Dehai News

Earlier this month, Chinese leader Xi Jinping told an audience of 51 African leaders that China’s ties with their continent were the “best in history”. Indeed, at the China-Africa summit, Beijing mustered $50.7bn (rendered in renminbi) in aid and investment – even if the accounting was creative – and established new education, trade, and security support, as well as bilateral exchanges. China also upgraded its relationship with Africa to “strategic” and “all-weather”, claiming this would represent a “shared future for the new era”.

Behind China’s largesse lies its advocacy for a new global order – an alternative to the Western-led rules-based order that seeks to redefine global governance in China-friendly terms.

Africa’s strategic interests, meanwhile, lie in playing the geopolitical field with all suitors. But Beijing has most successfully wooed the continent by promoting China’s own economic development miracle as a template. China points to its meteoric rise and how it achieved this without depending on the Western development model or much Western aid, offering itself as the alternative development partner African countries need. With African governments prioritising the economic development of the continent above all else, this makes for a winning message.

But, despite Beijing selling its model and partnership as Africa’s ticket to development, elements of China’s economic approach unfairly undercut African economies. China’s overcapacity is a major culprit. Put simply, China’s economy currently compensates for low domestic consumption by relying on the rest of the world as its market. That allows China to maintain a super-charged, subsidised production behemoth alongside meagre consumption at home. This overcapacity, which floods the international market with Chinese-made products, creates different challenges for different economies. For Western economies, China’s over-production of higher valued-added goods creates dependencies and threatens some European industry. Think cheap photovoltaics or bargain-priced electric vehicles crowding out European producers of the same. Developing African economies, on the other hand, have benefited from these products. They do not yet produce them, so there’s no competition.

But overcapacity becomes a problem for African economies, since China’s economic planners want to play on both ends of the value-addition spectrum. Instead of following the traditional “flying geese” economic trajectory upwards from low value-added to high valued-added production, China’s 14th five-year plan, explicitly calls for maintaining low-end manufacturing as well. Fear of political discontent in its rural provinces, where these industries are important for employment, likely influences these decisions.

So, as African economies try to grow their low value-added production as a step up the developmental ladder, they must contend with China as a competitor for Africa’s consumer markets. Normally traditional models of economic development give Africa the advantage in this sector because of its cheap labour. But China’s subsidised production makes its price-point unbeatable, nullifying Africa’s cheap labour advantage. It floods African consumer markets with cheap textiles, garments, and other lower-value products, answering demand at a lower price point than nearly all local production could. China’s production, therefore, poses a sizeable obstacle to Africa’s ability to follow in the former’s footsteps as the next “factory of the world”.

At the summit, Beijing nodded to these concerns. China made overtures to even out its trade imbalance with Africa and assist the continent’s climb up the value-addition ladder. But it dropped its earlier promise to import $300bn worth of African products made at the summit in 2021. Instead, China offered a tariff removal for 33 of Africa’s least developed countries – a symbolic gesture as there is little prospect of these countries producing manufactured goods for export to China.

Enter Europe’s economies

Europe’s economies face the flip side of the China-coin to those of Africa. Chinese overcapacity at the low-value end of production risks hamstringing Africa’s economic development. At the same time, European economies are suffering from the high-end of China’s overcapacity, as cheap critical goods put them at risk of overdependence and weaker domestic industries.

Concerning the first issue, European policymakers can remind their counterparts in Africa of the Chinese-African macroeconomic mismatch. In doing so, Europeans would put themselves at a clear advantage. Unlike China, European economies have long since abandoned any ambition for low value-added production. They will never be a competitor to African economies in this sector, but Europeans could be potential consumers.

But there is another opportunity for Europe one rung up the value-addition ladder. European countries have already begun reducing imports of Chinese industrial inputs with European environmental policies such as the carbon border adjustment mechanism, which introduces tariffs on products like Chinese steel. Here China also threatens more developed African economies. Following in India’s footsteps, South Africa recently placed tariffs on Chinese steel to protect their local industries. The trajectory created by European and African measures limiting imports from China could create more European market demand for African alternatives. The geo-economic security argument for European near-shoring further strengthens this case. That stronger case might motivate European investment in these African capacities – a welcome move since Africa faces serious structural hurdles in this sector, such as insufficient energy production. 

At the high-value goods end a third option for Africa-Europe cooperation emerges. In a move out of the Western playbook, South Africa recently placed higher value-added Chinese imports on notice, with tariffs on solar panels, to give its own solar panel industry a fighting chance. Europeans aim to maintain and boost their own production capacity in this sector, so the opportunity here lies in jointly confronting China’s overcapacity more than shifting European production to Africa.

As European and African concerns over Chinese overcapacity are converging, European policymakers should engage with their African counterparts to address this challenge jointly. This could pave the way for a common position, killing two birds with one stone: creating a broader front to face up to China’s overcapacity while opening new areas for Africa-Europe economic cooperation. To seize this opportunity, European policymakers just need to connect the macroeconomic dots.