The Effects Of China’s Aid To Africa On Sino-Africa Trade

China has always regarded its aid to Africa as the mutual support and cooperation ever since its first aid was given to Africa in1956. During the process, aid has been tied up with economic cooperation and the objective of mutual development. This is especially true since the foreign aid regime was reformed in the1990s, where more emphasis is given to the combination of aid and Sino-African trade, and meanwhile, aid is integrated with direct investment in Africa and the infrastructure developments in African countries. The Chinese way of aid has been highly appreciated by the African recipients, because of its mutually beneficial essence and the remarkable efforts it has received so far. For most African countries, the engine of economic development is not aid, but trade and investment. Compared with the western way of aid, the Chinese way, which aims to promote trade development, will bring more opportunities to African economic developments.This paper was written for a number of reasons. First of all, studies on this topic have not been conducted much so far. For foreign researchers, great more research efforts have been devoted to investigating aid from developed countries to developing recipient countries and their effects on trade, aid from developing countries have rarely been studied. For the Chinese researchers, there are very little researches on the effects of aid on trade. Secondly, in recent years, China has been accused by the U.S. and other western countries that the burgeoning foreign aid to Africa is driven by its interest in the continent’s rich natural resources, which has exerted negative effects on Sino-African trade relations. Through studying China’s assistance to Africa, Sino-African trade and the effects of aid on trade, this paper comes to practical suggestions on how to promote bilateral trade development through aid, and the conclusions can also be used to refute the accusation from western countries. Therefore, this paper provides useful information both theoretically and practically. This paper has been divided into five parts. In Chapter1, an overview of the background information, related literature, research framework and related theoretical concepts are given. Chapter2first demonstrates the four-period history of China’s aid to Africa, then it introduces the current aid mode adopted by the Chinese government and the characteristics of this mode compared with the traditional western mode.Chapter3discusses the current state and issues of Sino-African trade. Through extensive data analysis, it is obvious that since the reformation of aid mode, especially after the establishment of the Forum on China-Africa Cooperation (FOCAC), trade volume between China and Africa has been growing rapidly; ratio of Sino-African trade to China’s foreign trade and to African’s foreign trade are increasing gradually, and in2009, China become Africa’s largest trade partner. An analysis of the trade composition shows that Africa’s export to China has long been dominated by oil, minerals and other natural resources. On the other hand, the majority of China’s exports to Africa are manufactured products, and there is a tendency that light industrial products, which used to dominate the exports composition is gradually being replaced by mechanical and electrical products, high and new tech products, automobile and its spare parts. Also, this chapter analyses the current issues affecting the bilateral trade, and part of them can be solved through aid.Chapter4is the core part of this paper, which provides a comparative, data-based evaluation of the effects of aid to Africa on Sino-African trade. From China’s perspective, firstly, aid promotes exports to Africa directly through the regimes of concessional loans and joint venture project fund. Besides, aid increases exports through a number of indirect effects, such as the rise of purchasing power, the improvements of products qualities and the extended publicity of Chinese products. From Africa’s perspective, first of all, some concessional loans are paid by or guaranteed by natural resources, which directly promote the exports of these products. Secondly, aid on agriculture improves the production and manufacturing ability of agricultural products, which increase the export volume of these products. Thirdly, the improvement of infrastructures accelerates the industrial process in Africa; enhance the exports of manufactured goods to China. Moreover, aid reduces export costs for African countries, which makes them more competitive in global trade market.With the analysis of relevant data, this chapter also disproves the wide-spread argument that China is only interested in the rich resources and in the long run, China’s practices may cause the "Dutch Disease" in Africa. Besides, there is a prevailing argument that the flood of labor-intensive Chinese products into African market would hurt the local industry. This paper views this issue in a developing perspective, which means in the long run, it will make the African products more competitive in global competition. All in all, the positive effects of aid on trade outweigh the negative ones.Chapter5comes to the conclusion and relevant suggestions are presented based on the above analysis, in order to enhance the efforts of aid to Africa and promote the rapid and robust development of Sino-African trade.