Debt on Arrival?

Chinese aid and loans provide new opportunities for the African continent, but we ought to remain skeptical about China’s economic involvement.

The African continent has, for years, been fertile land for Chinese economic and political influence. While Beijing defines its investment projects in the region as “foreign aid”, critics accuse China of neo-colonialist policies.

In 1968, George Yu, a pioneer in Chinese-African research wrote that “analyzing China in Africa is much like pursuing a dragon in the bush. The dragon is imposing but the bush is dense.”[1]  The notion of the “Asian Dragon” operating with difficulty in the “African Bush” is  an interesting but outdated one. Today, Chinese money and investments literally flood the African continent on an unprecedented scale. From 2015 to 2018, Beijing has invested over 60 billion dollars in its African partners[2] and proliferated corporate presence in Africa, with more than 10,000 Chinese companies actively operating on the continent.[3]

However, a big question remains: what is China doing in Africa? And why is it there on the first place?

A Look-Back

Chinese interests in Africa started in the mid-1950s and were strictly linked to the country’s aspiration to become the leader of the Third World. It was an interest that materialized in 1956 when China established diplomatic relations with its first African partner: Egypt. This push for more African-Asian cooperation continued in 1963-1946 with the African tours of Chinese PM Zhou Enlai. During his visits, Zhou managed to create important links that culminated with China’s first big project on African soil: the TAZARA railways.

The massive project,  announced by Zhou in 1966,  was put forward, despite the Cultural Revolution at home. Beijing sent 60.000 workers to build a Pan-African railway, a network of 1860 km that linked Tanzania with landlocked Zambia, Malawi and Mozambique. TAZARA was built with a precise developmental, multinational and cooperative goal. It was more than a railway it was the example of China’s effort in Africa and became an important model for future Chinese investment in the continent.

After nearly twenty years of absence, Beijing’s interest in Africa emerged again in the early 2000s. The emblem of this newly vitalized interest is the “FOCAC”, Forum on China-Africa Cooperation, that coordinates Chinese policies toward African countries and includes a China-Africa summit, held every three years since 2006.  This new scramble for Africa continued in 2013, after Xi Jinping announced the Belt and Road Initiative (BRI) and promised $60 billion of investments in Africa in 2015 (a promise which was renewed in 2018).[4]

A century later, the grandeur of the vast Dar Es Salaam main hall, built as part of the TAZARA railways, is decidedly faded. Photograph: Alamy

The Win-Win Scenario

Despite many criticisms of alleged “predatory practices” Chinese investment has been warmly welcomed by the majority of African governments,[5] given that China has proven itself to be one of the few international partners that has decided to invest heavily in the continent and in its potentials. Chinese investments often translate into important infrastructural works and it’s difficult to refuse such a large party favor, even if it comes with a “Made in China” sticker stuck to the bottom.” The need for such infrastructure has been vital for years to facilitate the movement of people, goods and services and to boost African development.

The majority of Beijing loans come from the Export-Import Bank of China (EXIM), a state-owned institution aimed at promoting Chinese exports. EXIM loans are far more accessible than IMF or World Bank loans, considering the very lax regulations that accompany them. This “no strings attached” method means that countries can easily gain access to funds without the proper credit score or Freedom House ranking to back their appeals substantively. This move is clearly in line with China’s “Non-Interference Policy”, based on the idea of stipulating agreements based on profitability rather then on political or ideological grounds.

This model has certainly seen some short term successes. In 2017, Chinese companies managed to complete a $3.2 billion railway that links the Kenyan capita,  Nairobi, with the port of Mombasa in only 4 hours by train. This project provides a serious trade incentive for those landlocked countries (Uganda, South Sudan, Rwanda, and Burundi) and for the whole East African region. Another important achievement was a $526 million investment in Equatorial Guinea which built the Djibloho Hydropower Plant.

The Chinese-built dam allowed the country to become energy self-sufficient and to sell its energy surplus.  The EXIM bank has also promoted various projects in Ethiopia, such as the $475 million of electric railway in Addis Ababa, as well as the Addis Ababa–Djibouti Railway which links Ethiopia with one of the major ports in East Africa.

Chinese train masters look out from a train as they wait for passengers during the inauguration of the new train line linking Addis Ababa to the Red Sea State of Djibouti, in Addis Ababa, Ethiopia, Oct 5, 2016. REUTERS/TIKSA NEGERI

Why China Needs Africa

It is unlikely, to say the least, that altruism or benevolence is the primary driver of Chinese interest in Africa. In fact, the PRC has a structural need to expand into the African market. In the last decade, China’s economy has been running out of growth potential and the good old days of the double-digit growth percentages are over. [6]

China’s growth model in the early 2000s was particularly resource-intensive, despite the country’s scarcity of natural resources. In fact, the rapid growth was fuelled by a large cheap workforce that gave China comparative advantage in the manufacturing sector. [7] On the other hand, Africa was rich in resources and had a smaller labour force than China.

The logical consequence of this was Chinese imports of natural resources from Africa and African import of manufactured goods from China. This relation still holds today and is fuelled by Beijing’s need for oil. In this sense, Chinese investments in Angola can be seen as a way for China to secure its third large provider of oil.

Moreover, since China completed its transition to a developed country, its labour wages have been constantly growing. As a consequence, Chinese manufacturing firms are relocating to Africa in search of a cheaper workforce. Such a process is already being put forward in Ethiopia, where a 1.6 billion dollar investment, along with the opening of the Hawassa industrial Park, is turning the country into a giant hub for Chinese manufacturing companies. [8] Furthermore, China’s relatively small domestic market puts extreme pressure on exports of manufactured goods to ensure growth. Thus, China needs to export to the  African market not only as an economic stimulus project and a way to increase capital flow, but, more basely and importantly to sustain China’s own growth and stability.

Textile workers at a Chinese-owned factory in the Hawassa Industrial Park. PHOTOGRAPHER: NICHOLE SOBECKI FOR BLOOMBERG BUSINESSWEEK

Soft Power or Colonial Power?

The Chinese-African partnership isn’t without its controversy, however, as whispers of economic colonialism echo throughout the international community. In fact, the structural economic relation is one of natural resources coming out of Africa and finished goods/machinery coming in. [9] Furthermore, many of the infrastructures built by Chinese companies are aimed at extracting and shipping resources. Today, raw materials account for 80% of Chinese imports from African countries. [10]

These import-export relations, the Chinese control over natural resources, and the permeation of Chinese firms in the continent seems to have much in common with colonial dynamics seen in previous centuries.

The other major concern about China’s influence in Africa is related to the nature of Chinese investments. Chinese infrastructure projects come as a closed package: the Chinese government designs and finances the infrastructure, Chinese companies build it and Chinese technicians ensure its smooth functioning. In addition, the prices of these major works are often extremely inflated. Chinese financed works, such as the Mombasa-Nairobi railway, were realized at a price three times higher than international standards. [11]

The troubles don’t stop here. Beijing has been repeatedly accused for its “debt diplomacy”, namely, the strategy of granting large loans to countries that China knows will have difficulties repaying as a means to gain political control over those nations. The issue of a debt trap is a serious one and China has already shown the world how to cut a deal in these cases.  The Sri Lanka case is emblematic: after the government failed to repay its $1.5 billion debt with China, it was forced to hand over its port of Hambantota, along with 15.000 acres of land for 99 years to Beijing. [12] Certain countries, such as Djibouti, have contracted debts with China that amount to a staggering  75% of their GDP.[13] Facing the possibility of defaults, Djibouti has granted China its first overseas military base in what seems to be another victory for Beijing’s debt diplomacy.

Future Prospects for Africa

It is clear that Chinese investments in Africa come as a result of economic and political aims. However, Beijing’s strategy remains enigmatic and the long-term effects of such influence is in the realm of guesswork. Yet, we see that African countries keep relying on Chinese support, mainly because there are no other viable alternatives. While in 1968 China’s adventure in Africa was seen as problematic and troubled, almost fifty years later Beijing has permeated and gained influence in the African continent like no other power.  This is not necessarily a win-win game though. We may justifiably fear that the “Chinese model” is serving Beijing’s interests and is failing Africa. In the following years, many of the African countries and a large part of the international community will have to reconsider their relationship with China, and decide whether they will be Beijing’s trading partner or its subordinate.

[1] George T. Yu, “Dragon in the bush: Beijing presence in Africa”, Asian Survey, 8 , 12 (1968), p. 1026

[2] McKinsey & Company. (2017). The closest look yet at Chinese economic engagement in Africa. [online] Available at: [Accessed 2019].

[3] McKinsey & Company. (2017). The closest look yet at Chinese economic engagement in Africa. [online] Available at: [Accessed 2019].

[4] (2018). China’s Xi offers $60bn in financial support to Africa. [online] Available at: [Accessed 9 Mar. 2019].

[5] Taddelle Maru, M. (2019). Why Africa loves China. [online] Available at: [Accessed 9 Mar. 2019].

[6] Smith, N. (2018). Bloomberg – Are you a robot?. [online] Available at: [Accessed Mar. 2019].

[7] Dollar, D. (2016). China’s Engagement with Africa: From Natural Resources to Human Resources. Washington D.C.: Brookings.

[8] (2018). Bloomberg – Are you a robot?. [online] Available at: [Accessed Mar. 2019].

[9] (2014). China in Africa: investment or exploitation?. [online] Available at: [Accessed Mar. 2019].

[10] McKinsey & Company. (2017). The closest look yet at Chinese economic engagement in Africa. [online] Available at: [Accessed 2019].

[11] Kacungira, N. (2017). Is Kenya’s new railway good value for money?. [online] BBC News. Available at: [Accessed 9 Mar. 2019].

[12] Abib-Habib, M. (2018). How China Got Sri Lanka to Cough Up a Port. [online] Available at: [Accessed Mar. 2019].

[13] Cheng, A. (2018). Will Djibouti Become Latest Country to Fall Into China’s Debt Trap?. [online] Foreign Policy. Available at: [Accessed Mar. 2019].

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