Following its rapid growth and establishment as an economic and political superpower, China’s foreign aid and foreign direct investment (FDI) has rapidly grown in recent years, making it one of the most prominent foreign aid providers in the world. This is seen as a transition from a unipolar aid distribution stream coming from OECD countries such as The United States, Japan, and the EU, to a multipolar one involving China. Therefore, the role of China’s aid is often viewed within a geopolitical context, based on China’s political aims and how Chinese competitors such as the US or EU might react to them. So have these potentially politically motivated investments in Africa, through Chinese programs such as the One Belt One Road initiative, been effective in achieving African development goals? This can be answered by seeing whether Chinese aid has brought certain African countries closer to reaching economic development goals. The opposite scenario being one that potentially puts African economies into large amounts of public debt, increases environmental problems, and creates new conflicting alliances.
Numbers from the Forum on China-Africa Cooperation, which has emerged as one of the most important foreign aid forums for Africa in the world, show that in 2018, the Chinese governments’ investments went far beyond US ones, with 60 billion USD. There also seems to be a general difference between how China invests and provides aid to African countries as opposed to how OECD countries do. Unlike conventional OECD aid, which entails direct delivery of monetary or material resources, Chinese investment and aid involves large loans for infrastructure. For African economies, this means that they can easily use Chinese funds and Chinese led investments to rapidly improve all sorts of infrastructure. It also means that they rack up potentially immense amounts of public debt in short amounts of time, which has certainly been a trend over the past few years. The increasing collaboration between African countries and China in collaboration forums, as well as the so-called “debt traps” which certain African investment and aid recipients can have, highlight China’s strategic soft power advantage in providing such foreign aid.
Zambia, for example, currently faces a large debt crisis, having up to $11bn of external debts, mostly attributed to Chinese infrastructure projects, which it seeks to reorganize while combatting pressure from Chinese creditors. Although the country has achieved debt relief from other G20 countries due to the economic crisis caused by Covid, it has struggled to settle a deal for debt relief with its biggest creditor: China. Zambia is struggling to make Chinese lenders, both state and commercial, provide the same treatment of debt relief as other G20 members have under international agreements. Other creditors, institutions, and investors, such as the IMF, have been inquisitive about outstanding Chinese debt and potential bailouts for Zambia, as they think they could be used to alleviate pressure from Chinese creditors. Due to these recent debt issues, the Zambian government has suspended $225m in payments from Chinese lenders, pointing out the recent flaws of China’s investments in Africa, which have been felt throughout the continent. Many are sceptical over whether China will restructure debt with the nation, as it would set a precedent for other African economies to do so. Additionally, the One Belt One Road investment is not limited to Africa, but includes regions much closer and potentially even more strategically beneficial to China such as Southeast Asia and South Asia. Specific examples include countries such as Pakistan, through the China-Pakistan economic corridor, or Sri Lanka, which has recently racked up immense amounts of debt from Chinese creditors.
Although aid spending has diversified in projects such as hospitals and schools, it is not always the case that these projects are supervised well, leading to mixed outcomes. Critics of Chinese foreign aid point out that in recent years, Chinese development projects were not well administered, causing low-quality infrastructure. Another example of a downside of African governments using Chinese loans freely can be seen in claims that Zimbabwe’s Mugabe regime used aid loans to buy arms, or Chinese infrastructure projects’ general lack of consideration for environmental degradation. Unlike OECD countries, China lacks a proper foreign aid ministry which publishes all kinds of information regarding its statistics. Most of the money flowing out of China into African markets is unknown to both the Chinese people and to foreign audiences, despite having become one of the largest aid providers in the world. The aid statistics might be kept secret due to China’s strategic and political incentives, competition with OECD countries, and debt advantages.
Despite the debt developing countries may face when interacting in spheres of Chinese collaboration, there is no doubt LEDCs have many benefits when accessing Chinese soft power. Countries such as Kenya have not only benefitted from billions of dollars of infrastructure investment made by China but have also gained from competition between China and the US. Kenya received funding in the form of loans for railway construction by China and highway construction from the US or US construction companies. In Kenya and Djibouti, the aid provided by China has allowed for the construction of more infrastructure, and consequently more jobs for local workers in the region. With debt and Chinese managerial dominance as potential issues aside, it is hard not to admit that these investments can prove to be incredibly beneficial to both economic development and growth in relevant regions. Additionally, what currently seems to be the rise of neo-imperialism caused by superpower competition over spending and provisions in developing countries, may be convenient to African markets. This type of development based on political ambitions to create alliances and economic dependence on one power over the other might not be development focused. Although, economically speaking, the efforts can be beneficial to the development of African markets as can be seen with the case of Kenya.
Chinese aid mainly differs from OECD aid, as China provides loans to be used by Chinese firms and African governments to spend freely, as opposed to grants. Although, being such a large economy, their aid spending in the form of grants has been as big as the United Kingdom’s. Studies by companies have found that Chinese aid spending doesn’t necessarily undermine Western aid in African regions, it merely seems to diversify infrastructure development. At the end of the day, China has spent 350 billion USD from 2000 to 2014 in aid, a number which comes just second to the US. Additionally, one-fifth of that was in the form of grants similar to OECD nations, while the rest of the aid was in the form of large loans, that feature flaws which have already been pointed out. The large amounts of money which have also been used for the development of schools and hospitals are bound to contribute to Africa’s traditional development objectives, in line with UN development goals. Chinese aid has many points of improvement, and although it does not necessarily undermine OECD aid, it certainly causes competition between aid providers. The increasing spending by large economic powers has brought the region to the forefront of Sino-Western relations, as a strategic battleground for investment. Overall China’s soft power in the region has brought a mixed bag of benefits and issues to the development of African markets, opening up questions around the world, and in Africa alike, over whether Chinese investment and strategic competition in the region will be beneficial or not.
This article was written by: Alessandro Casino, currently a student at the London School of Economics, pursuing MSc Theory and History of International Relations
LSESU Developing Markets Society 