Over the past decade, China has forged strong investment and trade links with resource-rich African countries to fuel its growth. In 2012, Chinas trade with Africa rose to $200 billion, up from $127 billion in 2011 and a tiny $9 billion in 2000; that's almost a 23-fold increase in 12 years.
But as China undergoes one of its biggest structural reforms to date slowly switching from an export-orientated economy to focus on domestic consumption some analysts argue that African countries will begin to feel the pressure, in particular some of Africas larger commodity exporters, including Angola, Zambia and Sudan.
Commodity prices have eased compared to a year ago, putting downward pressure on the fiscal and external positions of some economies in the [sub-Saharan Africa] region, says Gaimin Nonyane, senior macroeconomic specialist at Ecobank.
In particular, the prices of key base metals such as aluminium and copper used in Chinas construction and manufacturing sectors, which are already experiencing deep levels of overcapacity have eased, falling around 4% year on year [aluminium] and 9.5% [copper] year on year respectively in January 2013, reflecting to some extent the impact of the policy switch in China. Similarly, oil prices are down 5.4% year on year, says Nonyane.
Zambia is likely to see weaker economic activity in 2014, as copper exports are due to fall. Copper accounts for approximately 80% of total export receipts in the country and is used to finance trade and debt. Zambias current account deficit is also set to deteriorate to 3.9% of GDP in 2014, putting downward pressure on the currency.
But the impact on SSA shouldnt be overestimated, some analysts argue.
We havent really seen an impact on African growth as a result of a China slowdown. Nothing concrete has really pointed to this as yet, says David Cowan, Africa economist at Citi. This isnt to say we havent seen a softening in some commodity prices we have but relatively speaking, prices havent changed so much to warrant much worry.
While the price of oil has declined over the last year, oil prices have remained above the $100 a barrel mark and continuing political uncertainty in Libya and Iran will keep prices higher, says Cowan. The actual slowdown in China hasnt been that big so far. We expect Chinese growth will slow from 7.6% in 2013 to 7.2% in 2014 and then to 7% in 2015, but the reality is that this wont have a huge affect on African exports to the country. Even if GDP growth in China lowers to around 6%, the impact will still be moderate. In any case, I would predict that only 30% of the Africa growth story is driven by commodities.
Yvonne Mhango, sub Saharan Africa economist at Renaissance Capital, agrees: The primary channel of impact for African countries will be in the trade of commodities, but our impression is that it hasnt been significant because it hasnt been reflected in prices. The slowdown in China is not significant enough to make much of an impact as yet.
With Chinas emphasis on domestic consumption, Chinas auto-sales have surged. China is now the world's first market for cars, with 18 million passenger vehicles sold in 2013.
Its difficult to predict what will happen to Chinas demand for natural resources as domestic consumption increases, says Cowan. "There is a structural change happening in China, but I dont think this will mean that China will become much less of a trading partner to Africa."
And while a pickup in Europe and the US has encouraged flows out of emerging markets into their safer counterparts, frontier markets have so far remained fairly sheltered from the impact.
Turkey and South Africa have already had to revise interest rates to accommodate the changes, but it hasnt been as obvious in frontier markets, says Mhango. "Frontier markets havent seen much of a downturn as yet."
Turkeys drastic short-term interest rate hike saw rates rise to 10% from 4.5%. In South Africa the change was a little more modest, rising from 5% to 5.5%.
Bear in mind there are a lot of frontier market products springing up at the moment, says Cowan. "There is an over demand for African financial assets at the moment. It wouldnt make sense to reroute the funds to emerging or developed markets."
In the long run, two global trends influence the China-Africa relationship, says Cowan: Firstly, how high will Chinas labour costs become? And as a result, will Chinese investment into Africa as an export base increase? Secondly, does Africa have the capability to feed Asia as it struggles to feed its population? These are the issues we need to keep an eye out for. These factors are what will determine Africas relationship with China.