Although China's commercial interests in Africa have been dominated by state-owned enterprises, state funds flowing to the continent are set to become less significant as market-driven outbound investment from China grows. This is made particularly clear by a new trend of outsourcing China's low-end, labor-intensive manufacturing. While China will remain a very competitive manufacturing economy for some time to come, rising production costs will encourage and force Chinese firms to relocate their operations abroad. 

As China's economy slows, Chinese enterprises, whether they are state-owned or private businesses, will be pushed to become more international, and shifting private manufacturing from China to Africa could be the next move for many such companies.

Justin Lin, a former chief economist of the World Bank now working at Peking University, estimates that China will lose as many as 85 million labor-intensive manufacturing jobs within the next decade. In the same way that Japan lost 9.7 million such jobs in the 1960s and Korea almost 2.5 million in the 1980s due to rising wages and production costs, the Chinese economy will undergo a major transition, but on a much greater scale than other nations. Wages for unskilled workers in China are set to increase four-fold in the next 10 years.

The Chinese economy has reached the so-called "Lewis Turning Point" – named for the Nobel Prize-winning economist W. Arthur Lewis. This point refers to the economic tipping-point when manufacturing costs begin to undermine manufacturing competitiveness.

This will result in the relocation of Chinese low-end manufacturing to nations with lower labor costs and developing manufacturing sectors. Lin supports this argument with figures from China's apparel exports, which amounted to $107 billion in 2009, compared to Sub-Saharan Africa's total apparel exports of just $2 billion. The opportunity for Africa to take on business from relocated Chinese factories is staggering.

Production and wage costs have increased in South Africa, but the country's manufacturing has not shifted to other African nations that feature lower production costs, with one possible exception: a movement of textile and garment production to Lesotho. 

But to which countries will Chinese industry, which now accounts for over 20 percent of global manufacturing, move? The countries competing with African nations for new manufacturing opportunities are all Asian – Indonesia, the Philippines and Vietnam. These Asian states are well-positioned to benefit from the relocation of China's low-end manufacturing.

Africa did not lay a foundation for industrialization, as our Asian counterparts and competitors did, in the 1970s and 1980s. The continent's "latecomer challenge" now lies in building the necessary infrastructure, institutions and skills to attract investment. African states did not foresee the China-driven "commodity super cycle" that dominated the last decade, and thus did not fully leverage the opportunity it presented for the world's resource sectors. It is imperative that we now recognize the upcoming economic shift driven by market forces in China's manufacturing sector, and use it to give impetus to African industrialization. Africa's relationship with China is therefore no longer just about attracting state capital but also about private investment.  CA

(The author is the CEO of Frontier Advisory and is a Member of the World Economic Forum's Global Agenda Council on China. Email: mdavies@frontieradvisory)