There is nothing particularly surprising about China offering loans to Governments of African Countries or to Other Emerging Markets around the world as part of President Xi Jinping’s signature Belt & Road Initiative (BRI).
What is puzzling perhaps amid the demonstrably questionable public policy judgments and deleterious economic outcomes in the borrowing countries, is that leaders on the continent choose to sign on to carry such debt.
The headlines in the past few months about Zambia’s struggle repaying its debt burden to China, as well as similar struggles by other African States before, is just the most recent case in point.
As the adage goes: “It takes two to tango”
The Chinese do deserve to be commended for their willingness, through the BRI, to make significant investment commitments, especially to develop infrastructure, in many emerging markets an important step in many dimensions that many advanced countries have still yet to grasp.
However, the BRI is not a wholly altruistic program. To some degree that characteristic is not unlike other countries’ initiatives before that of Beijing trying to foster the economic development of nations, although largely outside emerging markets whose economies have been ravaged by wars. Think the U.S. Marshall Plan.
But there are key elements of BRI that stand out starkly as having only the most rudimentary of camouflages for Beijing’s pursuit of unspoken (but not hard to guess) motives, including those that serve to benefit China more than the recipient countries.
Unlike the Marshall Plan, whose financing was heavily tilted toward grants versus loans (the specific mix depended on the recipient country in question), China’s BRI is slanted toward loans (although that is beginning to shift).
Still, when an initiative aimed at supporting emerging markets is largely debt-focused, while a program oriented toward aiding developed countries was mostly grant-driven, it should not be surprising that questions about China’s BRI motives abound.
Part of the answer to those questions lies in the following: Xi’s BRI is China’s vehicle by which it exports the excess capacity of, and the workers employed by, the Communist Party’s lumbering state-owned enterprises (SOEs) to which the Party is holding on for dear life and who it sends abroad, in part, so Beijing gains access to raw materials in emerging markets needed to fuel the Chinese economy.
One may ask: why the grasping on to the SOEs? Put simply, the SOEs are the raison d’etre of China’s Communist Party and the fundamental instruments through which the Party exercises command and control over the Chinese economy.
All of this is exposing BRI’s soft underbelly, the recognition of which should be enough of a hint to BRI recipients in Africa and other emerging markets whether incumbents or prospective, to be leery of the risks of becoming entwined in Xi’s program.
This soft underbelly manifests itself in the initiative’s strategic framework and operations being far more elaborate and complex than those found other countries’ analogous programs, whether those of today or of earlier eras. Indeed, so much so that they are convoluted and excessively bureaucratic. The result is they have morphed into a system that has become self-defeating for Beijing to accomplish the objectives it articulates the BRI is striving to achieve.
Two points are illustrative in this regard.
First, it is becoming clear that in China’s zeal to make loans and initiate construction of its projects and get its transferred workers on the job, it is failing to engage in systematic due diligence about the ability in some cases the willingness of its borrowers to pay back Beijing’s loans.
This is already producing a scattering of large, unfinished or grossly economically inefficient projects not just in China’s immediate backyard in Asia, but beyond, especially on the African continent, where more than 50% of the 60-plus BRI recipient countries are located. BRI projects also have been launched in Latin America (Chile, Ecuador and Peru, among others) and South Asia (Sri Lanka and elsewhere); while most though not all are still nascent, the problems manifested in Africa are, for now, less pronounced.
The situation in Africa reflects, in part, the failure of the Chinese to absorb the lessons from Western countries’ forays into massive economic development projects in emerging markets during the last century, from which the term “white elephant” was coined.
Second, Mr. Xi has been obtuse about both the promotion and implementation of the BRI, which has produced glaring contradictions. The most salient and fundamental of these which should have been obvious to Xi and his comrades is the failure to structure the initiative in a manner consistent with the way China engaged in its economic reforms so effectively in fact brilliantly since 1978: incrementally, collaboratively and through experimentation. These are the key ingredients utilized by Chinese over the past four decades to encourage its own population to believe in and support its reforms.
Indeed, if there is one lesson the Chinese have taught policymakers the world over (though, sadly it is not being practiced currently in the U.S.), is that the probability of policy success rises dramatically when reforms are built on engendering “buy-in” from those directly affected not just the elites in the power structure and that, as new policies enlarge in scope, they should be modified to embody what has and what has not been found to be effective on the ground.
In effect, Xi’s political ambitions for the BRI are lacking “Chinese characteristics”.
The evidence of Xi’s tin ear on this score is arguably most evident in Africa.
As I noted above, the African continent accounts for more than half of the global constellation of BRI recipient countries. In fact, within the continent itself, at last count, BRI programs exist in 36 (or two-thirds of) African states.
This points to the fact that through the BRI, China is laser-focused on trying to shape Africa’s economic development. Of course, China is not the only world power that recognizes Africa’s commercial potential; however, as I have noted elsewhere, China is acting on that recognition far greater than other nations.
Many Africans with whom I have interacted on the continent over the last couple of decades do appreciate China’s willingness to invest there. But the true motives behind the BRI are now being questioned by a large share of them.
They are not buying the notion that the initiative is simply a vehicle for Beijing’s exercise of “soft power”. An increasing swath of the African citizenry deeply resent that decisions regarding project selection and design, the configuration of workers employed, and financing terms for Chinese projects cater only to the interests of the continent’s political elite. They thus correctly view the BRI as exacerbating deep pre-existing domestic social and political stratification.
It is the debt financing terms between the African governments and the Chinese government that are seen as particularly egregious. As of 2020, the countries in Africa with the largest Chinese debt are Angola (US$25 billion), Ethiopia (US$13.5 billion), Zambia (US$7.4 billion), the Republic of Congo (US$7.3 billion), and Sudan (US$6.4 billion). They have a point.
It is bad enough that China’s entities, which are government-owned, not private, entities, do not disclose the terms of their lending to African countries. It is even worse, however, when the African governments choose not to publish the terms on which they borrow these funds from China. After all, terms of loans made to African countries by the IMF, the World Bank and the African Development Bank, all of which are also non-commercial institutions to African countries are routinely made public.
Even worse is when China’s presence affords even seemingly energizes local elites to renege on pre-existing contracts with incumbent foreign investors to Beijing’s advantage, which not only results in massive, expensive investment disputes but also has a lasting effect on souring the reputation and investment climate in the country to attract capital investment from other nations. The on-going investment dispute over Djibouti’s Doraleh Container Terminal epitomizes this point.
On what grounds, could it be a sound public governance practice for African government officials not to be transparent with their domestic citizenry about their sovereign-to-sovereign Chinese loans?
Around the world, government officials who are most revered by their populations, hugely successful ushering in reforms that spur their country’s economic growth, and leave in their wake enviable legacies as great government leaders are those who are always on the lookout for opportunities to instill confidence by engaging in transparent conduct. Any African official, therefore, would do well to tell Chinese official lenders that it is on this basis that they will do business with them under BRI.
To be clear, I am not naïve to think it will be a rare leader of an African country or of many emerging markets who are willing to do this. Even many American businesspeople are naïve or too timid to not push back against demands by foreign governments China’s or any other. But, an African leader behaving in this manner, may well turn out to be surprised if the Chinese react in a more open-minded manner and actually respect them more.
Why is that? The dirty little secret of the BRI whether in Africa or elsewhere is that Beijing is far more desperate for it to succeed than potential recipients actually need BRI to be able to move forward with their economic development objectives.
The proof of that is becoming clearer every day: Xi is beginning to finance more of BRI projects as grants rather than loans. Still, do not underestimate the intoxicating effects on a host country’s elites when foreign investors with ulterior motives dangle opportunities for self-enrichment in front of them.