China and Kenya have a longstanding relationship dating back to 1963, when the latter gained independence.
Diplomatic relations were established on December 14, 1963, making China the fourth country to recognise Kenya’s independence. Bilateral relations started to warm with the arrival of the President Daniel Moi’s administration in 1978 following the death of the first President, Mzee Jomo Kenyatta.
After 1965 — during President Kenyatta’s regime — the bilateral relations had been lowered to the chargé d’affaires level, which in the 1970s was gradually normalized.
After President Moi took charge in 1978, the relations blossomed. This was the period after China State Council introduced legislation permitting specialised Chinese companies to operate overseas under the ‘Go Out’ policy in August, 1979.
One of the key projects delivered through the Kenya-China partnership at the time was the Moi International Sports Centre Kasarani in 1987.
It is, however, during the administration of Kenya’s third President Mwai Kibaki (2002-2013) and the fourth President Uhuru Kenyatta (2013-2022) that the bilateral ties have intensified in trade and infrastructure development.
When President Kibaki came to power in 2002, there was a massive shift towards China in what was called the “Look East policy”, compared to the West (America and Europe)
This further deepened and expanded bilateral cooperation in infrastructure development and trade, which intensified during the Kenyatta administration.
The Chinese delivered Kibaki’s legacy project the Thika Superhighway that connects Thika town and Central Kenya to the Capital Nairobi, among other road projects.
During Kenyatta II’s administration, the Chinese delivered the Mombasa-Nairobi Standard Gauge Railway and the Nairobi Expressway, which connects the Jomo Kenyatta International Airport to the Westlands business hub. Many other initiatives have been carried out, all these contributing to Kenya’s economic development (some disagree because of the debt problem)
With these close ties, however, there have been concerns about loans, fears of “debt trap” diplomacy, secrecy in deals and parastatals being at risk of being seized and trade imbalance.
TRADE
China aggressively pushed bilateral trade via the Forum on China-Africa Cooperation (FOCAC) following President Jiang Zemin’s tour of Africa in 1996 which saw the bilateral trade volume with Kenya rise from $136 million in 2000, to $600 million in 2006.
During this period, China has, according KenInvest, become Kenya’s largest trading partner, largest country of contracted project companies, number one of countries providing concessional loans and until recently, the number one bilateral lender.
One the good part, Kenya’s exports to China have been multiplied by more than 30 over the past 15 years. Exports of services to China are also in excellent shape. For instance, the number of Chinese visiting Kenya has doubled in recent years. As far back as 2018, there were 81, 709 Chinese tourists compared to 53,485 that visited Kenya in 2017.[1]
TRADE IMBALANCE
A trade deficit arises whenever imports exceed exports. Such an imbalance might arise because imports are too large or at least larger than they would be under balanced trade.
The most common reason offered in developed countries for why imports are too large is that low import prices arise because less-developed countries have exceedingly low wages paid to workers, lax health and safety standards, or more lenient environmental policies, all of which contribute to a veritable flood of imports.[2]
Another reason might be because exports are too low and smaller than they should be.
According to the United Nations COMTRADE database on international trade, Kenya exports to China was $199.62 million in 2021, compared to $6.73 billion during the same period.
Some of Kenyan exports to China include coffee, tea, mate and spices, mineral fuels, oils, distillation products, raw hides and skins (other than furskins) and leather as well as edible fruits, nuts, peel of citrus fruit, melons
On the other hand, some of the China exports to Kenya are machinery, nuclear reactors, boilers, electrical, electronic equipment, iron and steel, plastics, vehicles and other than railway equipment, rubbers, furniture, lighting signs, prefabricated buildings, optical, photo, technical, medical apparatus as well as other made textile articles, sets, worn clothing.
Although standards and quantitative restrictions have made the Chinese market hard to access, there has been push for Kenya to negotiate with China for favourable policies that will ease access to their market.
In September 2022 the top imports of China from Kenya were Niobium, Tantalum, Vanadium and Zirconium Ore ($5.66M), Manganese Ore ($1.42M), Other Nuts ($1.33M), Titanium Ore ($1.04M), and Scrap Copper ($718k).
Kenya exports to China
Of course given the huge economic muscle and 1.4 billion population (Compared to Kenya’s 55 million), it is expected the balance of trade will heavily favour China. This has, however, worried economists.
China exports to Kenya
The concern is that Chinese products are said to be stifling local industrial production while construction companies from the Asian state have taken over from local firms owing to their ability to mobilise cheaper credit at home, which have also made them dominate importation of equipment and material.
Although standards and quantitative restrictions have made the Chinese market hard to access, there has been push for Kenya to negotiate with China for favourable policies that will ease access to their market.
Kenya should negotiate for duty-free access for commodities it has a comparative advantage and ensure value addition for its produce. As China’s economy moves towards consumption, Kenya could seize the opportunity to export financial and business services.
According to the Kenya Export Promotion and Branding Agency, coffee, speciality tea, cut flowers and avocados are some of the farm produce which continue to gain market access to China.
Nancy Githaiga, in her paper ‘Kenya-China Trade in Manufactured Goods: A Competitive or Complementary Relationship?’ Found that the nature of trade in manufactured goods between Kenya and China is characterized by high imports from China and very low exports from Kenya.
She identified one of the challenges as Kenya lacking a comparative advantage for manufactured goods, while China has a high comparative advantage; therefore, Chinese exports complement Kenya’s import needs.
The research identified the lack of a comprehensive trade policy and strict rules of origin as serious challenges to trade between Kenya and China. Additionally, Kenya’s trade orientation in the manufacturing sector has been reduced by inadequate investment, limited value addition, and high labor costs.
To bridge the trade imbalance to Kenya’s advantage, these obstacles have to be dealt with to promote Kenya’s competitiveness. But how can that be done?
Kenya should also focus on a comprehensive trade policy with China, support more FDI in manufacturing, innovation, and technology, improve labor productivity and infrastructure, enhance its global value chains, and create new comparative advantages among others.
This will improve the competitiveness of its products and increase trade orientation on the Chinese market and globally.
