By Africa Links 24
Published on 2024-01-24 11:25:47
The sell-off on Chinese stock markets is leading to both opportunities and risks for Africa. As Chinese authorities in Beijing respond with a significant fiscal and monetary stimulus, investors are approaching Chinese markets with caution due to the ongoing real estate crisis, slow growth, and geopolitical tensions with the United States. The Chinese stock markets have seen a significant drop in value, with more than $6tn being wiped out, and the benchmark CSI 300 Index hitting a five-year low.
Policymakers are reportedly considering injecting $278bn into Chinese markets to stabilize stocks, but the instability has spilled over into foreign exchange markets, with the Chinese yuan weakening against the dollar. This weakening could actually benefit African countries like Egypt and Zambia, which have yuan-denominated debt, as it would make debt repayments relatively less expensive.
However, economist Jared Osoro cautions that the volume of yuan activity in Africa is small, and the impact of China’s economic troubles may not have immediate implications for African businesses. There is a longer-term risk for Africa, as a progressively weaker yuan could make Chinese products more competitive internationally, widening the trade deficit between African countries and China.
Looking to the immediate future, Charlie Robertson suggests that China’s economic problems could offer an economic boost to African countries that export raw materials, such as iron ore and steel, to support Chinese industry. However, the uncertainty of China’s data makes precise predictions about Beijing’s demand for commodities difficult.
Nevertheless, Robertson believes that China’s efforts to export its way out of trouble might offer some lift to Africa through imports of raw materials to support those exports. Ultimately, the most important thing for Africa is that China does not crash, as it would have significant implications for the continent.
