China: Where to? The New Normal and its impact on China's outbound investment in Africa

Last Updated: 12 November 2015
Article by George Zhao, Wang Zhen and Pan Peng

At the 2015 World Economic Forum in Davos, Premier Li Keqiang stated that China is entering a "new normal" status in which its economy grows at a slower but healthier pace. However, the slowing GDP growth rate has caused concern that China's outbound investment in Africa will decrease as a result of this 'new normal' and some African countries have reportedly already experienced such effects.

After almost three decades of enviably fast growth, the world's second largest economy is slowing down.

In 2014 China's economic growth slowed to 7.3%1, the lowest annual rate since 1990. According to China's National Bureau of Statistics, the GDP growth rate in the first and second quarter of 2015 was 7.0%2, the lowest since the second quarter of 2009. Further successive drops are now expected.

China's future demand for mineral resources from Africa

In the past 30 years China's economic growth heavily relied on the secondary sector, which includes the mining industry, and China has seen the greatest demand for mineral resources. However, as the Chinese government endeavors to push economic transformation forward, the tertiary industry is receiving more attention. In 2013, the total value of the tertiary industry exceeded that of the secondary industry for the first time, lowering China's demand for mineral resources.

Meanwhile, the industrial restructuring and upgrade underway in the country's manufacturing sector is also affecting its need for mineral resources. Overcapacity has been a critical issue for China, particularly in the steel industry. To solve the issue, the government has issued over 20 policies to eliminate outdated capacity. More plans and policies, such as the Action Plan for Transition and Development of Steel Industry (2015-2017) and Structural Adjustment Policy for Steel Industry, will be published to expedite restructuring and upgrade of the steel industry. And mining companies have long ago become aware of the importance of increasing productivity through technical upgrade, which means same or even higher output at the same consumption of resources.

However, the government's newly-launched/approved projects and plans will to some extent increase China's demand for mineral resources. From January to September 2015, the PRC National Development and Reform Commission ("NDRC") has approved 66 infrastructure projects with expected investment reaching RMB 1,440 billion in total. On 31 August 2015, the National Energy Administration ("NEA") published the Power Distribution Network Construction and Upgrade Action Plan (2015-2020) which indicates that from 2015 through 2020 the investment in construction and upgrading of power distribution network shall not fall below RMB 2,000 billion. Those new projects and the Action Plan will for sure stir demand for mineral products.

In addition, the Silk Road Economic Belt has served and will continue to serve as a trading and investment booster. From January to July 2015, African countries along the Belt witnessed a 12.9% increase in throughput of containers handled in international waterways. In the first seven months of this year, Chinese contractors realized turnover of USD 34.46 billion and concluded USD 49.94 billion worth of contracts which mainly involves power construction, house-building, construction of transportation facilities, etc.3.

However, overall a decline is inevitable for the economy of China, meaning less consumption of natural resource. For instance, due to severe overcapacity, weak market demand and financial difficulty, the steel industry is getting sluggish. China Iron and Steel Association ("CISA") announced that as of the end of August 2015, the composite steel price index ("CSPI") for Chinese domestic market was at 63.36 points, down by 27.27 points or 30.09% on a year-over-year basis. In addition, China is running very high on steel inventory. Currently there are 1.1 billion tons of steel in stock4, enough to meet China's demand for the next 5 years according to an industry insider.

Statistics from the PRC Ministry of Commerce ("MOFCOM") shows that in the first half of 2015, importation of mineral products from South Africa was $2.41 billion, a decrease of 31.7% compared to the same period of last year. Under the 'new normal', it would appear that the demand for African mineral resources will continue to decline in general as a result of economic transformation.

Will China continue to invest?

Does the declining demand for mineral resources imply reduction in China's investment in Africa's mining sector?

  1. Investment

In November 2013, Mr. Zhao Changhui, the chief sovereign risk analyst at Export-Import Bank of China ("EXIM Bank"), declared the Central Government (including state-owned banks) would have provided Africa with USD 1 trillion in financing by 2025. BY way of example, on 22 May 2014, the People's Bank of China and the African Development Bank executed a USD 2 billion co-financing fund deal dubbed the Africa Growing Together Funds ("AGTF") to finance projects recommended by the latter. Despite this, the volume of investment in Africa is not growing as fast as anticipated. In May 2014 during his visit to Africa, Premier Li Keqiang indicated that by 2020 China's outbound foreign direct investment ("FDI") stocks in Africa should reach USD 100 billion. However, in the first half of 2015 China only invested USD 568 million in greenfield projects and in expansion of existing projects in Africa, far below targets. And the fact that big Chinese state-owned enterprises ("SOEs") are reducing their investments is perhaps the most important reason behind this fall in FDI.

The slow growth, lower demand for minerals and the Chinese government's decision to achieve economic transformation may explain why most SOEs have taken a step back, particularly from Africa's mining industry. The high failure rate of China's overseas investment has also triggered a stricter approval and decision-making process, especially within the larger SOEs. Mr. Wang Jiahua, the vice-president of China Mining Association, once commented that 80% of China's overseas M&A projects in the mining area failed.5 In March of this year, Shandong Iron & Steel Group Company Limited, the minor stakeholder in the Sierra Leone iron ore project, was forced to buy out its partner and assumed losses to prevent the project company being taken over by a third party or being liquidated.

However, other SOEs seem to have taken a different position. In May 2015, the state-owned Zijin Mining Group Co., Ltd declared that it had acquired major shares in the Democratic Republic of Congo's Kamoa copper mine and Porera gold mine for the price of RMB 2.52 billion and 1.82 billion respectively.6

  1. Private enterprises: the emerging force

Unlike SOEs, the number of private enterprises investing in Africa and the volume of their investment are rising. The African Yellow Book: Africa Development Report (2014-2015) launched on 29 September 2015 points out that as of the end of 2013, 70% of Chinese enterprises investing in Africa are private or small and medium-sized enterprises.7 And the statistics show that in the mining industry, private enterprises have registered more overseas projects than non-private businesses.8

BY way of example, Jinan Yuxiao Group, a private company in real estate sector, has obtained over 40 exploration licenses and 4 mining licenses and Zhongsu James Mining Co. Ltd, established by a Chinese private firm, acquired mines in Mozambique with a value of over RMB 200 billion.9

  1. Recently eased regulations

The recently eased domestic regulations on overseas investment and financial support help enable Chinese private enterprises to succeed in Africa. The new Measures for Administration of Overseas Investment promulgated by MOFCOM in September 2014 relaxed overseas investment procedures to facilitate outbound commercial activities. Mining projects in particular are financially demanding, which can be a huge obstacle to private enterprises investing abroad. But with various funds such as the China-Africa Development Fund,the Chinese banks support and less stringent financing conditions, private companies have more chance of obtaining external capital support. As commented in the aforementioned African Yellow Book, private companies are an emerging force among Chinese investors active on the African continent.

Diversification in Chinese overseas investment

  1. New co-operation models

Chinese companies are changing their way of entering Africa's mining industry from acquisition of a 100% ownership stake to a diversified commercial model including holding shares instead of holding controlling shares, introducing financial investors and signing underwriting agreements. Such integrated models appeal to investors as they efficiently reduce risks in making overseas investment in mining projects.

Realization of the importance of building partnership with local and western companies in Africa is a main reason for turning towards the new model. A commercial contract is usually much more reliable than relying on government promises and grand state backed policies.

By way of example CNOOC recently partnered with Total from France and Tullow Oil from the UK both previously had obtained oil concessions from the Ugandan government.

  1. Diversity of investors

Traditional mining enterprises now compete with mining investment funds, infrastructure companies, EPC companies and other entities on the continent. Some publicly-traded companies have also made investing in mining a part of their strategy of diversification. China Railway Group Limited and China Railway Construction Corporation Limited are actively involved in the mining industry and have acquired multiple mining assets. Meanwhile in order to acquire mineral resources by undertaking infrastructure projects, the Chinese government is also encouraging these entities to invest in the mining sector abroad.

  1. Diversification of investment fields

PwC's First-Quarter 2015 M&A Review and Outlook of PRC Mainland Enterprises predicts that the focus of overseas M&A will shift to the infrastructure industry and other mining-related industries, information technology and manufacturing industries. Significant funds will be spent on high-speed trains, electricity, telecommunication, engineering machinery, automobiles and aircraft manufacturing. Agriculture is also becoming more attractive to Chinese investors – China has acquired 12 million acres of land for the purpose of grain-growing. Also with increasing participation by Chinese private corporations, more private capital is going to restaurants, retail, hotels, medical industry, textiles and machinery.


The industrial transformation and slowdown of domestic demand in the 'new normal' economy will cause a reduction in China's demand for mineral resources from Africa. Consequently, Chinese outbound investment, especially those made by SOEs will be affected. However, there are private commercial entities that are making decisions from a different perspective. For such entities, the 'new normal' presents new opportunities in Africa. This diversification pushes Chinese investment in Africa to a bifurcation point, making it difficult to provide a simple forecast for either growth or decline although exciting times lie ahead.


1 The rate is published by the PRC National Bureau of Statistics after preliminary verification of 2014's GDP.









The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions