Despite challenges, Africa-China industrial cooperation has made solid progress, but more innovation is needed

African countries have long ago reached the consensus that "industrialization holds the key to development", and they have been committed to developing indigenous industries over the past more than half a century. However, after trying various policies, the continent has failed to achieve sustainable industrial transformation and growth due to a low starting point and complex political and social conditions.

China-Africa industrial cooperation has a long history. Industrial alignment and industrialization have been given priority in the action plans issued at the previous Forum on China-Africa Cooperation. Driven by its fast industrial development, China is looking for new resources, labor force and markets overseas; Chinese enterprises also need new partners and growth opportunities, as the markets in Europe and the United States are saturated and there is fierce competition at home. China and Africa have a shared interest in industrial capacity cooperation, and have made some progress in infrastructure building and industrial investment alignment.

But China-Africa industrial cooperation faces many new challenges due to a growing number of negative factors in the global geopolitical and economic environments, and the two are exploring new paths to fuel their industrial cooperation.

Although the scale effect is indispensable for the advancement of industrialization, China-Africa cooperation should no longer focus only on the expansion of scale; rather, the priority is to find the most suitable way to align China's industrial expertise with Africa's development potential, thereby increasing production efficiency, driving economic and social transformation, and creating new quality productive forces.

Given Africa's current level of industrialization, China and Africa can elevate their industrial cooperation to a higher level by transforming traditional industries or advancing technological and industrial innovation.

First, Chinese companies have been dedicated to extending the industry chains of resource-related products in Africa over recent years, creating more jobs and adding value for the continent. In many African countries, the economy is highly reliant on exports of natural resources, such as oil, mineral resources, rubber and cotton. This heavily resource-dependent economic structure is vulnerable to price fluctuations and sits at the lower end of the global industry chains.

To change this situation, Chinese enterprises have been working on building integrated mineral supply chains covering exploration, mining, extraction, processing and sales, as well as integrated agricultural supply chains that combine planting, harvesting, processing, storage, transportation and exports. Industrial parks that gather upstream and downstream enterprises have been established to solve the local problems of weak infrastructure and lack of supporting facilities.

A case in point is the Zambia-China Economic and Trade Cooperation Zone which has attracted more than 50 non-ferrous metal enterprises to settle there, forming a modern industrial park with sound infrastructure and a relatively complete industrial chain. The industrial park combines non-ferrous metal mining, dressing, and smelting industries, and features a series of projects producing non-ferrous metal derivatives and heavy industry products, as well as cement and cables.

Second, Chinese investors pay attention to new trends in African markets and manufacture products that cater to local needs, thus better serving local development and creating sustainable impetus for industrialization.

Some economists believe that Africa can attract labor-intensive manufacturing industries thanks to its low labor costs just like some Asian countries, and advance industrialization through export processing. But in practice, Africa lacks supporting facilities.

Instead, investors find they can gain a foothold in Africa by occupying the niche markets and catering to consumption needs neglected by the large multinationals — for example, establishing local factories to produce living products such as construction materials and furniture, plastics and ceramics, food and medicines, and apparels, which will not only save transportation costs, but also allow manufacturers to adjust product lines timely to cater to the evolving consumer demands, thus gaining popularity in Africa.

At the same time, emerging industries such as green energy, biological materials and electronic information present new opportunities for China-Africa industrial cooperation. For instance, Jiangsu Tianyi Industrial Group established the Avatar New Energy Materials Co Ltd in Nigeria, which has created more than 4,000 jobs for local people, turning Nigeria into a key player in the global lithium industry and helping the country move up the global industrial value chain. Chinese mobile phone manufacturers such as Transsion, Huawei and ZTE not only assemble and sell electronic products in Africa, but also lay a solid foundation for further cooperation between China and Africa in the digital economy.

Additionally, industrial development requires sophisticated and stable financial services. The high interest and exchange rates of the US dollar have greatly increased the costs of dollar-denominated loans and investments, threatening the sustainable financing services and economic development of African countries. The ever-growing presence of Chinese enterprises and projects in Africa, and the consequently-increased use of renminbi in the continent can help reduce the exchange rate of both sides, and mitigate the risks of exchange rate fluctuations. It also helps create a more diverse and stable global economic landscape.

In 2022, the number and amount of African countries' transactions using the Cross-Border Interbank Payment System, which specializes in renminbi cross-border payment, increased by 43 percent and 16 percent respectively. In October 2023, Egypt issued a 3.5 billion yuan ($479 million) worth of panda bond with the help of the Bank of China. It was the first time that an African nation issued a panda bond, a type of bond that is issued in China's domestic capital market by foreign issuers and is denominated in the renminbi.

In a word, despite the challenges lying ahead, Africa-China industrial cooperation has made solid progress and greatly advanced Africa's industrialization drive through practical efforts and constant innovation. Looking forward, more innovation is needed to further upgrade China-Africa industrial cooperation.

The author is chair of the Department of International Relations at Tsinghua University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at [email protected].