International capital flows
Banking on Africa: Chinese financial institutions and Africa
The Chinese financial institutions’ role in support of China’s resource strategy towards Africa
Authors:
R. Meyer; C. Alden
Publisher:
South African Institute of International Affairs, University of the Witwatersrand (Wits), 2008
The Chinese drive into the resource sector in Africa has already received much attention in the media and academic literature. What has not been well understood is the role of Chinese financial institutions in support of the country’s resource strategy and its entry into the previously unknown African market.
The case for China’s rapid expansion of trade relations with Africa, amounting to US$55bn at the end of 2006 is firstly premised on the need for resource security to ensure the continued rapid economic development of the country. The biggest trade partners are Sudan, Angola, Nigeria and South Africa. The China ExIm Bank and China Development Bank have been playing an important role in the pre-export finance, trade finance, and project finance for a number of the projects. The investment of Chinese firms in Africa, with its tie-ins of resource supply agreements in exchange for Chinese-sponsored infrastructure development, has been controversial precisely because it is so vastly different from Western investment and aid. The investment is not loaded with procedure and there are few conditions attached to such lending.
With the industrial and commercial Bank of China’s purchase of a 20% stake in South Africa’s leading bank in late 2007, the stage has been set for a new phase of China’s engagement on the continent which promises to expand the sectoral reach of Chinese financial institutions and, concurrently, lay the foundation for ventures into new areas like commercial and perhaps retail banking.
Chinese banks, in line with classic pattern or rationale for expansion into new markets, are following their clients into Africa using a strategy that focuses on joint ventures with local partners. This is paving the way for greater Chinese involvement in commercial banking and perhaps, ultimately, retail banking. The investment of Chinese banks in local African banks and the financing provided for exports and projects and finally corporate lending may prove to be what is needed to further spur development of sustainable industry in Africa. Africa would benefit more if the banking operations spread beyond a narrow focus on Chinese funded projects and Chinese corporates to more comprehensive banking operations on the ground.
