SPRING 2024 NO.82 / THOUGHT LEADERSHIP BRIEF 2 Figures 1 depict the spatial distribution of China as the largest trading partner in Africa in the years 2000 and 2020. In the map, the blue areas represent countries that primarily import goods from China, while the white areas indicate countries that primarily import goods from non-China countries. The grey areas represent countries for which related data is unavailable or missing. (The trading data is obtained from Comtrade.) Addressing Domestic Overcapacity: A Key Driver Our research uncovers an intriguing incentive behind China’s export to Africa: addressing domestic overcapacity issues. The Chinese government implemented an overcapacity elimination policy ("Announcement of List of Enterprises to Eliminate Excess Production Capacity in Key Industries.") targeting industries with surplus production capacity, such as steel, cement, tannery, and paper. Enterprises were required to eliminate specified machinery by a deadline. As a result, firms in the machines sector are compelled to find alternative avenues for disposing of these machines. Exporting them to Africa becomes an attractive option for these firms, as it allows them to recoup some value from the machines while complying with the policy. In the downstream sector, the impact of the overcapacity elimination policy on export is relatively muted. This can be attributed to several factors. One possible reason is the replacement Figure 1. of old machines with new ones in the regulated sector. As the policy incentivizes firms to upgrade their machinery, the introduction of newer and more efficient machines could enhance productivity and output, thereby maintaining or even improving the supply of intermediate goods to the downstream sector. Consequently, the downstream sector may not experience a significant disruption in its production processes, resulting in a limited impact on its export. Impacts of Machinery Transfer on African Economies The transferred machinery from China has dual potential impacts on the African economies. The positive effect is the opportunity for African nations to expedite their industrialization processes by utilizing these machines. Conversely, imported machinery can potentially weaken the local machinery sector if it displaces rather than complements local alternatives, potentially affecting long-term sustainability and competitiveness. Research Questions and Methodology Our study addresses two key questions: whether the domestic overcapacity elimination policy stimulates increased export from China, and the impact of transferred machines on industrialization in Africa. We employed a shift-share instrumental variable and UNIDO Industrial Statistics Database to evaluate indicators such as employment, output, wages, and productivity within the manufacturing sector in Africa. Biggest Import Partner in 2000 Biggest Import Partner in 2020 China Other Countries Missing
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