Better the Devil You Know? Chinese Foreign Direct Investment in Africa

Abstract

What are the dominant motives behind China's increasing financial presence in Africa in recent years? In this article, the authors present new quantitative evidence on Chinese outward foreign direct investment flows to 29 African countries in the period 2003–2006. They find that Chinese foreign direct investment is attracted to countries with large natural resources, and more so the worse the institutional environment of host countries. This is problematic in terms of development impact, as Chinese investment feeds into the institutional dysfunctions of resource-rich countries. However, China is not different from other investors in this respect; exploiting resources and weak institutions appears to be the name of the investment game in Africa.