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      Growth of Chinese trade and investment flows in DR Congo – blessing or curse?

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      Review of African Political Economy
      Review of African Political Economy
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            Main article text

            Introduction

            China's increased presence in Africa has generated considerable interest among researchers in recent years. Traditionally, the United States (US) and the European Union (EU) were the only major foreign powers that had significant interests in Africa. But over the past decade, China has established itself as a big player in the continent and is being viewed as an attractive alternative to Western powers by many. Some scholars such as Deborah Brautigam believe that, given an encouraging domestic policy environment, Chinese investments in Africa have the potential to promote industrialisation in sub-Saharan African countries (Brautigam 2003, 2007). However, others have expressed concerns over the nature of Chinese engagement in Africa, arguing that it is primarily driven by hunger for resources and will lead to further specialisation of African countries in primary commodities. Holslag (2006) stresses that China is pursuing pragmatic mercantilism in central African countries and China's rise will cement the global position of African countries as commodity suppliers with modest consumer markets. According to Zafar (2007), China presents both an opportunity for Africa to reduce its marginalisation from the global economy and a challenge for it to effectively harness the influx of resources to promote economic development. Demand from China has contributed to an upward swing in prices, particularly for oil and metals from Africa, and has given a boost to real Gross Domestic Product (GDP) in sub-Saharan Africa. Chinese aid and investment in infrastructure are also bringing desperately needed capital to the continent. However, strong Chinese demand for oil has caused global prices to stay high, contributing to an increase in the import bill for many oil-importing sub-Saharan African countries, and its exports of low-cost textiles (while benefiting African consumers) have threatened to displace local production.

            Although a number of studies have explored China–Africa relations, they have mostly focused on traditional measures of trade similarity and compared the exporting pattern of African countries with that of China. Very few studies have investigated the impact of China on any individual African country in detail. It is important to bear in mind that Africa is a diverse continent and the impact of China on African economies is diverse and is dependent on the sectoral composition of each country's production. This paper attempts to contribute to this discussion by considering China's engagement with the Democratic Republic of Congo (hereafter DRC) focusing mainly on the mining and infrastructure sectors.

            China emerged as a major trading partner for DRC in the last decade, when DRC's trade with China increased by a factor greater than 40 in both directions. In addition, China has also become a major investor in DRC in the infrastructure and mining sectors, thereby opening up new choices and altering the playing field for one of the poorest countries of the world, affected by years of conflict and wars. In 2008, the DRC government and a consortium of Chinese companies signed the biggest investment agreement in Africa, the Sicomines agreement, which was designed to provide much-needed financing for infrastructure development and renovation, using rights to mineral reserves as collateral.

            The data sources for this study are as follows. Since DRC's trade data are not available in the UNCOMTRADE Database, DRC's exports were constructed from import data of partners (China, US, EU, Zambia, South Korea and World). Similarly, DRC's imports were constructed from export data of partners (China, EU, South Africa, Zambia and World). Trade data have been obtained from the UNCOMTRADE Database using the World Bank's WITS Software up to five-digit level of the Standard International Trade Classification, Revision 1 (SITC, Rev 1).1 The data on Chinese investment in DRC's mining sector are from AidData (China.aiddata.org).

            DRC's exports to China

            Prior to 2000, China had a very small share of DRC's exports. Indeed, the value of Chinese imports from DRC actually declined rapidly from US$9.96 million in 1990 to US$0.98 million in 2000 at a negative compound annual growth rate (CAGR) of 21%. Things began to change from 2001, when there was an eightfold increase in Chinese imports from DRC. Chinese imports from DRC grew tremendously from US$0.98 million in 2000 to US$3459.4 million in 2012 at a CAGR of 98% (Figure 1). China's rise in importance as an export destination reduced the importance of DRC's traditional trade partners, namely the EU and US, which together accounted for about 96% of DRC's exports in 2000 as shown by Table 1. The shares of the EU and US were 78% and 18% respectively in 2000, which declined to 18% and 1% respectively in 2012.

            Figure 1.

            DRC's exports to China, EU and US from 2000 to 2012.

            Source: UNCOMTRADE Database by United Nations Statistics Division (UNSD), data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Table 1.
            Share of selected countries in DRC's exports from 2000 to 2012.
             China (%)US (%)EU (%)
            20000.118.178.3
            20010.612.975.2
            20020.914.380.6
            20032.416.874.8
            20048.210.866.7
            200511.717.959.9
            200625.05.860.1
            200722.110.043.3
            200842.27.229.1
            200940.912.217.5
            201044.79.712.0
            201146.59.113.8
            201273.10.917.9

            Note: Data not available for Zambia in 2012.

            Source: Own elaboration from UNCOMTRADE Database downloaded from WITS software.

            In the case of the EU, which was DRC's principal export market until 2007, there was a massive decline in DRC exports in absolute terms as well. DRC's exports to the EU peaked in 2002 at US$1173.1 million and declined thereafter (Figure 1). There was a 55% decline in DRC's exports to the EU from US$1092.1 million in 2008 to US$486.8 million in 2009 owing to the global financial crisis and the commodity price shock. Although EU imports from DRC recovered somewhat after the crisis, their import value was US$862.3 million in 2012, which was still lower than US$944.1 million in 2000. There was also a massive decline in DRC's exports to the US in 2012. China's share rose from a mere 0.1% in 2000 to 73.1% of DRC's total exports in 2012. Therefore, Chinese demand can be said to be a good source of additional demand for DRC which more than compensated for the decline in EU and US demand for DRC's exports.

            Commodity composition of DRC's exports to China

            DRC's exports to China are very highly concentrated in a few mineral commodities. Ores and concentrates of copper, other ores and concentrates of non-ferrous base metals, blister copper and other unrefined copper, refined copper including remelted, base metals and crude petroleum account for over three-quarters of DRC's exports to China. Figure 2 shows the exports of six major commodities at the five-digit level which account for nearly 95% of DRC exports to China.

            Figure 2.

            DRC's exports of six major commodities to China at five-digit level from 2000 to 2012.

            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            China is the principal importer of DRC's minerals

            Not only are DRC's exports very highly concentrated in a few mineral commodities, China has emerged as the principal importer of most of DRC's mineral commodities. Table 2 lists all the commodities in which China's share in DRC's exports is greater than 50%. Apart from ores and concentrates of titanium, vanadium and molybdenum, China's share in DRC's total exports increased phenomenally in all the commodities. China's share in DRC's total exports was greater than 95% in six commodities, namely ores and concentrates of non-ferrous base metals (99%), blister copper and other unrefined copper (99.5%), copper matte (100%), ores and concentrates of copper (99.8%), crude petroleum (100%), and ore and concentrates of tin (96.8%). In the case of ores and concentrates of non-ferrous base metals and ores and concentrates of copper, China's share rose from less than 15% in 2002 to 99% and 99.8% respectively in 2012. In 2006, DRC started exporting refined copper to China and within a short span of six years China's share in total refined copper exports grew from 6.9% to 64.7%. The share of Chinese imports of crude oil increased from 26.7% in 2011 to 100%. Prior to that, the US was the largest importer of crude oil from DRC and accounted for about one-half of DRC's crude oil exports. In 2012, US imports fell to zero even as DRC's crude oil exports more than doubled.

            Table 2.
            Export commodities in which the share of Chinese imports is greater than 50%.
            Serial no.SITC codeCommodityShare of ChinaCAGR of exports to China (2002–12)CAGR of exports to World (2002–12)
            200220072012
            128399Ores and concentrates of non-ferrous base metals10.5%80.1%99.0%46.5%17.0%
            268211Blister copper and other unrefined copper56.9%60.9%99.5%90.0%79.0%
            368212Refined copper including remeltedn.a.6.9%a 64.7%210.1%b 72.0%
            428393Ores and concentrates of titanium, vanadium, molybdenum etc.87.4%99.9%30.0%20.0%34.0%
            528312Copper matten.a.66.0%100.0%77%c 71%c
            628311Ores and concentrates of copper14.1%36.8%99.8%67.0%37.0%
            76895Base metals n.e.s.h 6.3%30.5%68.1%70.0%34.0%
            86673Other precious and semi-precious stones not setn.a.1.1%d 76.9%236%e 3.0%
            933101Crude petroleumn.a.n.a.100.0%139%f 14.0%
            102836Ores and concentrates of tinn.a.0.60%96.90%253%g 38%

            Source: Own elaboration from UNCOMTRADE Database.

            aFigure for 2006 (figure for 2007 is not available).

            bCompound annual growth rate (CAGR) of DRC's exports to China of refined copper including remelted from 2006 to 2012.

            cCAGR of DRC's exports of copper matte from 2003 to 2012.

            dFigure for 2008 because figure for 2007 is not available.

            eCAGR of DRC's exports to China of other precious and semi-precious stones not set, from 2008 to 2012.

            fGrowth of DRC's exports of crude petroleum to China from 2011 to 2012.

            gCAGR of DRC's exports of ores and concentrates of tin to China from 2007 to 2012.

            hNot elsewhere specified.

            DRC's copper exports to China and the qualitative shift to refined copper exports

            DRC's copper exports to China are an interesting case study for a number of reasons. First, copper is DRC's principal export commodity to China. In 2012, copper and ores and concentrates of copper (SITC rev1 682 and 28311) accounted for about 56% of the total exports to China in value terms. DRC's exports of ores and concentrates of copper increased phenomenally in a short span of time from US$0.17 million in 2002 to a peak of US$134.1 million in 2008 at a CAGR of 203%! Second, China is not only the largest importer of copper from DRC but it has made huge investments in the copper mining sector too. Copper forms the central element in the Congo–China deal, which has been dubbed the ‘deal of the century’.

            However, the most interesting feature is the fact that domestic policy-induced technological sophistication was observed in the case of copper exports to China. After 2008, exports of ores and concentrates of copper to China started declining (Figure 3). In 2010, there was an 83% decline in DRC's exports of ores and concentrates of copper to China to 16,278.6 tonnes from a peak of 96,150.2 in 2009. However, this decline was more than compensated for by the rapid increase in exports of blister copper and other unrefined copper and then by refined copper including remelted, as shown in Figure 4. DRC's exports of blister copper and other refined copper increased sevenfold from 1453 tonnes in 2006 to 10,142 tonnes in 2007 and by 2010 it exceeded exports of copper ores. The growth of refined copper exports in recent years was even faster, from 190.5 tonnes in 2006 to 151,881.8 tonnes in 2012 at a CAGR of 204%. By 2010, refined copper exports exceeded exports of ores and concentrates of copper as well as blister copper and other unrefined copper.

            Figure 3.

            Exports of ores and concentrates of copper, blister copper, and other unrefined copper and refined copper including remelted, in US\(million from 2002 to 2012.

            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Figure 4.

            DRC's exports of ores and concentrates of copper, blister copper, and other unrefined copper and refined copper (including remelted) to China in tonnes from 2002 to 2012.

            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            This rapid decline in the exports of raw copper and subsequent increase in exports of refined copper can be attributed to a number of developments in the governance of the mining sector, with an effort to produce value-added processed products within DRC. In 2007, the Governor of Katanga, Moise Katumbi, prohibited the export of raw ores, which forced many of the comptoirs 2 to turn to smelting. Again in 2010, the governor of Katanga enforced a rule of the Mining Code that established that raw ore should only be exported when it cannot be processed domestically (Global Business Reports 2013). Several companies resisted this move and lobbied for a moratorium but the value-addition policy of the provincial government encouraged more investment in the mining sector and consequently the production and export of refined copper.

            Chinese investment in DRC's mining and infrastructure sector

            With the introduction of the Mining Code in 2002, there was an increase in foreign investment in DRC's mining sector. However, before the global financial crisis, Chinese companies invested relatively smaller amounts, the nature of investment was not long term and the role of the Chinese government was also limited. There were also a number of Chinese micro-small and medium-sized firms which mainly operated in the southeastern part of Katanga and in the eastern South and North Kivu provinces. Most of these firms did not receive any support from the Chinese government (Jansson, Burke, and Jiang 2009). These small Chinese firms bought ore from the artisanal miners with little or no investment in mining (Shelton and Kabemba 2012). After the prohibition of exports of raw ores in 2007, Chinese firms that previously bought concentrate quickly moved to set up plants to produce copper cobalt alloys (Sautman and Hairong 2008). However, the global financial crisis and the resultant drop in commodity prices adversely affected such small-scale Chinese operations (Jansson, Burke, and Jiang 2009). Before the global crisis, there were 77 processing units, of which 35 were Chinese. After the crisis, only 23 Chinese processing plants survived (Shelton and Kabemba 2012).

            Chinese investment in DRC's infrastructure, particularly in the energy, transport and telecommunications sector, also grew rapidly from 2000 to 2013. However, China's largest investment in DRC's mining and infrastructure was Sicomines. The Sicomines agreement was a massive ‘resources for infrastructure' deal worth US\)9 billion, signed between a consortium of Chinese companies and the DRC government. In the original version of the agreement, the consortium of Chinese companies was to provide infrastructure projects worth US$6 billion with funding from the Chinese state-owned Export-Import Bank (EXIM Bank). Infrastructure projects were to be implemented in two tranches and included the construction of 3402 kilometres of paved roads, including a highway and bridges connecting the main cities of DRC (Lubumbashi, Bukavu, Goma, Kisangani), and construction and repair of 450 kilometres of roads within the capital district of Kinshasa; 3213 kilometres of railway construction or rehabilitation; construction and equipping of 145 health centres, 31 hospitals, 5000 units of low-cost housing and two universities. To guarantee the reimbursement of these loans, a Sino-Congolese joint venture (Sicomines), financed by a separate package, was formed between DRC's Gecamines (32% stake) and a consortium of Chinese companies (68% stake) including the China Railway Engineering Company, Sinohydro, Zhejiang Huayou Cobalt and the China Machinery Engineering Corporation. Profits from Sicomines would be used to repay the loans for developing the mine and the infrastructure projects.

            This deal drew much internal and external criticism from its inception. The donor community was particularly concerned about DRC's debt sustainability, sovereign guarantee for the entire loan and non-concessional lending terms. IMF and Paris Club donors felt that the level of debt arising from the agreement was too large. First, DRC's existing external bilateral and multilateral debt was very high at US$13.1 billion. Second, the credit line was not extended on concessional terms. The cost of the infrastructure line of credit was set at London Interbank Offered Rate (LIBOR) plus 100 basis points. The mining venture was to be developed at a cost of US$3.2 billion, and financed by a separate package combining a zero-interest shareholder loan extended by the Chinese consortium (US$1.1 billion) and other finance, from an unspecified source, of US$2.1 billion at a fixed interest rate of 6.1% (Brautigam 2011). Lastly, the agreement contained a sovereign guarantee for the entire loan. Critics also argued that the agreement was skewed in favour of China. Marysse and Geenen (2009) argued that this deal was an unequal exchange because the joint venture would be exempted from all possible taxes during the first and second stage of operation, the DRC government will ensure that the internal rate of return is not below 19% and the Chinese will have two-thirds voting power in the joint venture board, while the Congolese government will have one-third.

            The Sicomines agreement was renegotiated in 2009 under pressure from the IMF. Sovereign guarantee was removed from the debt arising from the mining project and the second tranche of infrastructure credits worth US$3 billion was cancelled. Thus the total value of the agreement now stood at US$6 billion. The Chinese consortium also agreed that if the bank interest rate on the loan (LIBOR plus 100 basis points) rose higher than 4.4%, the Chinese consortium would cover the difference (Brautigam 2011). After these changes, the IMF announced that the grant element in the Chinese infrastructure loan was between 42–45% and would now qualify as concessional. This view, however, was contested by Deborah Brautigam, who argued that the IMF's calculations are based on several assumptions and placed the grant element at 33.8%.

            Unfortunately, the implementation of the Sicomines deal has not lived up to its expectations. Jansson (2013) reports that out of the total infrastructure component of US$3 billion, 13 projects worth US$0.458 billion had been implemented as of December 2012. Out of these, nine infrastructure projects worth US$0.335 billion had been completed while the rest were under way. No new infrastructure projects have been implemented owing to lack of finances and the mining operation has not yet started. In 2012, EXIM Bank pulled out because of a lack of agreement on key issues. However, it has already provided US$1 billion worth of loans to Sicomines. Of the loans extended by China EXIM Bank, US$458 million have been used for infrastructure projects and US$540 million have been disbursed towards the mining operation. According to Jansson (2013), Sicomines is currently negotiating with three banks – China Development Bank, Bank of China and China EXIM Bank – to secure a financing arrangement.

            DRC imports from China

            China's share in DRC's imports was a mere 3% in 2000 (Table 3). EU and South Africa together accounted for about 60% of DRC's imports. From 2007 onwards, DRC's imports from China grew more rapidly as shown by Figure 5 and its share in DRC's imports increased to 17% in 2012. This period was also marked by a rapid growth of imports from South Africa and Zambia. However, there was a steep decline in EU's share from 40% in 2000 to 25% in 2012. The decline in EU's share can be attributed mainly to the rapid increase in South African and Chinese exports of manufactured goods and machinery and transport equipment to DRC. DRC's imports of manufactured goods from China have grown tremendously from US$6.7 million in 2000 to US$252.1 million in 2012 at a CAGR of 65% and China now accounts for over a quarter of DRC's manufactured goods imports. Chinese exports of manufactured goods overtook Zambia and the EU in 2008 and 2009 respectively, as shown by Figure 6. Figure 7 shows that Chinese exports of machinery and transport equipment also grew massively after 2007 and China's share in DRC's imports of machinery and transport equipment increased to 18% in 2012 from 5% in 2007. However, South Africa is the market leader with a share of 36% followed by the EU at 35%, although the EU's share has declined consistently from 2000.

            Figure 5.

            Growth of DRC imports (in US\(million) from China, South Africa, EU, US and Zambia from 2000 to 2012.

            Note: Data not available for Zambia in 2012.
            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Figure 6.

            Exports of manufactured goods from China, EU, South Africa and Zambia from 2000 to 2012.

            Note: Data not available for Zambia in 2012.
            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Figure 7.

            Exports of machinery and transport equipment from China, EU, SA and Zambia from 2000 to 2012.

            Note: Data not available for Zambia in 2012.
            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Table 3.
            Share of selected countries in DRC's imports from 2000 to 2012.
             China (%)US (%)EU (%)SA (%)Japan (%)Zambia (%)
            20002.91.639.819.71.56.1
            20012.33.244.119.00.95.7
            20022.43.443.119.81.65.0
            20033.03.850.719.30.84.9
            20043.35.343.518.30.99.3
            20053.34.239.618.31.16.5
            20062.42.524.212.50.84.6
            20073.44.231.522.80.79.0
            20086.23.127.929.61.07.6
            200910.42.532.918.51.09.7
            201011.22.224.520.60.87.9
            201116.43.524.722.01.311.6
            201216.63.525.429.51.3*

            Note: Data not available for Zambia in 2012.

            Source: Own elaboration from UNCOMTRADE Database downloaded from WITS software.

            Not only has the EU lost market share in DRC, there has been an absolute decline in exports of manufactured goods and machinery from the EU. China has displaced the EU's exports in 43 commodities.3 Moreover, there are seven commodities in which China has displaced South Africa, although South Africa's share of DRC's total imports has grown rapidly.4

            Commodity composition of DRC's imports from China

            The pattern of Chinese imports to DRC is the reverse of that observed for DRC's exports to China. Unlike DRC exports to China, which are heavily concentrated in a few primary commodities, DRC's imports from China are highly diffused and are mostly non-resource-based manufactured goods. In 2012, the top 10 import items constituted only about 34% of the total imports from China (Figure 8). China exports manufactured goods, machinery, electronics and medical supplies to DRC. The share of woven cotton fabrics, other than grey, was highest at 7.1% followed by footwear at 4.2% and motorcycles, motorised cycles and their parts at 4.1%.

            Figure 8.

            DRC's top 10 imports from China at the four-digit level from 2000 to 2012.

            Source: UNCOMTRADE Database by UNSD, data obtained using WITS software. Accessed June 23, 2014. http://wits.worldbank.org/WITS/WITS/AdvanceQuery/RawTradeData/QueryDefinition.aspx?Page=RawTradeData

            Implications of Chinese engagement in DRC

            China needs natural resources for its rapid growth and industrialisation and is offering finance, technology and cheap consumer goods to DRC. On the other hand, DRC, a poor country, possesses the necessary resources and is in desperate need of large-scale resources in the mining and infrastructure sectors. Therefore, China's growing presence in DRC presents a range of opportunities for DRC's development. First, China has made a huge quantitative impact on DRC's economy through its demand for DRC's exports. DRC was ravaged by wars and experienced negative rates of growth throughout the 1990s. However, a striking feature is the turnaround since the 2000s. This period is also characterised by more intensified trade with China and a commodity boom set off by China's hunger for natural resources. As observed earlier, DRC became far more dependent on Chinese demand in the last decade and the share of China in DRC's total exports has increased dramatically since 2000. Shares of total exports and exports to China as a percentage of GDP also grew exceptionally and exports to China now account for about 20% of DRC's GDP. Therefore, booming Chinese demand for DRC's exports from 2000 onwards played an important role in reviving the economy. Chinese demand also proved to be a blessing for DRC in recent years in the face of declining EU demand after the global financial crisis and the recent collapse in US demand for DRC exports.

            Apart from the direct benefit of increased export revenue, DRC has also gained indirectly from China's impact on world commodity prices. China is the dominant importer of many commodities including copper, which is DRC's principal export commodity. China was the largest importer of copper ores and concentrates, copper blister and anodes and refined copper (International Copper Study Group 2013). China's demand for copper soared with its rapid industrialisation process, given copper's extensive use in infrastructure (e.g. plumbing, telecommunication wiring and building materials) and manufacturing equipment (e.g. electric power generation and transmission equipment). As a net exporter of commodities, DRC has gained from the boom in commodity prices since 2000. DRC's net barter terms of trade has improved remarkably from 2000 to 2012 and has closely followed the index of copper prices in recent years, as shown by Figure 9.

            Figure 9.

            Net barter terms of trade (2000 = 100) and copper prices.

            Source: Net Barter Terms of Trade from World Development Indicators 2012, World Bank and Copper Price Index from International Finance Statistics, IMF.

            The bilateral engagement between China and DRC also underwent a few qualitative changes in recent years, particularly after 2007. First, there is evidence to prove that DRC is climbing up the technology ladder in the copper sector, which is the lifeline of the DRC economy. Marysse and Geenen (2009) observed that trade between DRC and China from 1995 to 2006 was characterised by raw material exports from DRC to China without any value added. However, this study finds that domestic efforts to promote the production of value-added processed products, from 2007 onwards, increased the exports of refined copper to China and gradually refined copper exports overtook exports of copper concentrates and unrefined copper.

            Second, from 2007 onwards imports of Chinese manufactured goods and machinery and transport equipment also grew rapidly. However, unlike Lesotho and Swaziland, imports of Chinese goods did not adversely affect DRC's domestic industries and manufacturing employment because the country does not have an indigenous industrial base.5 The manufacturing industry in DRC represents only 5% of GDP (African Development Bank 2013). Therefore, the effect of the increase in Chinese imports was largely felt by the EU, which lost market share to China in a number of commodities. Imports of cheaper manufactured goods and machinery from China have largely been beneficial to the Congolese population through lower prices and wider availability of manufactured goods. However, in terms of developing a manufacturing base, this may not be a desirable outcome over the medium term since some manufacturing directed to the local market is important to further the process of domestic economic diversification.

            Similarly, Chinese investment and aid has also dwarfed Development Assistance Committee and multilateral donors’ contributions. Although the Sicomines deal has been widely criticised (see Marysse and Geenen 2009; Brautigam 2011), this deal should be viewed from the particular context of DRC and China's role as an infrastructure builder in Africa. DRC is a post-conflict country facing enormous reconstruction challenges. China on the other hand has worked extensively on African infrastructure in the last decade and has become its pre-eminent infrastructure builder (Sautman and Hairong 2008). In terms of investment, the Congo–China deal is the largest investment agreement that China has signed in Africa. As stated earlier, so far US\)458 million worth of infrastructure projects have been implemented under this deal, although no new projects are under way because of the current logjam in negotiations with China EXIM Bank (Jansson 2013, 155). However, if the contentious issues are resolved and the deal is implemented successfully, this deal has the potential to make a huge impact on the country's infrastructure, which is a shambles. Apart from the Sicomines deal, there are several other noteworthy Chinese investments in DRC's telecom, transport and storage, hydroelectricity and water treatment sectors worth US$648 million.6 DRC's economic development depends on the successful exploitation of the mining sector, which also needs huge investment. Therefore, large-scale Chinese investment in the mining sector would lead to growth of the industrial mining sector. The production and export of processed minerals is also likely to increase further after Sicomines production starts from 2015.7

            Despite the benefits and opportunities outlined above, Chinese engagement with DRC may not be an unmixed blessing. First, China's trade as well as investment programme in DRC is resource seeking. Despite the huge export revenue and terms of trade gains associated with natural resource exports, they are undeniably an insecure path of development especially in the long run because of fluctuations in the commodity markets. Lack of export diversification and DRC's resource dependence are likely to result in adverse effects owing to the cyclicality of resource booms and the inability of poor countries like DRC to hedge against exogenous shocks, as a great share of revenue is dependent on the natural resource sector. Indeed, DRC was also severely affected by the global financial crisis and the collapse in copper prices. The opportunities for artisanal miners reduced drastically and about 300,000 people lost their jobs in the informal mining sector (Jansson, Burke, and Jiang 2009). Second, lack of export diversification in terms of geography also makes DRC very vulnerable to China's domestic market conditions. Therefore, a decline in China's growth rate or a shift in its export–import orientation could have a devastating impact on DRC's economy. Lastly, the benefits from China's additional demand are concentrated only in the mining sector. Other sectors such as agriculture, where the majority of the DRC population are employed, may not gain much.

            Conclusion

            DRC's case demonstrates that China can potentially play a pivotal role in the development of sub-Saharan African countries. The scale and pace of trade and investment flows between China and DRC are truly unprecedented whereas growth-enhancing opportunities for trade and investment from the North are severely limited since the global financial crisis. However, as observed, Chinese engagement with DRC may not be an unmixed blessing. For Chinese trade and investment to promote reciprocal and tangible benefits for DRC, the state will have to play an active role in economic development and adopt effective policies.

            As observed in this paper, the decision to ban exports of raw minerals led to more investment in the mining sector and an increase in exports of refined copper. Moreover, renegotiation of the Sicomines deal also removed some of the contentious conditions like the sovereign guarantee. Similar observations were made by Brautigam (2003), who also underscored the importance of an encouraging domestic policy environment for sub-Saharan African countries to benefit from Chinese business networks. She compared the cases of Mauritius and Nigeria and found that, unlike Nigeria, Mauritius was able to take advantage of Chinese business networks to upgrade its product continually and seek new markets overseas because of a supportive policy environment.

            The DRC government has the daunting task of ensuring that the vast majority of the Congolese population, who live in abject poverty, benefit from the economic growth generated from the country's natural wealth. China has a huge positive impact on DRC by its demand for DRC's exports and investments in its infrastructure and mining sectors. But for DRC to actually benefit from its engagement with China, the government needs to develop effective policies and create an efficient government machinery to channel the revenues from the natural resource sector to promote downstream industries, invest in other sectors such as agriculture and manufacturing and lift people out of poverty. Without a proactive government which is focused on redistributing the income generated by the mining sector, Chinese engagement may not actually improve the lives of the Congolese population and elites may capture the rents from resource-based exports to China. In that case, DRC's engagement with China will not be entirely different from its engagement with the West.

            Acknowledgements

            I would like to acknowledge the role of my adviser, Professor Jayati Ghosh.

            Disclosure statement

            No potential conflict of interest was reported by the author.

            Note on contributor

            Malancha Chakrabarty is a PhD research scholar at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Her PhD thesis explores the impact of Chinese trade and investment on sub-Saharan African countries.

            Notes

            1.

            SITC is a classification of goods used to classify the exports and imports of a country. It is maintained by the United Nations.

            2.

            Comptoirs are buying offices which are licensed to purchase process and export minerals from extractors.

            3.

            Author's estimates from UNCOMTRADE data.

            4.

            Author's estimates from UNCOMTRADE data.

            5.

            According to Zafar (2007), more than 25,000 workers had been laid off in Lesotho and Swaziland.

            7.

            Sicomines will start production of copper from 2015. Accessed June 30, 2014. http://www.bloomberg.com/news/2013-05-24/sicomines-to-begin-copper-output-in-2015-as-reserve-estimate-cut.html

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            Author and article information

            Journal
            CREA
            crea20
            Review of African Political Economy
            Review of African Political Economy
            0305-6244
            1740-1720
            March 2016
            : 43
            : 147
            : 116-130
            Affiliations
            [ a ] Centre for Economic Studies and Planning, Jawaharlal Nehru University , New Delhi, India
            Author notes
            Article
            1048794
            10.1080/03056244.2015.1048794
            0cc16960-7d55-4396-8604-2e212c1d5c05

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            History
            Page count
            Figures: 9, Tables: 3, Equations: 0, References: 13, Pages: 15
            Categories
            Briefing
            Briefings

            Sociology,Economic development,Political science,Labor & Demographic economics,Political economics,Africa

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