The Missing Link: China's Contracted Engineering Projects in Africa

• DOI: http://doi.org/10.1111/rode.12103
• Date: 01 August 2014
• Published date: 01 August 2014

The Missing Link: China’s Contracted Engineering

Projects in Africa

Yin-Wong Cheung, Jakob de Haan, XingWang Qian, and Shu Yu*

Abstract

This paper examines the driving forces of China’s contracted engineering projects in Africa. Using data on

contracted engineering projects in 52 African countries over the period 1991–2010, three groups of hypoth-

eses are tested: (1) economic motives; (2) political ties between China and Africa; and (3) host country

characteristics. We find that countries get more projects if they have large market potential and are political

allies of China. Our results also suggest that Forums on China–Africa Cooperation promote projects in

Africa. In contrast, host country characteristics are hardly related to the amount of engineering projects

received.

1. Introduction

China’s fast-growing economic ties with Africa have attracted considerable attention.

According to the IMF’s Direction of Trade Statistics, China’s trade (exports plus

imports) with Africa increased steadily from US$1.21 billion in 1990 to US$135.75

billion in 2011. The rise of the Chinese economy has fueled global demand for oil and

other primary commodities. However, Africa’s rapidly growing exports to China are

not limited to fuels and other mineral products. Labor-intensive raw or semi-

processed agricultural commodities that are used for further processing either for

industrial use (timber, cotton) or for consumer use (food products) are also increas-

ingly imported by China (Broadman, 2007).

Likewise, China has become one of the major capital providers for countries in

Africa. Several papers have examined the driving forces of Chinese outward direct

investment (ODI) in Africa.1Cheung et al. (2012a) examined to what extent China’s

ODI is driven by standard economic determinants of foreign direct investment (FDI).

They conclude that there is evidence in support of the market-seeking motive, the

risk-avoiding motive, and the resources-seeking motive. Once an investment decision

is made, China tends to invest more in oil-producing African countries. Cheung et al.

(2012b) analyzed whether also political considerations and host-country characteris-

tics affect China’s ODI in Africa. Their main findings are that in the 1990s political

variables seem to dominate economic determinants of China’s ODI in Africa. The

likelihood that a country receives ODI from China increases if the country concerned

is a political ally of China, has diplomatic relations with China, is corrupt, democratic

* Yu, University of Groningen, Nettelbosje 2, 9747 AE, Groningen, The Netherlands. Tel: +31-50-363-

4757, Fax: +31-50-363-7337, E-mail: s.yu@rug.nl. Cheung: City University of Hong Kong, P7307, Academic

1 City University of Hong Kong, Hong Kong. De Haan: University of Groningen, Nettelbosje 2, 9747 AE,

Groningen, The Netherlands. Qian: SUNY Buffalo State, 1300 Elmwood Ave, Buffalo, NY 14222, USA.

The authors wish to thank participants in the 2012 IACMR Conference (Hong Kong), seminar participants

in University of Groningen and the Shanghai Institute of Foreign Trade and an anonymous referee for

their comments on a previous version of the paper. The views expressed do not necessarily reflect the views

of DNB.

Review of Development Economics, 18(3), 564–580, 2014

DOI:10.1111/rode.12103

© 2014 John Wiley & Sons Ltd

and politically stable. In contrast, more recent data suggest that most political vari-

ables turn out to be insignificant. Instead, China’s ODI in Africa is mainly driven by

economic ties with the host country and the drive for natural resources.

Aid is yet another channel via which China interacts with Africa. Dreher and Fuchs

(2012) find that political considerations are an important determinant of China’s allo-

cation of aid: countries that vote in line with China in the United Nations General

Assembly and do not recognize Taiwan as an independent country receive more aid.

In contrast to widespread perceptions, they find no evidence that China’s aid alloca-

tion is dominated by natural resource endowments or is biased towards autocratic or

corrupt regimes. China’s aid is independent of the recipients’ institutional characteris-

tics, which seems to confirm China’s non-interference principle.

In addition to trade, ODI and aid, contracted engineering projects are another

important, yet so far largely ignored, channel through which China interacts with

Africa. These projects include building of highways and roads, bridges, schools,

shopping centers, housing and office buildings, water conservancy, dams and power

plants. The amount of contracted engineering projects has increased steadily over

time and displayed a significant jump in the 2000s after the first Forum (2000) on

China–Africa Cooperation.2The dollar value of China’s contracted engineering

projects dwarfs its ODI in Africa. In 2010 Chinese ODI in Africa amounted to

US$2.1 billion, while the contracted engineering projects amounted to US$38.3

billion. Figure 1 shows the distribution of contracted engineering projects across

African countries over the period 1990–2010. As Figure 1 shows, there is quite some

variability. In total, Algeria received most contracted engineering projects, i.e.

US$28.73 billion; several countries, such as Swaziland, Benin, Somalia, had almost

no projects in the period under consideration.

Nowadays, China’s policies on contracted engineering projects in Africa are gener-

ally perceived as following the state-driven strategy of giving infrastructure and taking

natural resources. Foster et al. (2009), for example, list several infrastructure projects

in Africa that are paid for by natural resources between 2001 and 2007. A reason

noted by, for example, Corkin et al. (2008, p. 2) is that “it is often the most resources

rich states that are in dire need of infrastructure development and support.” An

important benefit resource-based infrastructure projects is that they may speed up the

growth process. Countries do not need to wait until they can pay for infrastructural

investments, as Paul Fortin, the CEO of Congo’s state-owned mining company

Gécamines, commented.3The comment was made after the parliament of Democratic

Republic of Congo approved a deal with China of more than US$6 billion in infra-

structure, using a copper and cobalt mining joint venture as guarantee.

So far contracted engineering projects have involved housing construction projects,

manufacturing and processing industrial projects, and the construction of basic infra-

structure, such as petroleum refinery, electricity, telecommunication, transportation

facilities, sewerage, waste processing facilities, etc. The scope and extent of engineer-

ing projects show their potential impact on a country’s industrialization process and

the improvement of its living standard.

Despite their promising impact on Africa’s medium to long-term growth prospects,

there is only some scant attention for China’s contracted engineering projects in the

literature. Formal econometric analysis of the driving forces of these projects in

Africa is lacking. In a related study, Bhaumik and Yap Co (2011) investigated the

relationship between China’s contracted engineering projects and its outward direct

investment. They find that projects are well explained by classical determinants of

FDI. These authors argue that China uses engineering projects as strategic means to

CHINA’S ENGINEERING PROJECTS IN AFRICA 565

© 2014 John Wiley & Sons Ltd