Has China's expensive bet on Africa failed?

Has China's expensive bet on Africa failed?
  • According to the China Africa Research Initiative at Johns Hopkins University, China loaned $152 billion to 49 African countries between 2000 and 2018.
  • The World Bank estimates that, as of 2017, the value of China's loans to sub-Saharan African countries was $64 billion
  • The coronavirus has dealt a body blow to the Chinese economy, with its economic output falling 6.8% in the first quarter.
  • Between 2008 and 2018, Chinese FDI in Africa rose from $7.8 billion to $46 billion, according to official data.

 

China is facing growing pressure to forgive the tens of billions of dollars of loans it has made to African countries since the early 2000s.

China has received a wave of applications for debt relief from crisis-hit countries included in the “Belt and Road Initiative” as coronavirus strains the world’s biggest development program. 

How much has China plunged into the BRI

China has signed an operational document on the belt and road initiative with 138 countries and 30 international organisations.

In terms of infrastructure construction, China and the countries along the Belt and Road have carried out effective cooperation in ports, railways, highways, power stations, aviation and telecommunications.

BRI by Country, $ billion 2014-2018

Construction — Investment

  1. Pakistan 31.9 — Singapore 24.3
  2. Nigeria 23.2 — Malaysia 14.1
  3. Bangladesh 17.5 — Russian Federation 10.4
  4. Indonesia 16.8 — Indonesia 9.4
  5. Malaysia 15.8 — South Korea 8.1
  6. Egypt 15.3 — Israel 7.9
  7. UAE 14.7 — Pakistan 7.6

Djibouti, a remote country at the Horn of Africa, is at the heart of China's multibillion-dollar "Belt and Road Initiative", supporting Beijing's juggling of commercial and military objectives amid Western suspicions about its motives.

Ethiopia's Eastern Industrial Zone is a manufacturing hub outside Addis Ababa that was built by China and occupied by factories of Chinese manufacturers.

According to Chinese media and the vice director of the industrial zone, there were 83 companies residents within the zone, of which 56 had started production.

In May 2014, Premier Li Keqiang signed a cooperation agreement with the Kenyan government to build the Mombasa–Nairobi Standard Gauge Railway connecting Mombasa to Nairobi. The railway cost US$3.2bn and was Kenya's biggest infrastructure project since its independence.

In May 2017, Kenyan President Uhuru Kenyatta called the 470 km railway a new chapter that "would begin to reshape the story of Kenya for the next 100 years"

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China – Africa Relationship pre & post-pandemic

 

China's fast-paced growth since the early 1990s has generated a voracious demand for oil and subsoil minerals, with  Beijing outbidding dominant multinationals to gain equity stakes in mines and oil fields.

The Chinese government believed that, as an equity holder and creditor, it could better ensure secure access to critical raw materials in Africa. According to the China Africa Research Initiative at Johns Hopkins University, China loaned $152 billion to 49 African countries between 2000 and 2018.

The World Bank estimates that, as of 2017, the value of China's loans to sub-Saharan African countries was $64 billion, or more than 60% of the stock of bilateral debt.

Between 2008 and 2018, Chinese FDI in Africa rose from $7.8 billion to $46 billion, according to official data.

Merchandise trade between China and Africa rose from $107 billion to $204 billion in 2018, based on data provided by the Chinese government.

The gamble hit the rocks with China committing nearly $200 billion in bilateral loans and FDI in the continent.

Before the coronavirus pandemic, China’s foray into the continent coincided with the peak of the most recent commodity supercycle, skyrocketing prices of raw materials and as a result, Chinese companies paid top price for assets that most probably have lost huge value after the collapse in commodity prices.

China is not ready to cancel debts but the Call for debt relief is likely to grow

China has received a wave of applications for debt relief from crisis-hit countries included in the “Belt and Road Initiative” as coronavirus strains the world’s biggest development program. 

Chinese policy advisers and bankers told the Financial Times that Beijing was considering several responses, including the suspension of interest payments on loans from the country’s financial institutions. But they also warned against expectations that China would forgive debts outright.

 “We understand a lot of countries are looking to renegotiate loan terms,” said a researcher at the China Development Bank, a Chinese “policy bank” that — along with the Export-Import Bank of China — spearheads hundreds of billions of dollars in lending to BRI projects around the world.

“It is OK for 20 percent of our portfolio projects to have problems,” the researcher added. “But we can’t tolerate half of them going under. We might consider extending loans and giving interest relief. But in general, our loans are issued according to market principles.”

The BRI, which was launched in 2013 as the signature foreign policy initiative of President Xi Jinping, is aimed at building infrastructure and boosting China’s influence around the world. Most of the 138 countries that have officially signed up to the BRI are developing nations, many with the weakest credit ratings in the world.”

 Why China’s claim on valuable assets as collateral is frowned at

Andrew Davenport, chief operating officer at RWR Advisory, said that Beijing was sensitive to the perception that the BRI facilitated “predatory economic behavior” by China, claiming valuable assets as collateral when countries fail to pay debts. 

“The narrative certainly matters and indeed they seem to worry about it,” Mr Davenport said. “If they can persuade people not to always be looking at what mischief Beijing is up to but rather to see the ‘goodness’ on offer, that’s a winning formula for China.”

With so many recipient countries facing economic peril, the calls for debt relief will only grow, depriving Mr. Xi’s grand design of forward momentum.