On 18 October, the value of the South African currency fell 1.1% in response to worse-than-expected third-quarter data that revealed the Chinese economy slowed to its slowest pace in a year.
The South African rand has long served as a sort of early warning system for investors to gauge the impact of Chinese economic news. And on 18 October, the alarms sounded as the value of the South African currency fell 1.1% in response to worse-than-expected third-quarter data that revealed the Chinese economy slowed to its slowest pace in a year.
The economy grew just 4.9% in three month period between July and September, according to the National Bureau of Statistics, down sharply from the nearly 8% growth rate in the second quarter. Industrial production, a key data point for Africa’s commodity-exporting countries, was flat with just 0.1% growth.
Although the Chinese economy performed much better than other major economies in Asia, Europe, and the US throughout the pandemic era, that may no longer be true as a series of events have converged in recent months that together present the most serious economic challenge facing the Chinese government in years, if not decades.
Rising domestic debt levels, especially in the real estate sector, an ongoing energy crisis that has led to power shortages in at least nine provinces, and a series of economic reforms have all contributed to heightened concern about the vitality of the world’s second-largest economy.
The latest economic data is no doubt being carefully studied today in finance ministries across Africa to gauge the impact on a region that is highly dependent on strong Chinese demand for oil, timber, and minerals.
How China’s slowing economy will impact Africa
- Development finance: Chinese overseas development financing, particularly from the country’s two largest policy banks, has been slowing for years and it will likely not pick up anytime soon as the Party will prioritise domestic economic revitalisation over international development.
- Reduced demand: Although Chinese industrial output remained strong over the summer, the combination of power outages that shuttered factories, global supply chain disruptions and rising fear among Chinese consumers that their savings are at risk in the property market will likely contribute to reduced demand for commodities from African countries and other points along the BRI.
- Increased subsidies:: China, like other major economies, will turn to subsidies to bolster its industries in periods of economic distress. This is especially problematic for those African countries seeking to add value to raw materials by processing prior to export. But if the Chinese government boosts its already generous state subsidies to cobalt, manganese, and uranium processing enterprises (among others) then it will be essentially impossible for African companies to compete.
While Chinese officials will no doubt devote a lot of attention to Africa in the months ahead due to the upcoming Forum on China-Africa Cooperation (FOCAC) summit that’s expected to take place at the end of November, it’s quite likely that focus will then quickly fade in the new year.
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2022 will be a seminal year for the Chinese Communist Party (CCP) as it prepares for the 20th National Party Congress in October when General Secretary Xi Jinping is widely expected to secure an unprecedented third term in office, effectively locking in his position as the country’s supreme leader.
What this means is that the entire political apparatus will be centred on ensuring social stability at home, bolstering the domestic economy, and reducing as many external risks abroad as possible. Foreign policy, particularly in secondary theatres like Africa, will likely not be a major priority in the upcoming 2022 political season, especially if the economy is as shaky as it is now.
This article was published in partnership with The China-Africa Project.
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