China’s new foray into Africa is attracting wide international attention and heated debate. China is apparently engaging Africa on new terms – terms that are not shaped by traditional powers or perhaps even by Africans themselves. Whereas China’s relationships with rogue states Sudan and Zimbabwe have been tackled with vigour in the international media, less attention has been focused on China’s involvement with other African states.
New research undertaken at the Centre for Chinese Studies (CCS) at Stellenbosch University examines the emerging collaborative state-business approach to foreign policy on the continent – of which China’s foreign aid is an integral component. The CCS undertook a series of detailed case-studies on China’s development assistance in Ethiopia, Ghana and Zambia. This research revealed a range of approaches to the provision of development aid by China, mixed, to various degrees, with commercial incentives and interests.
These developments are very recent: the turn of the millennium marked a dramatic shift in Chinese foreign policy thinking: the prioritisation of Africa. The continent had not received this kind of attention from China since the 1970s. As "China Inc" started to internationalise and "go global" post-1998, Africa became a strategic focus for Chinese companies, especially in the extractive industries.
While China had granted Africa a number of larger aid projects in the four decades pre-2000, most notably the Tanzam Railway project, there has been a dramatic increase in bilateral aid spending to African states over the last couple of years. Beijing accorded Africa renewed importance and this resulted in the conceptualisation and creation of the Forum on China-Africa Cooperation (FOCAC), with the first Summit held in October 2000 in Beijing.
Through FOCAC, China’s Ministries of Foreign Affairs and Commerce have begun to more closely coordinate the way they apply Chinese foreign aid policy on the continent. Coordination between these departments, however, is being made more difficult by the rate of increase in aid spending by Beijing.
Furthermore, the Government of the People’s Republic of China has a broad and, at times, vague definition of what constitutes foreign aid. While Chinese development assistance may gradually come to resemble more closely the OECD-DAC’s definition of "aid", some unique components of China’s approach will remain. Figures on China’s aid disbursements to Africa remain vague, and monitoring of aid commitments and their actual implementation is proving difficult, both for the Ministry of Commerce and Government think-tanks.
The absence of a central aid agency, the lack of general time series data of annual aid flows, and the non-transparent nature of Chinese loans (loan interest rate, maturity, grace period, etc) complicate the process of defining, calculating and monitoring China’s development assistance to Africa. This is firstly because Beijing deliberately doesn’t disclose figures on how much aid it puts into foreign countries. Secondly, the nature of the assistance is also not known. As such, the statement made by President Hu Jintao at the 2006 FOCAC Summit of China that his country was "doubling" aid to Africa by 2009 is unverifiable. It is not known from which basis this "doubling" will occur.
The Chinese Government delivers development assistance on a bilateral level as grants, interest-free loans and concessional loans. The aid policy formulation process for these is outlined and discussed in the CCS report.
China EXIM Bank, one of China’s three policy banks and the sole provider of concessional financing, plays an important role in delivering this assistance. The Bank’s lending practices are often linked to China’s foreign aid policy through the provision of concessional loans, mostly to infrastructure development. By September 2006 the Bank had 259 projects in 36 African countries, of which 80 per cent were committed to infrastructure financing, including dams, railways, oil facilities, thermal power plants and copper mines. By June 2007 it had financed over 300 projects in Africa, which made up almost 40 per cent of its loan book.
Finance extensions on commercial terms are handled by the China Development Bank. In June 2007, the Bank was designated to manage the US$5 billion China-Africa Development Fund (CADFund) announced at the FOCAC 2006 Summit and approved by the State Council in March 2007. This new strategic partnership will finance the market entry of Chinese firms into the African economy and promote private sector development on the continent through the provision of capital to Chinese firms looking to invest in African projects. While this fund does not qualify as "development assistance" per se it will encourage a more market-driven strategy to development in Africa without mounting debt repayments for recipient countries.
In January 2008, the first project commitments were announced, worth US$90 million. A total of US$300 million will be dispersed across projects in 2008, predominantly in the agriculture, manufacturing, extractive industries, infrastructure construction and industrial park projects in Africa.
This last project type links in with China’s strategic industrial plan for Africa: to establish three to five preferential trade and industrial zones for Chinese business entry into Africa. Located in Zambia, Mauritius, Egypt, Nigeria, and possibly Tanzania, this initiative emerged in the Beijing Action Plan announced at FOCAC 2006. While this will undoubtedly increase China’s trade and investment with the continent, and result in more aid flows, China’s development assistance to Africa remains relatively small compared to aid from traditional donor countries.
Here it should be mentioned that China’s approach in terms of development assistance is one of mutual respect where even smaller African countries, with little economic or political significance will receive both aid and investment support. On the same note, though, it is also true that China gives some priority to resource-rich countries such as Angola, Sudan, Nigeria and Zambia, as well as more politically strategic countries, such as South Africa, Ethiopia and Egypt. It should of course also be noted that China is by no means alone in prioritising development relationships with countries of strategic or commercial significance to itself.
In Ethiopia, China is providing assistance across various sectors and has become an important development partner for the country, significantly contributing to Ethiopia’s development goals. While Chinese engagement in the east African country was initially concentrated in the construction sector (controlling 50-60 per cent of road construction) China has also built a considerable stake in the local manufacturing industry. Interviews conducted in Addis Ababa revealed that the Chinese are praised for their skills and their work ethic. Some interviewees believed that the Chinese are more appropriate development partners than traditional donors, because they are seen as being responsive to Ethiopia’s needs.
In contrast to Ethiopia, Ghana has been awarded several loan agreements across the construction and infrastructure sectors. Overall, the country is facing a major infrastructure financing gap, and as of August 2006, a devastating energy shortage too. The construction of the 400 megawatt Bui Dam project, financed by China EXIM Bank, is the single largest Chinese financial commitment in Ghana to date and will have a significant impact on the power generation capacity of the country. It appears that since the beginning of the FOCAC process in 2000, China’s bilateral development assistance to Ghana has resulted in significant benefits for the country. Yet there are concerns that what China construes as development assistance may actually be masking a more embedded approach to commerce.
In Zambia, Chinese companies have been involved in more than 35 aid projects in agriculture and infrastructure development. This has included the construction of the Government Complex and more recently the construction of the first Chinese Special Economic Zone in Africa, in the Chambishi copper belt. Zambia represents an interesting intersection between China’s development assistance, trade and investment interests. Moreover, it provides a platform to explore how important Zambia’s resources are to China’s deepening involvement in the country. The establishment of the Special Economic Zone – through aid and investment financing – indemnifies China’s long term economic interests in the resource-rich country.
This new approach to the continent has been termed China’s "coalition engagements" by the CCS. This is a collaborative state-business approach to foreign policy. It is hard to differentiate and draw the line between "aid" and commercial activities, but coalition engagements encompass Chinese state-owned enterprises across a number of different industries that are politically directed to jointly engage an African project. This usually ties to energy or other extractive resource acquisitions where substantial infrastructure and other supporting construction are needed. Examples of this include Angola, and more recently Zambia, Gabon and the DRC. Under this system, companies from the banking, construction and mining sectors collectively engage one project in a single country. This is in line with Beijing’s long-term view, its global aspirations and business expansion into the continent, providing the Asian giant with a competitive advantage that its "traditional" competitors do not enjoy.
This has, however, resulted in Western media sensationalisation, with accusations that China is Africa’s new coloniser. In contrast with these concerns, the CCS found that China’s approach toward Africa actually presents the continent with an alternative or perhaps new opportunity at development, especially through China’s emphasis on infrastructure development.
The infrastructure deficit (especially in the power sector) has been identified as a major impediment to growth on the continent and Western donor money has so far failed to address this massive infrastructure investment gap. Infrastructure rehabilitation and construction through Chinese financing – estimated at around US$7 billion in 2006, up from an average US$1 billion a year between 2001 and 2003 – serves the continent well in creating a platform for private sector development and expansion. This constructive partnership could potentially set the stage for future growth and wealth creation in Africa.