has recovered, so demand for Chinese exports has risen. “In the past, China’s imports from Africa were mainly oil, and now it is more diversified; 94% of Africa’s imports from China are manufactured goods, and 50% of them are mechanical equipment and transportation equipment. The price is stable and the trade volume between China and Africa will continue to grow strongly,” said Razia Khan.


 


The trade volume between China and Africa has recovered in 2017. The EU is Africa's largest trading partner, but the gap between China-Africa trade and Europe-Africa trade is shrinking significantly. China-Africa trade growth has been very strong, and the growth rate of trade between Africa and the Asian developing countries outside the EU, Africa and China has exceeded the growth of China-Africa trade. Razia Khan said that in the past, trade between China and Africa was roughly balanced. We believe that with the correction of commodity prices, some of the trade surplus in Africa will reappear.


There is a commonality in the demographic characteristics of the Middle East and Africa, that is, the average age of the population is very low, which means that the growth of local consumer demand will be very strong. Razia Khan believes that in the future the Middle East and Africa will remain an important trading partner of China and will become an important importer of exports to China.


The data shows that China-Africa trade is concentrated. In terms of China's exports to Africa, South Africa, Nigeria and Ethiopia are the top three in 2017, accounting for 54% of China's exports to Africa. The same is true for China’s imports from Africa. Three countries: South Africa, Angola (oil-producing countries), and Congo (oil-producing countries) account for 68% of China’s exports to China from sub-Saharan Africa.


What are the main drivers for these trade growth? Razia Khan believes that the economic growth rates achieved by various countries are very different. For example, Angola and Nigeria are mainly oil-producing countries. As the oil price rises, their economies have recovered, and the demand for imported goods is also expanding. In other African countries. China has also provided some funds, such as financing for the construction of Kenya's standard railroads. Djibouti is a special case, reflecting the fact that China and an African country sometimes increase the volume of trade due to a specific project.


In recent years, the People’s Bank of China and the central banks of some African countries have signed currency swaps to promote trade between China and these countries. If the renminbi has sufficient liquidity as a foreign exchange, trade can be settled in renminbi, which can be greatly Promote trade. For a country like Nigeria, it means that you don't need to earn dollars before you can import from China. This is the beginning of a very important trend in trade.


China becomes the largest trading partner in the Middle East


Sarmad Lone, managing director of the client division of corporate and financial institutions in the Middle East and Africa region of Standard Chartered Bank, said that in the past 8-10 years, a large number of Chinese companies have entered the Middle East and Africa. Previously, Chinese companies were not active here, but in recent years Chinese companies and banks have performed well in every country here, such as in Pakistan, in the UAE, Saudi Arabia and Qatar, whose economic activities involve the entire financial value chain, including the bond market. , capital markets, etc.


According to reports, some Chinese companies have had some acquisitions in this region in recent years, not only in foreign direct investment, but also in the debt market. Some countries in the Middle East also want to obtain funds from China. China is a country in the Middle East. The largest trading partner, the globalization of Chinese companies is taking new steps. The Belt and Road Initiative is the most important growth strategy. In Pakistan, the United Arab Emirates and Saudi Arabia, the biggest projects are the One Belt One Road projects.


In addition, in some non-oil producing countries, such as Pakistan and Egypt, due to the decline in the liquidity of their US dollars and the rise in US dollar interest rates, they all hope to seek more renminbi cooperation with China to partially replace their dollar demand.


According to the latest data from the National Development and Reform Commission, China’s trade in goods along the “Belt and Road” has exceeded US$5 trillion, and foreign direct investment has exceeded US$70 billion. In the countries along the route, 75 overseas economic and trade cooperation zones have been built, with a total investment of more than 27 billion US dollars, creating more than 200,000 jobs for the local. Lu Jing, managing director of the Corporate and Financial Institutions Department of Standard Chartered Bank, said that along the Belt and Road Initiative, 63% of the world's population is concentrated, and GDP accounts for only 29% of the world. A large lack of infrastructure hinders the development of the Belt and Road countries.


How do Chinese companies going global go to control risks? Lu Jing said that it works with policy commercial banks, insurance companies and multilateral financial institutions to leverage their specific solutions and products to address related financial risks. For example, credit insurance can transfer and control credit risk; in addition to the initial government funds, it can attract private capital to participate in the construction of infrastructure projects, and enhance the commercialization of the “Belt and Road” project with sustainable diversified funding sources to achieve sustainable development. . Finding local reliable entity partners, multilateral organizations and international commercial banks with strong local business networks can help understand the local political, cultural, economic environment and risks. In addition, when investors or companies choose to invest in countries and regions along the “Belt and Road”, they should set up a special mechanism or a working group throughout the company to coordinate internal and external stakeholders and manage their business locally. All the risks faced, rather than encountering one solution, or letting a separate department solve it.


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