China Calculates its Interest in Africa

China and Africa
Africa Africa Forum recently held in Beiing

At the 19-20 July Forum on China-Africa Cooperation in Beijing, the Chinese government pledged $20bn in new loans over the next three-year period.

The government did not give details of the financing terms, but most Chinese government loans do not meet Organisation for Economic Cooperation and Development guidelines for concessionality.

While the US Congress debates a new Africa trade bill that mirrors China’s emphasis on trade rather than aid, and the US Export-Import Bank strategises on how to compete with its Chinese counterpart, Beijing’s influence will continue to grow.

The World Bank says that African countries need $31bn per year to address their infrastructure deficits. With the Chinese financing spread out over three years, it will not go very far to filling that deficit.

Even if it were all devoted to infrastructure, it remains a tiny sum in comparison to China’s own infrastructure plans.

A recent study by the Chinese People’s Political Consultative Conference estimated that current plans for urban underground rail lines, including the Shanghai metro extension, could cost $156bn.

Chinese lending has attracted more attention from the World Bank and International Monetary Fund (IMF).

Before the Ghanaian government was able to benefit from a tranche of its $3bn deal with the China Development Bank in April, the IMF delivered the country a waiver because IMF guidelines say that middle-income countries should not take out more than $800m in non-concessional finance in one year.

With elections before the end of the year in Ghana and billions of dollars more in credit facilities available from China Export- Import Bank, the debate on Chinese finance will get more attention.

The government of Niger renegotiated the terms of its $980m loan from China Exim Bank in July to ensure that the interest rate will not exceed 2%.

While China’s win-win strategy is attractive in principle, the Niger case shows that the question of who wins how much can be just as important to the two winners.

Ahead of the summit, Zambia’s foreign minister Given Lubinda called on African countries to negotiate together to get the best deal possible from Beijing, but the results of the summit showed that Beijing is still dictating the terms.

However, the renegotiation in Niger could be a sign of a more robust presence at the negotiating table.