China’s Strategic Recalibration of Its African Investment Policy

China's Belt and Road Initiative (BRI), launched with ambitious global economic goals in 2013, now stands at a crossroads. Since 2013, China has poured over $1 trillion into the BRI, positioning it as a central pillar of engagement with emerging markets like Africa, Asia, and Latin America. However, concerns surrounding the initiative’s impact, especially in Africa, have prompted China to reassess its engagement on the continent. Reports of non-performing loans and financial distress among recipient countries have prompted Chinese policymakers to adopt a more cautious investment strategy, shifting away from solely state-backed loans. Subsequently, China is transitioning from infrastructure loans to fostering Public-Private Partnerships (PPPs), a strategy that could potentially alleviate Africa's debt burden while diversifying China's regional involvement. This shift towards PPPs could redefine China-Africa economic relations, moving beyond the "debt-trap diplomacy" narrative.

China’s investments in Africa have undergone a dramatic shift in the space of two decades. China invested a total of at least $170.08 billion in terms of loans to Africa between 2000 and 2022, with a notable peak in 2016 when loans soared above $28 billion. However, this trajectory has recently taken a turn, with lending plummeting to only $2 billion in 2021 and 2022 combined. The new shift is marked by a pivot towards smaller, more sustainable projects that promise social and environmental benefits, aligning with President Xi Jinping's 'small and beautiful' investment philosophy.

A Graph showing the changing trends of China’s sovereign loans to Africa between 2000 and 2022. Notice the peak in 2016 before the rapid decline as a result of China’s changing investment policy in the continent from loan-based infrastructure to privatized models. (Source: Chinese Loans to Africa (CLA) *Database, 2023. Boston University Global Development Policy Center.)*

From 2000 to 2016, China's monetary involvement in Africa experienced a significant increase, establishing it as the leading bilateral lender in the continent. China became a favored partner for development due to its non-interference policy and faster loan processing compared to alternative financiers. Critics of Beijing slammed this rapid lending manner, as Brahma Chellaney, Professor Emeritus of Strategic Studies at the New Delhi-based Center for Policy Research, highlighted in his 2017 op-ed that first introduced the concept of "debt-trap diplomacy." Former U.S. Secretary of State Rex Tillerson (2017 - 2018) also infamously criticized China’s debt-led investment in Africa, lamenting that it “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty.”

However, such critics might be misguided in light of China’s evolving policy towards African investments. First, viewing the African debt crisis through the lens of global power competition fails to acknowledge the structural elements of the international financial system that have a profound effect on the financial stability and debt management of African countries. For instance, international financial organizations have disbursed more sovereign loans to Africa compared to China, which contradicts the narrative that China is overburdening African nations with unsustainable loans. At $170.08 billion, China’s estimated total lending from 2000-2022 is only 64 percent of the World Bank’s $264.15 billion in the same period.

Beyond that, the issue lies not with Chinese investments per se, but with the state-centric model of investment that could have played a role in intensifying the debt challenges faced by Africa. China's state-led investments, unlike private sector ventures, are initiated through high-level bilateral or multilateral agreements, such as the Forum on China-Africa Cooperation (FOCAC). These investments often target large-scale infrastructure projects across various sectors, utilizing diverse financial instruments like loans and grants. This state-driven investment style can give rise to issues, such as corruption, limited local engagement, and reduced private investment.

Evidently, China is changing its approach by encouraging private sector investment to help boost the BRI in Africa. The gradual shift in the financial governance of the BRI towards PPPs is a sign that Beijing is keen on introducing a meta-governance model to its investment landscape in the continent with business-centric and market-enabling characteristics that ensure sustainability and risk sharing. During the FOCAC ministerial meeting in Senegal in November 2021, China revealed its intentions to add infrastructure financing options apart from debt, such as PPPs. Dubbed the Dakar Declaration, it was clear that through this new investment model, Beijing was intent on revitalizing the BRI to steer global development away from a China-centric model towards a new stage of balanced, coordinated, and inclusive growth.

True to their word, China has reduced the scale of sovereign loans in Africa from 2016, while at the same time embracing privatized models of investment in the continent. This evolving approach, characterized by the use of BOT (Build-Operate-Transfer) and BOOT (Build-Own-Operate-Transfer) models, could potentially address concerns about unsustainable debt burdens and promote a more balanced and inclusive economic partnership between China and Africa. The latest examples include the Nairobi Airport Expressway in Kenya, completed in 2022 via a public-private partnership between the government of Kenya and China Road and Bridge Corporation (CRBC), and the recent $1 billion investment proposal to revamp the Tazara railway linking Zambia’s Copperbelt to Tanzania which will be later commercialized.

However, it is worth noting that the long-term success of these new partnerships and their impact on African development remains to be seen. In the long run, it is expected that the new privatized model of investments in Africa by China will reduce the continent’s debt burden while also helping African countries diversify their economies, particularly with infrastructure improvement and integration. This strategic pivot not only addresses the critiques of unsustainable debt practices, but also aligns with Beijing’s intent for more transparent, efficient, and mutually beneficial development partnerships.

Martin Nkonge is an Analyst at Botho Emerging Markets Group

China’s Strategic Recalibration of Its African Investment Policy

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