Although China is by far Africa's largest trading partner, the size of its investment portfolio on the continent is relatively small. Many journalists inaccurately conflate TRADE with INVESTMENT. By 2015, China ranked only #7 for Foreign Direct Investment (FDI) in Africa, far behind the United States, Germany, and even the United Arab Emirates.

2015 research paper by David Dollar of Brookings Institute, Tang Heiwai of Johns Hopkins University, and IMF economist Chen Wenjie, challenge the misperception that Chinese Overseas Direct Investment (ODI) is dominant in Africa. Although growing rapidly, PRC investment levels on the continent are relatively small compared to Europe and the US. Also important: Chinese investments are more diversified than most people realize, extending far beyond the extractive industries.


China has emerged as Africa’s largest trading partner, providing demand for the continent’s energy and minerals. At the same time there is a growing volume of Chinese direct investment in Africa. Some of this has taken the form of high-profile natural resource deals in countries with poor track records of governance (Angola, Sudan). These developments have given rise to a number of ideas about Chinese investment in Africa: that it is on the same enormous scale as China’s trade; that it is aimed primarily at natural resources; and that it is concentrated in countries with poor governance. In reality, each of these ideas is to a large extent a myth not backed up by data.


First, on the scale of China’s direct investment in Africa. Chinese statistics on what they call “Overseas Direct Investment” show a stock of US$26 billion in Africa as of end-2013; that would amount to about 3% of total FDI on the continent. UNCTAD’s World Investment Report 2015 similarly finds that the flow of Chinese FDI to Africa during 2013-2014 was 4.4% of the total. The European Union countries, led by France and the UK, are the overwhelmingly largest investors in Africa. The US is also significant, and even South Africa invests more on the continent than China does.


Second, concerning natural resources, my recent paper, “Why is China investing in Africa? Evidence from the firm level,” written with Wenjie Chen and Heiwai Tang, examines the allocation across African countries of the stock of Chinese ODI and the stock of total FDI (which, as noted, mostly comes from Western countries). Other things equal, African countries that are more resource rich attract more Chinese investment. But this effect is about the same for Western investment, and it is only one factor determining investment. Chinese ODI is also influenced by the size of the domestic market, indicating that some of it is aimed at serving that market.


This study goes beyond the aggregate data to work with the firm-level data compiled by China’s Ministry of Commerce (MOFCOM). All Chinese enterprises making direct investments abroad have to register with MOFCOM. The resulting database provides the investing company’s location in China and line of business. It also includes the country to which the investment is flowing, and a description in Chinese of the investment project. However, it does not include the amount of investment. The investment to Africa over the period 1998-2012 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. 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. These data provide 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 goes everywhere: in resource rich countries like Nigeria and South Africa, but also in non-resource-rich countries like Ethiopia, Kenya, and Uganda.