Recently, many investors have been spooked by China’s decelerating growth. In reality, China is developing new foundations for sustained growth, even amid weak global demand , deleveraging, and struggle against corruption.

China’s great transition does not mean the decline of Chinese-African cooperation, as some critics have argued. Rather, it is pushing both sides to expand, deepen and diversify collaboration.

China’s rebalancing has begun

In 2014, China’s growth target will remain around 7-7.5% to ensure adequate employment, whereas the 3.5% inflation target is paving way to further liberalization of energy and resource prices.

China’s Premier Li Keqiang has re-characterized the current growth target as “flexible,” calling for a “balanced” rather than “prudent” monetary policy. That does not mean a new stimulus package, but new fine-tuning measures and possibly the kind of mini-stimulus measures we have seen in the past. The government is prepared to loosen credit, but only and only if necessary.

In practice, Li hopes to create 10 million new urban jobs this year, while keeping urban unemployment rate at 4.6%. Amid its new urbanization drive, the government completed 5.4 million subsidized houses last year, while 7 million more will follow in 2014. As a result, the government is increasing social financing, which is paving the way for a nascent social model in the mainland and contributing to budget deficit, which the government seeks to keep at 2.1% of the GDP.

During the past year, Premier Li and President Xi Jinping began to push the largest reform agenda in China ever since Deng Xiaoping’s great changes in the 1980s. The basic approach is now in place. The broad goal is to recalibrate and reduce the government’s role in the economy. In particular, more private capital will be injected into state-owned enterprise sectors.

The core sectors of the ongoing reforms include finance, taxation, state assets, social welfare, land, foreign investment, innovation and good governance. Due to the ongoing industrial transformation, the service sector has surpassed the industrial sector, for the first time. In the past, China was seen as the “world factory,” but now it is turning into a global R&D hub.

To overhaul the exchange rate, Beijing recently widened the daily float range of the yuan. In the coming years, it will liberalize the interest rate and fiscal system. The government also hopes to promote the establishment of small and medium-sized banks with private capital and to set up a bank depositinsurance system.

Last summer, when Li struggled for the launch of the Shanghai Free Trade Zone (FTZ), he had to overcome strong, entrenched interests. But it paid off. The FTZ allows faster financial reforms, which are necessary to support the nascent social model. It is also unleashing comparable FTZs in other major Chinese cities and provinces.

But what do these great shifts mean from the standpoint of China-Africa relations in general and Chinese- Nigerian relations in particular?

Impact on China-Africa relations

After Xi Jinping was inaugurated as China’s new president in March 2013, he came to Africa in his first overseas trip as the head of the state. The unprecedented visit reflected the new potential of bilateral relations.

In the Xi era, Beijing has increased its financing to Africa, by issuing more than $10 billion loans to African countries; i.e., half of the proposed $20 billion in 2013-15. In the past, China invested mainly in Africa’s extractive industries. Now things are changing, however. Currently, Beijing’s investment in African energy accounts for just 20% of the total. China is investing more in infrastructure, manufacturing, and agricultural industries.

At the same time, China has become more involved in Africa’s security affairs. In late spring 2013, some 170 members from the People’s Liberation Army (PCA) Special Force joined the UN peacekeeping mission in Mali. It was the first time China dispatched combat troops to a foreign country under a UN mandate. Beijing also engaged in open intervention in the South Sudan conflict through direct mediation.

China has also continued naval escort missions in the Gulf of Aden, while boosting security cooperation with the Djibouti government. Overall, these efforts are reflected in China’s growing financial and security contribution to the African Union.

China’s approach to Africa is driven by two main considerations. Historically, the bilateral relations stand on the legacy of Western colonialism, cooperation in the postwar decolonization era ever since Zhou Enlai’s famous 10-country tour in Africa in the early 1960s, and China’s subsequent support for antiapartheid and liberation movements. Economically, bilateral cooperation has increased dramatically since the 1980s. In 1980, the bilateral trade volume was barely $1 million. By 2000, it was $10 billion; and a decade later, $114 billion. Last year, it exceeded $200 billion.

A year ago, I argued that China-Africa relations may be heading to a new level, despite occasional friction. After President Xi’s first year, this conclusion seems valid. Today, we also have a clearer picture about the evolving China-Africa and Chinese-Nigerian relations.

Nigeria’s role in China-Africa relations

In economic cooperation, the new Chinese leaders are promoting broader and deeper relations with Africa. Beijing’s primary interest is no longer African energy. Rather, China seeks to expand and diversify its economic cooperation, trade and investment with Africa, especially in manufacturing industries.

On the security side, China seeks not only to protect its increasing economic stakes in Africa, but also to broaden and deepen its relations with African countries. In this scenario, Nigeria could play an increasing role.

First, scale matters. Nigeria has shown strong economic performance, received the largest portfolio inflows in Sub-Saharan Africa, while attracting huge amounts of foreign direct investment. More importantly, Nigeria’s recent rebasing made it the largest economy in the region, raising the size of the GDP by a whopping 75%. With its almost 170 million people, it is morphing into an attractive marketplace.

Second, the rise in shale gas and oil has resulted in an increase in the US domestic energy production, which is likely to lead to self-sufficiency the turn of the 2020s. The US energy boom may lower energy prices, which would benefit oil importers while reducing the revenues of oil exporters, including Nigeria.

Between 2008 and 2012, Nigeria’s oil exports to US more than halved from 46% to 19% of total oil exports. At the same time, the comparable figure with China grew 27-fold; from 0.2% to 5.3%. As China’s most energy-intensive phase of development is peaking, Beijing is increasingly looking for energy sources outside Asia seeking to diversify its suppliers.

In the US-China-Nigeria triangle, the emerging status quo would not be a win-lose situation. While Nigeria’s role as an oil exporter to the US is on decline, its attractive markets are of increasing interest to both US and Chinese companies.

Thirdly, improving competitiveness and productivity to generate inclusive growth in Nigeria will require wide-ranging structural reforms. In the coming years, Nigeria’s most critical challenge is to deploy oil revenues to industrialize its economy and diversify its industrial structure. And it is precisely this challenge in which it could obtain great support from Chinese investment, particularly in building manufacturing industries.

Nigeria could use Chinese investment to complete its industrialization drive, but it would also serve to upgrade China’s position in the global production networks while transferring its cost-efficient industries to Africa.

The stars are aligned for upgraded China-Nigeria relations. The challenge is to develop the right policies to manage the cooperation in the near term, amid Nigeria’s impending elections, China’s ongoing reforms, and fragile global landscape.

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