"Chinese Economic Ties and Low-carbon Industrialization in Africa" 28 July 2024

How does Chinese FDI influence the carbon intensity of the manufacturing sector in African recipient countries? A new working paper by Solomon Owusu, Keyi Tang and Gideon Ndubuisi examines the impact of Chinese FDI on low-carbon industrialization in Africa, within the context of China’s growing economic ties with the continent.

Key findings:

• Chinese FDI in the manufacturing sector increases CO2 emissions in Africa. This effect increases if the manufacturing FDI from China is channeled into the labor and resource-intensive manufacturing sectors. This effect is not observed for FDI sourced from the Organization for Economic Co-operation and Development (OECD) countries, despite its similar concentration in resource-intensive sectors.
• The authors attribute this finding to two mechanisms: the sector concentration on labor and resource-intensive manufacturing and the manufacturing processes of Chinese FDI characterized with suboptimal de facto implementation of environmental, social and governance (ESG) standards compared to the international best practices.
• Chinese FDI channeled into knowledge-intensive manufacturing sectors of recipient countries in Africa was not found to have a significant effect on CO2 emissions.
• Carbon emissions associated with Chinese manufacturing FDI are lower for countries with strong and well-functioning environmental regulations.

...the authors argue there is an urgent need to bolster environmental regulation... they advance that it is imperative to encourage Chinese investors and other foreign investors to prioritize investments in environmentally sustainable projects and industries...the results underscore the importance of investment-promoting policies that facilitates technology transfer and capacity-building initiatives through FDI...