The International Monetary Fund (IMF) points out three identified spillover channels through which China may influence the world economy: trade, external financing and commodity prices. This paper specifically quantifies China’s impacts on 44 sub-Saharan African (SSA) countries in an effort to identify the potential transmission channels.

The analysis reveals that (i) after joining the WTO in 2001, China has started to impact significantly on SSA growth: one-percent increase in China’s GDP per capita leads to 0.02 percent increase on the SSA’s GDP per capita; (ii) oil and investment-goods exporters benefit more from China’s growth; (iii) compared to China’s consumption, its investment growth acts as a more important channel in influencing SSA; (iv) exports to China, highly linked to China’s growth, is an important indicator for SSA’s exports.

Given the growing influence of China’s economy on SSA countries, it is urgent for SSA countries to be well prepared to better take advantage of China’s rebalancing, proactively search a sustainable way to continuously enhance productivity, and successfully integrate into the world value chain for industrial upgrading.

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Introduction

China’s economic performance, since early 1980s, is phenomenal by various criteria, characterized by long-duration, high growth rate and world-wide spillover effects. The 36-year average growth rate of China’s GDP per capita is as high as 8.8 percent while the global economy experienced an average growth rate of 2.4 percent. The rapid economic expansion has made China’s economy more influential in the global economy and thus attracted more researchers’ attention.

Numerous papers have studied the growing economic power China has exerted at different economic aspects, on various regions or countries, and via various channels. Most of them assume that China’s spillover has increased proportionately with its economic output (or trade) without experiencing any structural break, but this may not be underpinned by observations especially when we consider a series of economic reforms and initiatives accompanying China’s growth which have amplified the magnitude of China’s global influence in an exponential way.

Exports from Sub-Sahara Africa (SSA) to China has increased dramatically in the past two decades, particularly after 2001 when China joined the WTO. Surpassing the US in 2012, China has become the second largest exporting partner of SSA only after EU. Is it possible that the magnitude of China’s impacts on SSA is significantly different before and after a certain time point around the year of 2002? While the paper does not infer any conclusion from the simple correlations of growth of GDP per capita, it notes that advanced economies, emerging markets, and the rest of the world have also experienced jumps in correlations with SSA.

Guided by these observations, the paper does not take for granted that China’s impacts on SSA remain structurally stable since 1980. Instead, the authors run regressions with different sample periods to check the existence of a structural break in China’s impacts. The regression results and economic intuition jointly direct the study to focus on the period of 2003 to 2015 due to the implied structural break stemming from China joining the WTO.

Given vast variation in economic characteristics among 44 SSA countries, it is meaningful to explore the implications of country heterogeneity on the degree of economic dependence on China. For example, iron-ore-exporting countries may heavily rely on China’s construction industry while SSA countries exporting cotton are likely to be sensitive to China’s domestic consumption. Accordingly, this paper divides SSA countries into groups following well-accepted criteria and investigates common features for each group.

Another interesting angle to gauge China’s impacts is to disaggregate China’s growth into consumption and investment to quantify the exact effects of China’s GDP components. This growth disaggregation also contributes to the study of what role SSA country heterogeneity play for China’s impacts just as mentioned in the paragraph above.

If China’s impacts on SSA are well quantified, a following question would be what the potential transmission channels are? how China influences SSA? In this context, the paper seeks to assess the traditional channels of trade and FDI by examining whether China-related variables are among the determinates of SSA’s total exports and exports to China.

In summary, the paper seeks to answer the following questions:

1. Is China’s economic growth significant for SSA growth? Does it evolve over time?

2. Does country heterogeneity play a role?

3. Which component of China’s GDP is more important: consumption or investment?

4. What role does Chinese economy play in SSA’s exports?

For China’s impacts on SSA’s GDP growth, the paper follows the setup of classic growth literature and adopt the difference GMM approach to address regressor endogeneity. This method can provide more reliable empirical results on China’s spillover to SSA, which is instrumental in policymakers’ understanding the potential economic implications of China’s rebalancing, namely lower growth rates accompanied by a shift from investment-driven to consumption-driven economic model.

The views expressed in this IMF Working Paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.