China's in Africa for Business, Not Aid

Posted on June 27, 2010


Originally published in GlobalPost:

KIGALI, Rwanda — Next to the Sopetrade highway heading toward Kigali’s city center, construction workers are digging up the side of the road in preparation for adding an additional lane.

In and around Kigali’s city center, similar road projects are in process. The project financier? China Eximbank, to the tune of $30.7 million dollars.

Many say this project is part of an alarming trend, in which China builds infrastructure all over the African continent in order to lay claim to its natural resources. Though touted by many media outlets and some political analysts, this narrative of Chinese aid is tremendously flawed.

Take the Kigali roads project. Rwanda has little in the way of natural resources, unlike neighboring Democratic Republic of Congo. China has financed infrastructure in countries that are not commodity-rich, including Kenya, Senegal and Mauritius. What does China gain from these projects?

In a parallel development, India is also increasing its dealings in Africa.

As a superb new book by Deborah Brautigam argues, infrastructure projects are opportunities for Chinese construction firms to gain a foothold abroad, and to potentially win future contracts from the private sector or from the international donor community.

In “The Dragon’s Gift: The Real Story of China in Africa,” Brautigam offers a trenchant analysis of how China views its engagement with Africa, drawing on decades of experience working in West and southern Africa and China. Rather than viewing the continent as a charity case, Brautigam suggests, China sees Africa as a younger version of itself.

In the 1970s, Japan extended aid to China that helped the country build transportation and energy infrastructure. This aid was repaid in barrels of Chinese oil. Now, across the African continent, China is extending concessional loans to African governments for roads, power plants, factories and hydro projects, in many cases using the same kind of financing arrangements it learned about from Japan.

Many analysts have interpreted these concessional loans as bids to lock in preferential access to China’s natural resources. Without a doubt, China benefits from access to Angolan oil, minerals from the Democratic Republic of Congo and Ghana’s cocoa. But so do Angola, the Democratic Republic of Congo and Ghana, who have little to offer a potential lender as a payment guarantee other than these natural resources.

When China lends to Angola, it knows it will receive repayment if the loan is backed by oil. Angola knows it will receive the infrastructure it needs, because the loan funding flows directly to the Chinese contractors for individual projects, bypassing the African government (and avoiding a problem in many commodity-rich states: corruption).

Another common criticism of these so-called aid-for-infrastructure projects is that they distort global commodity markets by taking supply off those markets. Research shows, however, that Chinese companies are not transporting Angolan oil for China. Instead, they’re selling it on the global market. The same goes for minerals extracted from Zambia.

In fact, the phrase “aid-for-infrastructure” is itself a misnomer. Many of the projects described as aid in the media and by analysts are actually investments, or a mixture of aid and investment. For instance, the infamous $2 billion loan package that was extended to Angola by China Eximbank in 2004 was for infrastructure, but the package was not “aid.” As Brautigam uncovers in her book, the loans were made at commercial rates. A multibillion package for the Democratic Republic of Congo is also primarily commercial; there is just one $50 million zero-interest loan.

Some of the misconceptions about Chinese engagement in Africa have arisen from the difficulty in obtaining official aid figures from the Chinese government, and some confusion has stemmed from the complicated nature of the loan packages that China offers via the China Eximbank.

Chinese aid to Africa falls into three categories: The Ministry of Finance’s budget for foreign assistance to Africa; China Eximbank’s concessional loan program; and debt relief. Brautigam estimates that in 2007, these three sources totaled roughly $1.4 billion, a fraction of the U.S., EU and World Bank commitments of $7.6 billion, $5.4 billion, and $6.9 billion, respectively, for that year.

Most reports of Chinese aid amounts have been higher than Brautigam’s estimates; she excludes financing from China Eximbank that is offered to African countries at commercial rates.

The media can be forgiven for some of these misconceptions; deadlines make it difficult to clarify all the intricacies of a loan package or investment deal. There is little excuse, however, for economists and international affairs analysts, who have borrowed figures from newspaper or magazine stories to include in World Bank and IMF reports, for instance. Of course, these inflated numbers confirm already held beliefs about the nature of Chinese engagement with Africa. To dispel these myths once and for all, “The Dragon’s Gift” is a must read.

The prevailing narrative about China in Africa says more about Western fears and anxieties about China than it does about the true nature of China’s engagement with Africa.

While the West continues worrying, China Eximbank is extending loans, Chinese businesses are winning contracts to build infrastructure, and all the while, the word “aid” is hardly mentioned. In the West, where “aid reform” has become a catchphrase, perhaps it’s time to think about an “aid” strategy that looks more like the business-minded strategy of China.

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