Guest editorial

Citation

Miniesy, R. and Adams, J. (2015), "Guest editorial", Journal of Chinese Economic and Foreign Trade Studies, Vol. 8 No. 1. https://doi.org/10.1108/JCEFTS-02-2015-0010

Guest editorial

Article Type: Guest editorial From: Journal of Chinese Economic and Foreign Trade Studies, Volume 8, Issue 1

Welcome to this special issue of the Journal of Chinese Economic and Foreign Trade Studies. The subject matter of this issue focuses on China’s foreign direct investment (FDI) into Africa and two-way trade flows between China and Africa. It has been well-established that Africa has become a very important source for Chinese imports over the past decade and an increasingly important destination for outward Chinese FDI. In many cases, the latter is connected to the former, while in some cases, it is not. A common criticism of the nature of FDI from China to Africa is that it is essentially resource extraction – however, this criticism can be equally levelled at Western economies, particularly the USA and the EU. A very important factor that is often ignored in this “debate” is the positive effects that Chinese FDI to Africa may be having and not simply negative effects. These include transfer of know-how, some technology, positive spillover effects, management development, local supply chain stimuli and, most importantly, the generation of direct jobs and the indirect and induced effects of these at the local, regional and national economy level within a number of African countries. All of the latter are considered in the five papers selected for this special issue of the Journal.

In the paper by Ross, the focus is on the determinants of Chinese outward FDI to African countries, and the author postulates several hypotheses to test using three modelling strategies, ordinary least squares, fixed effects and random effects. He finds that Chinese FDI in Africa is rarely of the market-seeking mode but more likely to be devoted to resource endowment differences between countries as a key determinant but not, as others have argued, asset acquisition. The author also highlights the importance of good infrastructure in attracting Chinese firms to Africa, but additionally suggests that the countries themselves need to adopt policies that will better match the type of FDI to their longer-term economic interests.

The paper by Elshamy focuses on Chinese FDI in relation to a specific African country – Egypt. In this paper, the author applies co-integration analysis to assess what are the drivers of Chinese FDI to Egypt itself. The findings suggest that market-seeking is a strong motive for Chinese firms to invest in Egypt and then applying the error correction model finds very similar results as with the co-integration analysis. However, the author does show that the market-seeking motive behind the investments is also closely tied to the resource-seeking motive. As with the Ross paper, this paper makes clear policy suggestions as to how Egypt could benefit more from Chinese investment, especially in relation to due diligence processes and risks inherent within the Egyptian institutional framework.

Another country “case” is provided in the paper on Chinese-Tanzanian economic cooperation with a focus on a specific industry – the vehicle repair industry. The paper, by Kinyondo and Chatama, shows that Chinese investors have entered this specific market in Tanzania in significant volume. The central purpose of the paper is to investigate to what extent local economic benefits arise from the Chinese investment. Using surveys the author finds that, in fact, a significant number of local jobs have been created in the industry and not by all means are they at low levels of skill. This is an example of Chinese FDI that is not resource-driven and in fact has generated employment, improves human capital and transfers technology. The paper shows that if we consider the effects of Chinese FDI in Africa at the local level, there are indeed positive and long-term benefits for the host country.

The paper from Nnanna on Chinese FDI in Nigeria also highlights benefits at the local level as well as risks involved if the host government has weak policies on how best to manage FDI. This paper takes a different approach in its methodology using a “before-after” framework followed by the application of the Delphi technique. The author finds that in some sectors of the Nigerian industry, the local firms have exited the market because the Chinese firms are more efficient and, in particular, sell their products at much more competitive prices. However, it is also pointed out that the skills advantage of the Chinese firms needs to be bridged by an active transfer policy to encourage managerial and technical skills to be shared – this unfortunately is not present largely due to the poor governance which appears to be embedded in the Nigerian society.

The fifth paper by Chen et al. is not about China-Africa FDI. The focus is completely on China in relation to FDI. We selected this paper for inclusion for two reasons: first, it highlights the concept of the “capability gap” between local firms in China and multinationals bringing FDI to China – this is a theme that runs through most of the other papers in this issue in relation to Africa – skills, technology, know-how and managerial gaps – all of which constitute the idea of a capability gap in general. The authors show that local firms in China in several sectors have not been able to maximize the benefits of FDI “spillovers” due largely to capability constraints while concluding that policies are needed, possibly incentive-type, to encourage local firms to bridge these gaps faster. The second reason we included this paper is precisely because the capability gap between African firms and most FDI firms in Africa is likely to be even wider than is the case in China. The Chen et al. paper hopefully will provide “food for thought” for African economic researchers to more closely examine this very important constraint across African economies in order to generate FDI host policy ideas that will reduce the capability gap and thus increase the benefits of FDI which are there but are clearly being missed.

Rania Miniesy and John Adams - Guest Editors