China should expand bilateral trade with Sub-Saharan Africa

This economic memo highlights the importance of China's bilateral trade with Sub-Saharan Africa, particularly in the oil sector, and suggests that China should invest more in the region to maintain a strong relationship and mutual benefit.

Running head: ECONOMIC MEMO
MEMORANDUM
To: Zhong Shan, Minister of Commerce, People’s Republic of China
From: Director-General, Department of International Trade and Economic Affairs
Date: April 13, 2018
Subject: China should expand bilateral trade with Sub-Saharan Africa
Abstract:
China is one of the fastest growing economies in the world and few years back it was
cannon balling the GDP growth rate of the economy with their astonishing governmental
policies. With rise in the economic growth, Chinese population has also increased over the
time with rapid speed. At present china is the country that has highest population; and with
rise in the population growth, the country faced enhanced demand for the oil. Since the
vulnerability assessment of the Chinese economy, there has been rising growth in business
between the China and SSA. Considering the data it can be seen that SSA region and Chinese
economy is highly interdependent through bilateral trade. thus china need to invest in more
amount in the SSA region so that it can gain by having oil at lower rate and on the contrary
provide economic growth to the SSA region
Context:
China is one of the fastest growing economies in the world and few years back it was
cannon balling the GDP growth rate of the economy with their astonishing governmental
policies. On the other hand, when it comes to the Sub-Saharan African, then it can be seen
that the economy of this region is highly deprived and due to lack of the FDI inflow from
different parts of the nation, it has failed to achieve what it should have by now. However,
over the period lookout of the different state regarding SSA changed with the exploration of
oil reservoirs in the region.

1ECONOMIC MEMO
China’s FDI in the region was negligible during the 2000 and it has reached to $170
billion by the end of 2013 that highlights the level of association between the two states
(International Monetary Fund, 2017). As highlighted by Anderson et al., (2015), oil
importation from the SSA region to the Chinese economy is one of the major reasons for this
association. However, recently there is a fall in the bi lateral business between the Chinese
economy and SSA. (Asongu & Nwachukwu, 2016) argues, if china wants to import oils in
more amount from the SSA region, then it would need to invest more in the SSA region so
that strong relationship keep growing.
Analysis:
With rise in the economic growth, Chinese population has also increased over the
time with rapid speed. According the projection, china’s oil consumption will enhance by
7.5% by the end of 2030 (Brief Statistics, 2018). Since 2008, Chinese economy has been
importing oil in higher amount and by the end of 2008; it has imported around 200.67 million
tons of oil (Bhatt et al. 2015). With the domestic supply constraint of the oil, china during
2008 imported almost fifty percent of its total oil requirement for the same year from Middle
East region. Due to lack of political stability Middle East has not been considered as good
option for oil import by china. It leads china towards a vulnerable situation in case of these
regions stops selling oil to china.
Thus, eventually china started to search for new alternative source of oil and the
search ends with rising business with the SSA region. SSA region is well known for the
proven world oil reserves, which is more than 10% of total oil reserve in the world (Lkatos et
al., 2016). over the time various favorable trade agreements has been signed between the two
trade participating parties under the Production Sharing Agreement, which has provided
scope to have favorable trade agreements by china.

2ECONOMIC MEMO
In addition to this, oil producers of the SSA region are not under the OPEC control,
thus there is no output limit for them and it is beneficial for the Chinese economy, that they
can have oil at lower price because the production is higher compared to the OPEC states
(Worldbank.org, 2018). Next to this, it has been observed that since 2000, one third of the oil
reservoir explored in the world is located in the SSA region, which is expected to make it the
next oil hub within the coming years.
This considering these factors it can be seen that it was a good move by the Chinese
government to indulge itself with higher amount trade with the SSA region. However,
considering the figure 1 (Technical appendix), it can be seen that, there is fall in the business
between the SSA region and Chinese economy in recent years. Rate of business loss with
between china and SSA is higher than that of Global Financial Crisis scenario that can
provide dampening blow to the SSA region.
Considering the figure 2 (Technical appendix), it can be seen that there is
considerable amount of drop in the number of contracts between the SSA region and the
china, which can provide joblessness and loss in growth rate for the countries of SSA region.
From statistical data it can be seen that, china is accounted for highest amount of FDI to the
SSA region that has created various job opportunities for this region. In absence of the same
there will be reduce demand of the goods and services for the SSA countries, which can
effectively reduce the growth and push the economy toward deterioration again. On the other
hand Chinese economy will face widening gap between supply and demand of the oil
resource, which will lead to rise in the recession for the economy (Asongu & Nwachukwu,
2016).
Conclusion:
Thus in conclusion, it would be ideal to propose the Chinese government to keep
close contact with the SSA region and enhance the number of the contracts to have oil at

3ECONOMIC MEMO
reduced price and meet the domestic demand of the oil. On the other hand it would profit
both the states with the mutual benefit from the international trading.
Data interpretation:
Growth of the SSA region is highly dependable upon the Chinese investment in the
economy that can be seen from the table 1. It depicts that there has been subsequent amount
of rise in the goods and services from the SSA region to Chinese economy and the main rise
can be seen in the case of the oil resource (Xu et al., 2016). Over the one decade in case of
non-oil natural resource SSA region has evolved as the best countries compared to china
however it has faced reduced comparative advantage in the case of agriculture, oil and in
manufacturing sector.
According to table 2, it can be seen that there has been huge impetus in the job market
due to the presence of Chinese industries. With millions of dollars investment, Chinese firms
have created more than one lakh jobs per year in the SSA region that has aided the economy
to have better growth prospect.
Considering this, it can be seen that Chinese involvement in the SSA region for the oil
import has truly helped the region to become a sustainable region. Now, if the Chinese
economy pulls the FDI plug out, the economy will suffer from unemployment and loss of
aggregate demand and it will lead the economy to poverty cycle again (Djurefldt, 2015). thus
china need to invest in more amount in the SSA region so that it can gain by having oil at
lower rate and on the contrary provide economic growth to the SSA region

4ECONOMIC MEMO
Table:
Table 1: Export of SSA to China and revealed comparative advantage
Table 2: Chinese FDI to SSA sector wise
Technical appendix:
Figure 1: SSA trade balance with china
Figure 2: Number of Chinese contracts in
SSA

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Reference:
Anderson, M. D., Kriljenko, M. J. I. C., Drummond, M. P., Espaillat, P., & Muir, D.
(2015). Spillovers from China onto Sub-Saharan Africa: Insights from the flexible
system of global models (FSGM) (No. 15-221). International Monetary Fund.
Asongu, S. A., & Nwachukwu, J. C. (2016). The role of governance in mobile phones for
inclusive human development in Sub-Saharan Africa. Technovation, 55, 1-13.
Bhatt, S., Weiss, D. J., Cameron, E., Bisanzio, D., Mappin, B., Dalrymple, U., ... & Wenger,
E. A. (2015). The effect of malaria control on Plasmodium falciparum in Africa
between 2000 and 2015. Nature, 526(7572), 207.
Brief Statistics. (2018). english.mofcom.gov.cn. Retrieved 13 April 2018, from
http://english.mofcom.gov.cn/article/statistic/
International Monetary Fund., & International Monetary Fund. (2017). A Rebalancing Act for
China and Africa. Washington, DC: International Monetary Fund.
Lakatos, C., Maliszewska, M., Osorio-Rodarte, I., & Go, D. S. (2016). China's slowdown and
rebalancing: potential growth and poverty impacts on Sub-Saharan Africa.
Pigato, M., & Tang, W. (2015). China and Africa: Expanding economic ties in an evolving
global context. Washington: World Bank.
Worldbank.org. (2018). [online] Available at:
https://www.worldbank.org/content/dam/Worldbank/GEP/GEP2015b/Global-
Economic-Prospects-June-2015-China-and-Sub-Saharan-Africa.pdf [Accessed 13
Apr. 2018].
Xu, J., Yu, Q., Tchuenté, L. A. T., Bergquist, R., Sacko, M., Utzinger, J., ... & Li, S. Z.
(2016). Enhancing collaboration between China and African countries for
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