Chinese Premier Li Keqiang (R) meets with South African President Jacob Zuma at the Great Hall of the People in Beijing, capital of China, Dec. 4, 2014.[/caption] China’s economic engagement in Africa has generated a lot of controversy. Headlines in Western newspapers have read: “Into Africa: China’s Wild Rush,” or “China in Africa: Investment or Exploitation?” At the same time, China is more popular among African populations (70 percent with a favorable view) than it is in Asia, Latin America, or Europe, according to Pew surveys. The popularity is no doubt linked to the fact that African growth rates have accelerated between the 1990s and the 2000s, and China’s trade and investment is part of the reason.
However, it does not include the amount of investment. The investment to Africa over the period of 1998 to 2012 includes about 2,000 Chinese firms investing in 49 African countries. Firms often have multiple projects, so there are about 4,000 investments in the database. We think of the typical entry as a private firm that is much smaller than the big state-owned enterprises involved in the mega-deals that have captured so much attention. This data provides insight into what the Chinese private sector is doing in Africa. Based on the descriptions of the overseas investment, we categorize the projects into 25 industries covering all sectors of the economy (primary, secondary, and tertiary). The allocation of the projects across countries and across sectors provides a snapshot of Chinese private investment in Africa. Some things immediately jump out from the data. In terms of sectors, these investments are not concentrated in natural resources; services are the most common sector and there are significant investments in manufacturing as well. In terms of countries, Chinese investment is everywhere: in resource-rich countries like Nigeria and South Africa, but also in non-resource-rich countries like Ethiopia, Kenya, and Uganda. We then investigate the allocation of projects more rigorously. In particular, we ask whether factor endowments and other country characteristics influence the number and types of investment projects from Chinese investors. If Chinese investment is similar to other profit-oriented investment, then the number and nature of projects should be related to the factor endowments and other characteristics of the recipient countries. Indeed, we find that while Chinese ODI is less prevalent in skill-intensive sectors in Africa, it is more prevalent in the more skill-abundant countries, suggesting that Chinese investors aim to exploit the local comparative advantage. We also find that Chinese ODI is more concentrated in capital-intensive sectors in the more capital-scarce countries, suggesting its importance as a source of external financing to the continent. These patterns are mostly observed in politically unstable countries, implying firms’ stronger incentives to seek profits in tougher environments.]]>