Since the turn of the millennium, as part of its “going out” policy, China has heavily expanded its engagement in Africa. This is part of China’s strategy to fuel its booming economy and strategically position itself in a globalized world. China’s rapidly growing economic activities are visible across the African continent in its bilateral trade, investment overseas, development aid activities, and migratory pattern.  While economic theory suggests net benefits of increased competition and global integration, Chinese activities are frequently criticized for their potential adverse consequences on African countries and their citizens.

This research project (a joined activity of University of Göttingen and the Kiel Institute) aims to shed new light on the economic and social effects of China’s engagement in Africa along all key dimensions - trade, investment, aid, debt, and migration - and also to get a better understanding of how China’s presence is perceived by African citizens. While most previous research has focused on cross-country regression analysis and case studies, we provide novel empirical evidence by using rigorous econometric approaches at the level of subnational regions and individual citizens, which is complemented by experimental and survey-based methods. Given that up to 90 percent of the world’s poor will live in Africa by 2030, understanding the impacts of China’s engagement is of key relevance from a development perspective.

The project is organized in six work packages:

Work package 1: Development effects of China’s trade with Africa

First, we assess the differential implications of trade on subnational well-being. To measure heterogeneous effects across African regions, we interact the demand with local production capacities, including agricultural suitability, oil fields, and mining sites. We then assess how exogenous shifts in trade affect regional economic activity proxied by nighttime light emissions. We triangulate these findings with individual socio-economic outcomes using measures of household wealth, health, and education from the Demographic and Health Surveys. Second, we examine how trade relations with China affect the prospects of African partners to get through global economic downturns. While Chinese demand may help stabilize African economies when traditional trade partners (e.g., the EU and US) experience economic crises, African exports also become more exposed to fluctuations in Chinese demand. In order to assess the relative importance of these contrasting dynamics, we will use an identification strategy that interacts global imports of partner countries with initial shares of African partners in those trade flows.

Work package 2: Chinese direct investment in Africa: Effects at home and abroad

The purpose of this work package is to provide detailed evidence that takes account of the diverse nature of investments. First, we use data from the Chinese Ministry of Commerce, which provides firm-level information on Chinese investments in Africa that were approved by the authority. To analyze the impact of such investments on economic development in the host country, we apply two approaches. First, we use individual DHS data to measure socio-economic outcomes. Second, we use data from the African World Bank Enterprise Surveys. In the following part, we will link these data back to firm-level information from the Annual Reports of Industrial Enterprise Statistics. Lastly, we conduct in-depth firm surveys with partners in selected African countries to gain more detailed evidence on the characteristics and behavior of foreign-owned multinationals, in particular distinguishing Chinese from European multinationals.

Work package 3: The effects of China’s development aid on African trade and European development policy

First, we investigate the extent to which Chinese aid boosts African imports and exports. We build on the instrumental-variable approach in Bluhm et al. (2018) to examine the causal effect of aid on exports and imports at both the country level and the subnational level. We also test if Chinese aid disproportionally benefits Chinese companies distinguishing private and state-owned enterprises. We then examine if Chinese aid commitments create or divert trade from other partners. Second, the competition between donors of foreign aid may undermine sustainability and a need-based aid allocation. We will therefore assess the “China competition” effects on conditionality and the time horizon of European donors’ engagement. Shifts in European donor countries’ sectoral portfolios towards more infrastructure projects as a possible response to Chinese competition will also be analyzed.

Work package 4: Chinese lending and debt relief in Africa – outcomes and strings attached

In this work package, we explore the implications of Chinese lending to Africa from the perspective of recipient countries, with a special emphasis on what happens when countries can no longer service their debt to China. We will measure the occurrence, magnitude and developmental impacts of sovereign debt relief by building on our earlier work. The novelty here is the analysis of Chinese debt relief in Africa, which has barely been explored, despite the large number of cases. We plan to construct a new dataset from a broad range of sources, many of which we have collected over the past three years, including in the Chinese language. We will also build on the forthcoming update of the AidData dataset and on information about any new Chinese restructurings in the wake of the Covid19 pandemic.

Work package 5: Impacts of Chinese investment and aid projects on local citizens’ behavior and perceptions

In this work package, we aim to analyze local citizens’ behavioral responses to Chinese investment projects, as well as their support for Chinese aid by means of field experiments. First, we will investigate how local workers’ pro-social behavior is affected when they are employed by Chinese mining firms in Zambia. Using experimental methods, we will compare workplace reciprocity of local employees of Chinese and non-Chinese owned mining firms. To ensure causality, we will randomly and systematically vary the framing of these experimental tasks. The second study will adopt an experimental approach to examine whether the different approaches taken to implement aid by the EU and China lead to differential attitudes towards donors and their projects among local citizens.

Work package 6: Attitudes towards Chinese immigration

Quantitative evidence on attitudes towards immigrants is so far lacking for Sub-Saharan Africa. This work package introduces the first rigorous studies. The work package consists of two studies that both use micro data and are therefore able to control for many individual-level characteristics. In the first study, we analyze whether the presence of Chinese migrants has an effect on views of immigrants and of China. In the second study, we analyze the mechanisms in more detail using data from Uganda and Senegal. Building on household surveys that we will conduct in the framework of the Mercator Dialogue on Asylum and Migration project, we will add a survey module that captures attitudes towards different skill levels of Chinese and non-Chinese immigrants in Uganda and Senegal. This will allow us to estimate the differential impact of competition and economic spillovers on locals’ attitudes towards immigrants from different origins.

External project partners:

Krisztina Kis-Katos and Lennart Kaplan (both University of Göttingen)

  1. Journal Article

    Hidden Defaults

    American Economic Review Papers& Proceedings
    Sebastian Horn, Carmen M. Reinhart, Christoph Trebesch

    China's lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China's loans, the...